There are two types of broker's fees. One type is deductible and the other isn't, at least not on schedule A. However, that doesn't mean you won't take it off your profit or increase the losses. The second type of brokerage fee is the type you pay when you either buy or sell a stock. This is a capital expense, rather than a deduction.
If you have annual fees for an IRA, brokerage account, brokerage management fees or other types of fees not associated with the purchase of a particular stock or bond, these are deductible under the miscellaneous section of schedule A. You have to itemise your deductions in order to take this type of fee off your taxes. Deducting this fee might result in paying more taxes or getting a smaller refund if you don't have at least £3,705 for singles, £7,410 for married filing jointly or £5,460 for head of the household in other deductions, since these are the standard deductions you take in 2010 without itemising.
Buying and Selling Fees
Fees you pay to the broker or online site when you purchase or sell a stock are not a deduction but a capital expense. That means they are part of the basis, the amount you paid for the stock or deducted from the sale price, thus lowering your profit. You don't actually show them on your tax form but they come into play when you sell the stock and realise the profit or loss.
Broker's Fees from a Purchase
When you purchase stock, you add in the cost of the broker's fee to the price of the stock. If your stock cost 60p per share and you purchased £130 in shares, your basis, cost per share is still 60p. However, if you had a £13 charge for brokerage fees, you have to divide that by the number of shares, 200, and add the results to the price of each share to find your basis. This results in adding 10 cents to each share. Your correct basis in this case, is 70p to reflect the brokerage cost.
Fees from the Sale
When you sell a stock, the brokerage house makes it simple for you; they subtract the brokerage fees from the proceeds. To find how much you made or lost from a sale, you simply divide your proceeds by the number of shares you sold. If you sold 100 shares of the same stock you purchased for 60p a share plus the 0 per share for purchase fees, for £71, you'd only receive £58 after the company removed £13 for the brokerage fee to sell the stock. That means you made 50p a share when you divide by the 100 shares. If your basis, the price you paid for the stock was 70p when you included brokerage fees, you lost 10p a share or £13 from the sale of 100 shares.
- Tax Policy Center.org: 2010 Individual Income Tax Rates, Standard Deductions, Personal Exemptions, and Filing Thresholds: Source: Joseph Pechman
- Day Trading: Can I Deduct the Broker's Expense From Stock Profits When I File My Taxes?
- The Trusted Professional: IRS Considers Nixing Wrap Strategy
- Generation X Finance: Questions From Readers: Can I Deduct Brokerage Commissions Paid to Trade Stocks For Tax Purposes?
- Statesman.com: Taxpayers' priority: Finding deductions