What Are Investment Expenses and Which Are Tax Deductible?

Investment expenses include costs tied to managing or producing investment income, such as advisory fees, custodial fees and research subscriptions. But can you deduct investment-related expenses on your tax return? Most miscellaneous itemized deductions, including investment expenses, were suspended through 2025 by the Tax Cuts and Jobs Act and remain disallowed under current law. This means that, for now, individuals can no longer claim these costs on Schedule A.

A financial advisor may be able to provide tax planning advice, along with portfolio management services. Connect with an advisor today and see how they may help.

What Are Investment-Related Expenses?

Investment-related expenses are costs tied to owning, managing or trading investments. These may include management and transaction fees. Account maintenance charges, such as annual or inactivity fees, also fall into this category. The amount you pay can depend on the types of investments you hold, how actively you trade, and the services offered by your brokerage or advisory firm.

Other potential costs include subscription fees for investment research, legal or tax advice related to your investments and certain software or technology used to monitor your portfolio. While these expenses vary in nature, the IRS typically classifies these expenses as miscellaneous itemized deductions when claimed on a personal return.

Can You Deduct Investment-Related Expenses?

Most investment-related expenses, including advisory fees, brokerage charges and research subscriptions, were once deductible as miscellaneous itemized deductions. Prior to 2018, these could be deducted on Schedule A, but only to the extent they exceeded 2% of adjusted gross income.

However, the Tax Cuts and Jobs Act suspended these deductions for tax years 2018 through 2025. The One Big Beautiful Bill Act (OBBBA) then permanently suspended them. This means that individual investors can no longer deduct these expenses unless they qualify as part of a business activity.

Traders may deduct these costs as business expenses on Schedule C. For typical investors, however, these costs are currently not deductible for federal tax purposes.

How Investment Expenses Can Impact Your Investment Portfolio

Understanding how expenses can potentially impact your portfolio’s returns is crucial for effective investment management. Even 1% in extra fees might reduce your hypothetical investment returns significantly over time. Overpaying for underperforming investments can drag down long-term returns, especially if fees are excessive.

For example, if your $100,000 portfolio grows at 8% per year, you would end up with $466,095 after 20 years. However, if you also paid a 1% management fee per year, your ending balance would drop to $381,986. In other words, the 1% management fee would lower your return by approximately 18%.

Estimate your overall income tax liability with our calculator to see how your earnings may affect what you owe.

Of course, paying a financial advisor a 1% fee could be worth it if they can generate alpha for your portfolio. In fact, a SmartAsset study found that paying an advisor either 0.75% or 1% to manage your portfolio could result in 2.39% to 2.78% more growth per year than going it alone.

Frequent trading can also increase costs through commissions, bid-ask spreads and potential tax consequences, which may further erode returns. Even low-cost index funds and ETFs carry expense ratios that, while modest, add up over time depending on the size of your portfolio.

Tax Rules That Can Affect Investment Costs and Returns

Some investment-related costs and outcomes can affect your taxes, even though most investment expenses are not currently deductible for individual investors. Here are three common examples:

Investment Interest Expense

Investment interest expense is the interest paid on money borrowed to purchase taxable investments, such as margin loans used to buy stocks. This expense may be deductible, but only up to the amount of your net investment income, with any excess carried forward to future years.

Qualified Dividends

Qualified dividends are taxed at the long-term capital gains rate, which is generally lower than ordinary income tax rates. In some cases, investors may elect to treat these dividends as ordinary income to increase the amount of investment interest expense they can deduct, though this trade-off should be evaluated carefully.

Capital Losses

If you sell an investment for less than its cost basis, you realize a capital loss. Capital losses can be used to offset capital gains and, if losses exceed gains, up to $3,000 of ordinary income per year, with additional losses carried forward.

Take note: Knowing your cost basis helps track realized gains and losses. You cost basis is how much money you paid to buy an investment, including commissions, fees and interest. If you sell an investment for more than the cost basis, you’ll only pay taxes on the money that was made above it. And, if you sold for less than the cost basis, you’ll take a loss without owing taxes.

Bottom Line

Understanding and managing investment expenses is key to effective personal finance management. By being aware of the types of expenses you’re incurring, how they can impact your investment returns and how they’re treated for tax purposes, you can make more informed investment decisions and potentially increase your net returns. Nevertheless, this is general advice and individual results may vary. 

Tips for Investing

• Investing on its own is difficult enough, much less trying to keep a handle on the expenses. Working with a financial advisor can simplify the entire process and help keep your investment portfolio headed in the right direction to help you reach your long-term goals. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches, get started now.
• You can use SmartAsset’s free asset allocation calculator to help you see what your portfolio might look like with different investment options. 

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