If you have expenses related to the earning of taxable income, you may also have some valuable tax deductions. The Internal Revenue Service sets down the rules on deductible investment expenses, including interest expense, fees and commissions. But expenses are not the same as investment losses that can offset any capital gains you may have.
Investing money takes time, attention and patience -- as well as some additional expenses for brokers and account services. The general IRS rule is that expenses related to the earning of taxable income is deductible. This could include broker or management fees charged by your account custodian, as well as software you use to handle your account, subscriptions to investment magazines or newsletters or fees for access to premium services such as real-time stock quotes.
You take investment expense deductions as an itemized deduction on Schedule A of Form 1040. The total amount is included in Job Expenses and Miscellaneous Deductions, on Line 23 of the form. Only the amount over 2 percent of your adjusted gross income is deductible. For example, if your AGI is $100,000, and your miscellaneous deductions total $4,000, only $2,000 of this amount can be deducted.
If you borrowed money to invest, the IRS allows you to deduct any interest you paid. The most common example would be a margin loan from your broker. Instead of putting up the full amount of the investment, margin allows you to place half (or more) of your money up for the buy. The broker loans the balance and charges interest until the loan is repaid. Only interest on money used for taxable investments is deductible, and the IRS limits the deduction to your net investment income for the year. If your investment interest cost exceeds your net income, you may carry over the cost deduction to the next tax year.
A commission on an individual trade is not included in your investment expense deductions. Instead, this becomes part of your cost basis. When you eventually sell the investment, any commission charged is subtracted from your proceeds. On both ends of the trade, commissions thus help to lessen the capital gain amount that is subject to taxes or increase the capital loss that can offset gains on other investments.