Did you know that you can (and should) deduct commissions paid to brokerages from your net capital gain for tax purposes?
The expenses incurred in purchasing or selling a capital asset (stock, in this example) are capital expenses and are required to be added to or subtracted from the basis (or cost, for tax purposes) of the stock.
Let's say you buy $3,000 of stock and pay $50 in commissions and other charges. Your actual cost is $3,050. You sell the stock later, when it's worth $4,000, paying another $50 to the brokerage. Your "net" sales price, or proceeds (generally, the amount reported to you by your broker at year-end on your Form 1099B), would be $3,950 ($4,000 less $50). On your tax return, you would report a gain of $900 ($3,950 less $3,050 equals $900.)
Note that you've not had to pay tax on that $100 in commissions -- so you've probably saved at least $20. This might not seem like that much, but if you have 10 such transactions in one year, that's $200. In 10 years, it would amount to $2,000. Small amounts add up.
Learn more in our Tax Center and our Tax Strategies discussion board. Also useful is the IRS website.
By the way, if you'd like to receive several promising stock ideas delivered via email each month, learn more about our suite of investment newsletters, which we offer along with some free research reports. The newsletters' performance may surprise you.
You can also learn all about brokerages and find one that's right for you by going to our Broker Center. (Did you know that some well-regarded brokerages are offering commissions as low as $5?)
