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Accounting fees are tax deductible


Dear Tax Talk,
Are brokerage commissions tax deductible? How about the fee I would pay for my accountant to do my taxes? Thanks for your help. -- Lea

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Dear Lea,
I always welcome the opportunity to remind readers that my accounting fees are tax deductible. And they're deductible in the year paid, so that always encourages clients to get me the checks around the holidays.

Tax preparation fees that do not relate to a business return are miscellaneous itemized deductions on Schedule A, line 21. If the fees relate to a business return, then they're deducted on the appropriate form or Schedule of the business, such as Schedule E for independent contractors and sole proprietorships.

Brokerage commissions are treated differently. Historically brokers have charged a fee for trading that was either added to the cost of purchasing stock or deducted from the proceeds of a sale. These brokerage fees were deducted when the acquired stock was sold, forming part of the cost of the shares and reducing the proceeds.

Lately, brokers have become money managers and now earn fees based on the value of the managed money and earn little or nothing on the trades. In a moment of generosity, the IRS has allowed these brokerage fees to be deducted as miscellaneous itemized deductions on Schedule A, just like my accounting fees.

Why is this generous? It's generous because you may not have sold anything in your portfolio, although it may have gained in value. Yet you still can secure a current deduction that previously was deferred until the taxable sale. If you have nontaxable investments in your portfolio, such as municipal bonds, the portion of the broker's fees that relates to these investments is not deductible.

-- Posted: Jan. 22, 2004




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