Can I Deduct the Service Charges for an Investment?

by Herb Kirchhoff

The Internal Revenue Service (IRS) allows you to deduct service charges, fees and other expenses you must pay to produce and collect taxable income from an investment in stocks, bonds and other property. But the IRS won’t let you deduct service charges or other fees and expenses you paid to produce tax-exempt investment income.

Income Exclusion

Investment-related service charges and fees are classified as a miscellaneous deduction that is subject to the 2-percent income exclusion applied to all miscellaneous deductions. That means you can only deduct miscellaneous items that exceed 2 percent of your adjusted gross income. For instance, if you had $50,000 in income and $1,500 in investment service charges and other miscellaneous deductions, you would have to subtract $1,000 (2 percent of $50,000), leaving you with a $500 deduction.

Deductible Charges

You can deduct the fees you must pay to a broker, bank or other agent to collect taxable stock dividends or bond interest. However, you can’t deduct fees paid to an agent to buy or sell stocks, bonds or other investment property. You have to add those fees to the cost of your investment. You also can deduct custodial, trust or administrative fees you paid to a broker or other agent to manage investment accounts that produce taxable income.

Reinvestment Fees

Other investment-related deductions include service charges you must pay under a dividend reinvestment plan. Deductible charges include fees for holding acquired securities, collecting and reinvesting cash dividends, keeping account records and providing you with periodic statements of accounts. You can deduct any administrative fees that you must pay out of pocket to the trustee managing your individual retirement arrangement (IRA), but you can’t deduct broker commissions paid in connection with buying or selling IRA investments. You can deduct investment expenses charged to you by a private mutual fund. Publicly-traded mutual funds deduct investment expenses from your gross proceeds, reporting only your net to the IRS, so you can't deduct those expenses.

More Deductions

You can deduct the cost of office space, clerical help and computer equipment that you use to manage investments that produce taxable income. You also can deduct the costs of a bank safe-deposit box if you use it exclusively to store securities that produce taxable income, or to store investment-related papers and documents. You can deduct lawyer's fees, court costs and other legal expenses you incurred to produce or collect taxable investment income, and legal expenses you incurred to determine, contest, pay or obtain a refund of taxes on your investment income.