How JustAnswer Works:
  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.
Ask Lane Your Own Question
Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 10130
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
1929974
Type Your Tax Question Here...
Lane is online now
A new question is answered every 9 seconds

When allocating management fees from a broker's statement

Customer Question

When allocating management fees from a broker's statement between taxable and tax exempt income are capital gains/losses included in the computation of total income?
Submitted: 8 months ago.
Category: Tax
Expert:  Lane replied 8 months ago.

Hi Doug ... both capital gains/loss AND qualified dividens can be used ... IF ... you make a special election to treat them as ordinary income.

...

To calculate your net investment income—and therefore how much investment interest expense you can deduct—add up your taxable interest income, ordinary dividends (and again, even long-term capital gains and qualified dividends if you make the election to treat them as ordinary income) ...

...

... then, subtract any investment-related miscellaneous itemized deductions you actually get to use.

Expert:  Lane replied 8 months ago.

From a great overview on this:

...

Investment-related expenses that you CAN deduct:

...

  • Fees for investment counsel and advice, including subscriptions to financial publications
  • IRA or Keogh custodial fees, if paid by cash outside the account
  • Software or online services used to manage your investments
  • Safe deposit box rent, if used the box to store certificates or investment-related documents
  • Transportation to your broker’s or investment adviser’s office
  • Attorney, accounting or clerical costs necessary to produce or collect taxable income
  • Charges for automatic investment services and dividend reinvestment plans
  • Costs to replace lost security certificates

...

Investment-related expenses that can't be deducted:

...

  • Trading commissions—these are "capitalized" to increase your cost basis and/or reduce your taxable sales proceeds
  • Costs of traveling to attend a shareholder’s meeting
  • Investment advisory fees related to tax-exempt income—you generally need to prorate these fees based on the portion of tax-exempt investment income versus total taxable investment income
  • Borrowing costs associated with life insurance
Expert:  Lane replied 8 months ago.

Qualified dividends that receive preferential tax treatment aren't considered investment income for purposes of the investment interest expense deduction. *

...

However, you could elect to treat qualified dividends as ordinary income (just as you can with net long-term capital gain income) to boost the amount you can deduct as investment interest expense.

...

The idea here is that it's better to pay 0% tax on qualified dividends than 15% or 20% tax.

Expert:  Lane replied 8 months ago.

If you have $10,000 of qualified dividends and/or capital gains, you could pay 15% (or 20%) tax on them, or you could elect to treat those dividends as ordinary income and boost your net investment income from, by, lets say, $10,000 ... (meaning that you could now deduct up to $10,000 in investment interest expense in the current year.)

Expert:  Lane replied 8 months ago.

I hope this has helped.

...

Please let me know if you have any questions at all.

...

If this HAS helped, and you DON’T have other questions … I'd really appreciate a positive rating (using the rating request, faces, or stars on your screen)

...

That's the only way I'll be credited for the work here.

...

Thank you!

Lane

I hold a JD (Juris Doctorate, a doctoral degree in the law), with concentration in Tax Law, Estate law & Corporate law, an MBA, with specialization in finance & tax, as well as CFP® and CRPS designations. - I’ve been providing financial, Social Security & Medicare, estate, corporate & tax advice since 1986.

Expert:  Lane replied 8 months ago.

Hi,

...

I’m just checking back in to see how things are going.

...

Did my answer help?

...

Let me know…

...

Thanks

Lane

Related Tax Questions