Investment Income: What is Deductible and Taxable in Chicago?
When discussing the taxes on investment income, the first step is to understand
what qualifies as investment income. In most cases, investment income
refers to money that is used to buy stocks, bonds or properties for investment
purposes. A lot of people forget that they can deduct investment fees
or related expenses through the miscellaneous deduction sections of the
IRS tax filing forms. Here is a look at the specific investment expenses
that count towards deductions.
Fees:
If you have any fees that you pay your financial manager or real estate
agent, these are tax deductible. For example, if someone buys a real estate
property and pays a certain percentage in fees to the agent, they are
eligible for a deduction solely on those fees.
Similarly, any fees paid to accountants, lawyers or other individuals
who take care of matters related to your investments are deductible under
the same code. Even the money it costs to rent safety deposit boxes to
keep your investment-related documentation qualifies as a deduction.
Some investment plans come with fees that are paid every month or every
year. These are deductible. However, any money you pay in commissions
to traders who buy and sell stocks on your behalf is not tax deductible.
Expenses:
When someone gets their investment done through a mutual fund or a similar
partnership, they are eligible for deductions on the costs of doing business
with that entity. Mutual funds often charge fees and markups for their
services, which you can deduct on your tax forms.
If you need to get new certificates for your securities investments, this
qualifies for tax relief. Even the money you pay for a newsletter or website
subscription to keep track of stocks, bonds or market trends is deductible.
Any money that goes to an investment advising firm falls under the same
umbrella. If you are paying commissions to a trustee who handles your
trust, deduct this money as well.
It is important to remember that these fees and expenses are only tax deductible
if the resulting investments are producing income that is taxed. Be sure
to talk with whoever is managing your finances about the tax situation
regarding the money they are investing for you. If this money is not bringing
taxable income, you are not eligible to deduct the fees relating to those
transactions.
In some cases, the money someone invests on your behalf may result in
taxable income, along with money that does not fall under a tax bracket.
In this case, the fees must be divided proportionally between those services
and deducted accordingly.