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Investment Tax Deductions You May Have Overlooked

Ways to Lower Your Investment Taxes Even Further

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There are a number of investment tax deductions the investor might overlook when calculating year-end investment returns. This simple guide is designed to help you discover some of the investing tax deductions you may not have known existed.

Investment Management, Accounting, and Legal Advice Fees

Although you can’t deduct the commissions you pay on investments – those are added to the cost basis and eventually used to calculate your capital gains taxes – you can take a tax write-off for the money you pay to portfolio managers, the cost of professional advice from accounts, and legal guidance from your attorney. As your investments grow, this will inevitably increase to a larger and larger portion of your total costs, helping you keep more money in your pocket, while utilizing the professional experience of specialists. Think of it as Uncle Sam picking up a portion of the tab.

Safe Deposit Box Rental

Do you actually store your investments in physical form such as paper stock certificates? If you keep a safe deposit box at a local bank to protect your investments, you can deduct it as an expense on your taxes.

IRA and Other Retirement Account Fees

Do no have these fees taken out of your retirement account because they won’t be deductible! Instead, pay for them each year by writing a check to your financial institution. Your pocket book will thank you as you examine your lower tax bill.

Investment Newsletters, Magazines, and Publications

Can’t live without your daily Wall Street Journal? How about Fortune, Forbes, or The Financial Times? Keep your receipts and you can write them off your taxes as a business cost! There is a limit on many of these expenses. Investment deductions cannot exceed 2% of your adjusted gross income.

Investment Interest Expense

The Internal Revenue Service allows a deduction for investment interest expense, which includes margin interest expense you pay for money borrowed to purchase investments such as stocks or bonds. There are very, very strict rules that must be followed. For one, you can only deduct investment interest expense up to the limit of your “net investment interest”. This includes non-qualified dividends and capital gains (you can include qualified dividends, which are those that pay only the lower 15% rate established by the Bush tax cuts but then you give up their special qualified status and would have to pay your regular tax rate on them in any amount exceeding your margin interest expense). You also have to deduct any investment expenses such as those we’ve already discussed. The result, net investment income, is the maximum amount of margin expense you can write-off. You may need to consult with your CPA or other qualified professional tax representative to help you calculate and understand your options based on your personal resources and activities.

Don’t worry if you can’t utilize all of your investment interest expense deduction in the current year. In many cases, it can be carried forward indefinitely and used in future years.

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