Tax Deduction for Investment Expenses

It is important to classify how investment income and investment expenses are to be reported on your tax return. Investors trade mainly for their own account and do not carry on a trade or business. Their securities sales mostly result in capital gain or loss and their tax deductible investment expenses are itemized tax deductions on their tax return. Dealers usually sell securities to customers in the ordinary course of trade or business and their sales often result in ordinary gain or loss and their tax deductible investment expenses are trade or business expenses. Traders buy and sell securities frequently but have no customers for their trade. Their purchases and sales result in capital gain and capital loss, and their tax deductible investment expenses come under trade or business expenses.

Tax deductible investment expenses include fees for record keeping, expenses for proxy fights, fees for collecting taxable investments and dividends, legal and administration fees, premiums for indemnity bonds for replacing missing securities, salaries of persons hired to keep records of your taxable investment income and subscriptions to investment services. The distinction of whether the activities of a person constitute trade or investment is decided by tax court cases sometimes.