Investment Expense Tax Deduction – Which Fees Can You Deduct?

If you have investments and you itemize deductions on Schedule A, you may be able to deduct certain expenses. This can save you thousands come tax time. Importantly, only certain investments qualify. There are plenty of exceptions and the exact value can vary by item and situation.

This article will cover:

For help with other issues, check out our complete Tax Guide.

The broad rules for deducting investment expenses can be summarized briefly. The deductible expenses must be:

More specifically, you can deduct the following:

In order to deduct expenses, investments must meet the broad rules listed above. Plus, the expenses cannot be excessive. To summarize:

Custodians of 401(k) or traditional IRA accounts frequently charge custodial fees, such as an annual maintenance fee. These fees are most often deducted from the money in your account. That is good because you are paying the fees with pre-tax money. But, you cannot take the fees as a deduction for the same reason: it was paid with pre-tax money. Some financial management firms allow you to pay the fees directly from outside the account. In that case, you are paying with money that has already been taxed, so the fees would be deductible. Plus, the IRS does not consider the payment of the fee as an additional contribution to the retirement account.

In the case of a Roth IRA, the money in the account is after-tax money, so any custodial fees that might be charged by the financial management company and deducted from the account can be deducted.

There are a number of investment expenses that do not qualify. We have mentioned some of them, but you also cannot deduct:

See IRS Publication 550, Investment Expenses for the complete list of examples.

Your miscellaneous expenses must exceed 2% of your adjusted gross income in order to be deductible. Since that is frequently a high threshold, you may have assumed your expenses were not deductible, so you didn’t keep track of them. However, there is quite a list of potential miscellaneous deductions, so it may well be worthwhile to revisit line 23 on Schedule A to see if a portion of your expenses is deductible.

For help with other tax-related issues, check out our complete Tax Guide.

Categories: Investing, Money Management, Taxes

Gary’s extensive professional background varies from small business owner to school administrator. Most recently, he has been involved in taxes, first as a certified preparer, and later as a tax software developer. He is currently licensed to practice before the IRS, volunteers as an instructor for AARP’s Tax-Aide program, and has his own tax practice.

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Investment Expense Tax Deduction – Which Fees Can You Deduct?

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