Taxpayer wants to get into option trading. But he has no experience in it at all. So he attended a seminar and subscribed a course about that topic. He paid $3,000 for it in 2006. Is the $3,000 deductible as an investment expense itemized expense in his schedule A (subject to the 2% AGI limitation)?
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Investment seminar expenses are nondeductible under Section 274(h)(7).
The only exception is if the expenses are connected to a trade or business. -
Thank you for your response. So where do they draw the line between what can be claimed as investment expense and what cannot be claimed? Like if a taxpayer subscribes an investment newsletter which gives advice on which stocks to invest on, is it a deductible investment expense?Originally posted by Bees Knees View PostLast edited by NotEasy; 08-30-2007, 04:11 PM.Comment
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Investment Expense
IRS Publication 550 may provide you with the guidance you want...
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It's a good question.Originally posted by NotEasy View Post
As Bees said, an investment seminar is specifically listed as nondeductible in the code. Section 274 talks about nondeductible "entertainment, etc." The theory is trying to separate out expenses that are inherently personal vs. expenses that are directly related to producing income. Some things, like investment seminars, may not appear fit cleanly on either side of the line. That's often the reason why they're specifically listed.
The same concept applies to medical expenses. You can deduct costs incurred for a specific condition, such as medicine. However, you can't deduct the cost of items that merely improve general health.
It's also the same concept as capitalizing expenses. If you buy a building, the cost of appraisals, title costs, and legal expenses represent direct costs of buying the property, and are therefore capitalized and added to basis. On the other hand, interest, property taxes, insurance, etc., are costs associated with holding the property, not a cost of the property itself and are deducted currently.
I think what they're getting at with allowable/unallowable investment expenses is that if you can tie an expense to a specific investment, as part of the cost of that investment, it's deductible - broker fees, etc.. If it's to enhance your overall financial health, such as an investment seminar, it's not deductible.
From Pub. 550:
"The expenses must be directly related to the income or income-producing property, and the income must be taxable to you."
"Investment counsel and advice. You can deduct fees you pay for counsel and advice about investments that produce taxable income. This includes amounts you pay for investment advisory services."
Except seminars.Comment
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