The Securities and Exchange Commission advises investors to be aware of the significant impact that broker’s fees and costs can have on investment returns. For example, broker fees of 0.5% can eat up to $10,000 over the life cycle of a $100,000 investment over 20 years: the higher your fees, the lower your portfolio value.
Naturally, a common concern from investors is “are brokers fees tax-deductible” and how to claim tax relief. The answer is that brokerage fees and other investment fees are tax-deductible in certain instances.
Brokerage fees are the charges that brokers levy for the services they provide their clients. These services include publishing reports, giving investors access to trading platforms, advising clients, or just maintaining your account.
There is no legally stipulated brokerage fee, so investors have to shop around for low-fee brokers while considering the quality of services offered.
Are Brokers Fees Tax Deductible?
Commission fees and other fees associated with investing are capitalized and therefore are not tax-deductible.
However, account maintenance fees, investment advisory fees, finder’s fees, and other management fees are tax-deductible, although you can only claim tax relief within the fiscal year in which the fees were charged.
Other Non-Deductible Expenses
According to the Tax Cut and Jobs Act of 2017, any form of transaction fee is not tax-deductible. Thus, in terms of your final costs, the real price of a stock has to include your brokerage fees. So you can no longer directly get tax relief, but by including these fees as part of the purchase price of stocks, you reduce the taxable income as defined by the Internal Revenue Service.
Management Fees
Deductions are only permitted for those expenses that arise from your income. For example, planning fees are not tax-deductible, nor are estate planning and tax strategies.
Cost of attending investment seminars, trade shows or conferences
Regardless of whether you own a stock or are looking to buy, travel expenses associated with investing are not tax-deductible.
Investment Fees
You can only get tax relief for interest expenses up to your net investment income value. Beyond that, you cannot apply for tax deductions.
Summary
The Tax Cut and Jobs Act eliminated miscellaneous itemized deductions. Instead, they cemented the principle that transaction costs are non-tax-deductible, but the costs of holding an investment and improving your decision-making are.
This is because the government wants to improve transparency, liquidity, and investor education, and so associated costs are tax-deductible.
