In the course of managing your portfolio of stocks and other investments, you’ll probably incur expenses that are tax-deductible. The tax laws allow you to write off certain investment-related expenses as itemized expenses on Schedule A — an attachment to IRS Form 1040. Keep records of your deductions and retain a checklist to remind you which deductions you normally take. IRS Publication 550 (“Investment Income and Expenses”) gives you more details.
Investment interest
If you pay any interest to a stockbroker, such as margin interest or any interest to acquire a taxable financial investment, that’s considered investment interest and is usually fully deductible as an itemized expense.
Keep in mind that not all interest is deductible. Consumer interest or interest paid for any consumer or personal purpose isn’t deductible. For more general information, see the section covering interest in IRS Publication 17.
Miscellaneous expenses
Most investment-related deductions are reported as miscellaneous expenses. Here are some common deductions:
Accounting or bookkeeping fees for keeping records of investment income
Any expense related to tax service or education
Computer expense — you can take a depreciation deduction for your computer if you use it 50 percent of the time or more for managing your investments
Investment management or investment advisor’s fees (fees paid for advice on tax-exempt investments aren’t deductible)
Legal fees involving stockholder issues
Safe-deposit box rental fee or home safe to hold your securities, unless used to hold personal effects or tax-exempt securities
Service charges for collecting interest and dividends
Subscription fees for investment advisory services
Travel costs to check investments or to confer with advisors regarding income-related investments
You can deduct only that portion of your miscellaneous expenses that exceeds 2 percent of your adjusted gross income. For more information on deducting miscellaneous expenses, check out IRS Publication 529.
Donations of stock to charity
What happens if you donate stock to your favorite (IRS-approved) charity? Because it’s a noncash charitable contribution, you can deduct the market value of the stock.
Say that last year you bought stock for $2,000 and it’s worth $4,000 this year. If you donate it this year, you can write off the market value at the time of the contribution. In this case, you have a $4,000 deduction. Use IRS Form 8283, which is an attachment to Schedule A, to report noncash contributions exceeding $500.
To get more guidance from the IRS on this matter, get Publication 526, “Charitable Contributions.”
What you can’t deduct
Just to be complete, here are some items you may think you can deduct, but, alas, you can’t:
Financial planning or investment seminars
Any costs connected with attending stockholder meetings
Home office expenses for managing your investments
