When you buy stocks or shares of a loaded mutual fund, you'll pay for more than just the shares that go into your portfolio. You'll also pay a fee to the broker or sales agent you went through to complete your purchase. The Internal Revenue Service considers that fee to be a part of the cost of doing business that is not tax deductible.
What's in a Name
Sales charges can go by a lot of different names. For example, your mutual fund might call it a front-end load, a sales charge or simply a load. Your investments broker might call it a commission or brokerage fee. Regardless of what it's called, you can't deduct any fee you pay to acquire stocks, mutual funds or any other type of investment property when you file your federal income tax return.
While stock sales charges and mutual fund loads aren't tax deductible, they can be used to provide some tax relief. Instead of taking a direct tax deduction, you can add the amount of the fees to the price you paid for your stock or mutual fund shares, which increases your cost basis. This won't help your current income tax situation, but it will come in handy once you decide to sell your shares. The increased cost basis will reduce your capital gains if you sell your shares at a profit, or it will increase the amount of your capital loss if you sell your shares at a loss.
You don't need to report your stock or mutual fund purchases to the IRS when you make them, but you should maintain good records indicating when you made each purchase, the purchase price and the amount of any sales charges or loads you paid. You'll need this information when you report your capital gains or losses once you sell, and it will help you determine whether any gains are short term or long term. Report your capital gains and losses on Schedule D of IRS Form 1040.
Traditional Individual Retirement Accounts
Stock commissions and mutual fund loads aren't tax deductible, but you can buy stocks and mutual funds in your traditional IRA without incurring any current federal income tax liability. You may also qualify for the added benefit of being able to deduct the amount of your annual IRA contribution, up to $5,500 for the 2013 tax year, or up to $6,500 if you are at least 50 years old.
- IRS: Publication 550, Fees to Buy or Sell
- Securities and Exchange Commission: Mutual Fund Fees and Expenses
- IRS: Publication 590, What's New for 2013
- U.S. Securities and Exchange Commission. "Investor Bulletin: Mutual Fund Fees and Expenses," Page 3. Accessed May 18, 2020.
- U.S. Securities and Exchange Commission. "Fast Answers: Mutual Fund Fees and Expenses." Accessed May 18, 2020.
- U.S. Securities and Exchange Commission. "Investor Bulletin: Mutual Fund Fees and Expenses," Page 6, 7. Accessed May 18, 2020.
- U.S. Securities and Exchange Commission. "Distribution [and/or Service] (12b-1) Fees." Accessed May 18, 2020.
Mike Parker is a full-time writer, publisher and independent businessman. His background includes a career as an investments broker with such NYSE member firms as Edward Jones & Company, AG Edwards & Sons and Dean Witter. He helped launch DiscoverCard as one of the company's first merchant sales reps.