Basics:

Deducting Investment Costs

Your client does not need to be a full-time investor in order to reap the benefits associated with deducting the cost of investing. Whether he/she is a part-time investor with a full-time job outside of investing, a part-time investor who is self-employed and works in their home or an active investor with no other job, they may be able to deduct costs associated with investing.

What criteria must one meet in order to be able to take advantage of deducting investments costs? These deductions, along with your client's other miscellaneous itemized deductions, must exceed 2% of their adjusted gross income before they use these costs as a deduction on their tax return. Unfortunately, most people do not incur this much in investment expenses alone to be able to take the deduction. Even if your client does meet this requirement, their write-off may not turn out to be as valuable as they thought. If their adjusted gross income exceeds $128,950 for joint filers or $64,475 for single filers, they will lose three cents of every deduction dollar for dollar. Lastly, if your client falls under alternative minimum tax guidelines, these miscellaneous itemized deductions are completely disallowed and they will get little or no tax benefit.

What exactly are investment interests and what can and cannot be used as a deduction? Investments expenses are outlays for things like fees for professional investment advice, subscriptions for investment-related publications, accounting and legal fees related to investment activities, the portion of your client's ISP charges incurred to follow and trade investments, their home computer, possibly even their home office if they qualify.

Expenses your client cannot deduct include the following:

  • Costs related to tax-exempt securities
  • Trading commissions
  • Travel costs and attendance fees related to attended investment conventions