If you buy and sell stocks on a regular basis, you are probably quite familiar with the service fees that many brokerage firms charge for the convenience of their services. Although these fees are an unfortunate reality in the world of investing, there is one silver lining: any fees that you pay to your broker as part of the buying and selling of stocks can be deducted on your 1040 Schedule D Form.
Finding Your Investment Type
In order to ensure that you complete the necessary forms correctly, you must first determine whether your investments qualify as long- or short-term investments. If you have held a particular stock for more than one year, it will be considered a long-term investment. Similarly, if you have held a stock for less than one year, it will be considered a short-term investment. Depending upon the classification of your investment, you will report your 1040 capital gains using one of two methods.
Looking For the Appropriate Form
If your service fees are part of a short-term investment, you will complete all of the form fields included in Part 1 of Sch D and Form 8949. Note, however, that this particular section of these forms is compatible only with short-term investments. If your investment is long-term, you can follow the Form 8949 instructions included in Part 2 of this document, as well as the corresponding section in Schedule D of Form 1040.
Obtaining the Necessary Information
In order to complete your forms correctly, you will need a variety of information, including not only the amount of the service fees you paid, but also the sale price of the investment and, if appropriate, the basis of the investment as described on Form 1099-B. Only with this data will you be able to successfully complete your tax forms. As always, it is strongly recommended that you consult with a tax professional if, during this process, you have any questions about your specific filing requirements. Failure to complete your forms correctly could result in hefty fines or penalties.
Reporting Your Service Fees
As mentioned previously, you will use Form 1040 Schedule D and Form 8949 to take advantage of the deductions available to you with respect to your investment service fees. Depending upon your yearly investment activity, these deductions may be smaller or larger than you had anticipated. Regardless, they represent a quick and easy method for reducing your yearly tax burden and ensuring the best possible savings.