What Investment Expenses Can You Deduct?
Can you deduct safe-deposit box fees? Financial advice fees? How about a shredder?
Elizabeth Carlassare
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What Investment Expenses Can You Deduct?
Today’s topic asks: can you deduct a shredder?
A listener named Charles called in with this question:
This is Charles E. from White Plains, New York and I was just listening to your episode on what to keep and what to throw away and at the end you mention shredding everything. Would something like a high-end shredder be something that would be deductible? Thanks a lot for a great podcast.
Thanks for the question, Charles. Did you know that the paper shredder was invented in 1909 by a fellow New Yorker from Horseshoe named Abbot Low? Well, it was and, if you ever get that question in a game of Trivial Pursuit, you’ll have the answer.
OK, before I jump into answering your question, I want to clarify a point. In last week’s episode, I mentioned shredding just those financial documents that there’s no need to hang on to. There are many documents that you definitely need to keep, so don’t shred everything!
And now on to the answer to the question.
The answer is “maybe.”
Tax Prep Fees Are Deductible
Tax Prep Fees Are DeductibleThe IRS allows the cost of tax preparation fees to be deducted as an itemized deduction on Schedule A in the year the fees were actually paid.
To get a tax benefit from itemizing, the total of your miscellaneous itemized deductions must be greater than 2% of your adjusted gross income. For most people, owning a home is what makes itemizing deductions worthwhile.
If you do itemize deductions on Schedule A and you paid tax preparation fees in 2007 to prepare your 2006 tax return, you can deduct them on your 2007 return.
Now, let’s see if a shredder counts as a tax prep fee. In Publication 529, the IRS states that tax prep fees include the cost of tax prep software, tax-related publications, fees paid for electronic filing, and, of course, fees paid to a professional tax preparer. Hmmmmm. No shredder there.
Investment Expenses Are Deductible
But maybe we’re not out of luck just yet. Like tax prep fees, investment-related expenses can also be deducted on Schedule A as itemized deductions. So let’s see if a shredder purchased and used to shred investment documents might count as an investment-related expense. IRS Publication 529 states that investment expenses include things such as computer and other equipment used for managing investments, investment publications, clerical help used to take care of investments, safe-deposit box rental fees, financial advice fees, custodial fees for your IRA if they’re billed and paid outside of your IRA, and other investment expenses.
So, if you have investments and consider your shredder to be an investment-related expense and use it solely to shred investment-related documents, it seems that it could be itemized as an investment-related expense. As a general rule of thumb, items that cost less than $100 can be expensed rather than depreciated. So if you bought an everyday home office shredder that was relatively inexpensive, you could deduct it as an expense rather than depreciate it. If you bought a pricey shredder or simply prefer to depreciate it, you could deduct the depreciation starting in the year you purchased it.
But if you sometimes use your trusty shredder for personal rather than investment reasons – say, to shred pictures of your ex – then you can deduct only the investment-use portion of the shredder’s cost.
And remember, it’s a moot point, if you don’t itemize deductions. The total of your miscellaneous itemized deductions must be greater than 2% of your adjusted gross income to get a tax benefit from itemizing.
The Law of Diminishing Returns
And here’s one last tip: Reality is that you can buy a decent shredder for under $50, so the time you spend figuring out if you’re eligible to deduct it may not be worth it.
So here’s hoping that your tax prep goes smoothly and you maximize your deductions!
Send your questions or comments to money@quickanddirtytips.comcreate new email. And please take the Money Girl listener survey posted on my Web page at Quickanddirtytips.com. To take it, click on the gold box that says “Take 5.”
Thanks for listening!
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