You are permitted to deduct investment related expenses as an “itemized deduction.” However, this deduction is fairly meaningless for most investors. This is because you must actually itemize your deductions instead of taking the standard deduction, which many taxpayers do not. Additionally, such expenses fall within the category of “miscellaneous itemized deduction,” which are only deductible to the extent they exceed 2% of your Adjusted Gross Income. The 2% floor is particularly troublesome because most “miscellaneous itemized deductions” are pretty insignificant, particularly investment related expenses. Recall that you’ve already accounted for commissions and wire transfer fees in determining “amount realized” and “basis.” Your remaining expenses might include:
- Interest paid on funds that you borrowed in order to invest (limited to the amount of your net gains),
- Rent expense for a safety deposit box (this could arguably be extended to include the cost USB drives for cold storage),
- Consulting fees for the tax treatment of bitcoin,
- Depreciation on equipment used in your investment activity, such as your computer (however, you’ll have to allocate the cost of the equipment between personal use and investment use, which is likely to reduce this deduction substantially in most cases).
In most cases, these deductions will be quite small. Other expenses may or may not be available to you, depending on your specific situation, though. Note that the IRS will not allow you to take a home office deduction nor can you deduct the costs of attending bitcoin seminars. You should consult with your tax advisor to be certain of your deductible expenses. There are also a myriad of resources online about this topic.
