Can you deduct commissions paid to brokerages from your net capital gain for tax purposes? Yes, you can -- and you must. The expenses incurred in purchasing or selling a capital asset (stock, in this example) are capital expenses, and must 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 commission 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 haven't 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. The IRS website is also useful.
