So you didn't mention "how" you are supposed to adjust this cost basis? Are you to raise the cost basis by the $20 fees or ? My net proceeds come across with the net - my cost basis has the fee added in, but of course they reduced my sale proceed by the fee as well. I just want to make sure I'm getting all of the fee deductions and that I'm accounting for them properly. Please elaborate.
A reader recently sent an email asking whether or not they can deduct the commissions they paid to trade stocks within their brokerage account. Since this is a great question that may apply to others I figured it would be a good idea to address it on the site. So, can you deduct commissions paid to brokerages for tax purposes?
Ultimately, the answer is yes, but not in the normal sense of your typical itemized deductions as you would see on Schedule A. But first, why do these commissions receive special tax treatment? The reason is that when you purchase stock you are obtaining a capital asset. To obtain this capital asset there are capital expenses. These associated expenses can then be used to adjust the cost basis for tax purposes. So, while you don’t specifically itemize the individual commissions they are automatically adjusting your cost basis which reduces the value of the capital gain when the stock is sold.
Let’s say you want to buy 150 shares of a stock that is trading at $20 per share. This would cost you $3,000. On top of the actual cost of the stock your brokerage charges a commission of $20 for the trade. Your actual cost to obtain this stock is $3,020.
Assuming the stock goes up in value to $25 per share and you decide to sell, your stock position is worth $3,750. To place the sell order your broker again charges a commission of $20. When you subtract the sales commission from $3,750 you end up with a net sale of $3,730.
So, while the actual captain gain of the stock from purchase price to sale price is $750, your actual net proceeds or taxable gain is only $710 ($3,730 – $3,020) . This net sales price is generally what is reported to you by your broker in your annual 1099B form but it is important to make sure you are accounting for the commissions when reporting your capital gains at the end of the year. Again, you don’t have to go back and add up all of your trading commissions and itemize those on your return, but instead they are adjusting your cost basis at the time of the purchase and sale.
One thing to note is that this only applies to regular taxable accounts. Commissions generated by trades inside a tax-qualified account such as traditional or roth IRAs don’t matter. Since you are not tracking capital gains or losses within these accounts there is no need to worry about these fees from a tax perspective. That doesn’t mean you shouldn’t pay attention to fees and commissions on trades in these accounts though because it is still important from a standpoint of understanding your real return after expenses.
Also, with commissions as low as they are today this probably doesn’t amount to a whole lot of money for most people. Even though it may not be a large dollar amount it is still important to make sure you are capturing the correct cost basis and also to make sure you aren’t double dipping. I have encountered clients in the past who were getting adjusted net proceeds 1099B forms and on top of that they were itemizing their trading costs which included commissions. This is a great way to grab the attention of the IRS.
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About the Author: Jeremy Vohwinkle is a Chartered Retirement Planning Counselor® and spent a few years working as a financial planner. Today, he helps people make the most of their money by writing about personal finance here and elsewhere on the web. Jeremy is also Coach at Adaptu and a regular contributor for other publications such as Intuit, and American Express. Be sure to follow Jeremy on Twitter or Google+.
Can you deduct year end broker fees to manage your account? How about if those fees are to manage your IRA?
Is there a difference in the method of handling if the fees are paid by check to the Broker or if they are deducted from the account?
re brokerage fees that are charged quarterly as a financial management fee and not for each trade....i know its deductible on schedule A under miscellaneous but given that the amounts dont exceed 2% if the AGI in effect i dont get the deduction....is there another area of the tax return that i can deduct these brokerage fee
Most people think of futures, to be similar to gambling, involving large amounts and risks. While the existence of risks cannot be denied, it is still known to be one of the most popular forms of trading. Future contracts, as the name suggests, are decided for a particular period for certain commodities. These commodities include expensive metals like gold, copper, or currencies, or agricultural commodities like rice, wheat, etc.
(managed futures) http://www.kisfutures.com