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>> I recently started using Sharebuilder to purchase stocks for my daughter. I am in the standard program which charges $12 per month for 6 trades.

> Caveat: I have no idea whether this issue has been addressed in IRS issuances or case law.

> I think that you can make a case for splitting the $12 among the trades made during the month and treating it as part of basis. If there's a month in which no trades are made, it's an investment expense deductible as a miscellaneous itemized deduction.

Not to be one to question, but having searched, researched, sought CPA and IRS information on this matter...from Pub 529 Miscellaneous Deductions, (2003 Returns):

Page 8: Other Expenses
You can deduct certain other expenses as miscellaneous itemized deductions subject to the 2%-of-adjusted-gross-income limit. These are expenses you pay:
1) To produce or collect income that must be included in your gross income,
2) To manage, conserve, or maintain property held for producing such income,
3) To determine, contest, pay, or claim a refund of any tax.
You can deduct expenses you pay for the purposes in (1) and (2) above only if they are reasonably and closely related to these purposes.

Page 9: Fees To Collect Interest and Dividends
You can deduct fees you pay to a broker, bank, trustee, or similar agent to collect your taxable bond interest or dividends on shares of stock. But you cannot deduct a fee you pay to a broker to buy investment property, such as stocks or bonds. You must add the fee to the cost of the property.
You cannot deduct the fee you pay to a broker to sell securities. You can use the fee only to figure gain or loss from the sale. See the instructions for columns (d) and (e) of Schedule D (Form 1040) for information on how to report the fee.

Page 9: Investment Fees and Expenses
You can deduct investment fees, custodial fees, trust administration fees, and other expenses you paid for managing your investments that produce taxable income.

You pay the $12.00 regardless of the whether or not you make any trades. ShareBuilder is nice enough to allow you 6 free trades for choosing this plan, however, the fees are not tied directly to any trade and therefore not a fee you pay a broker to buy investment property, (such as the $4.00 per trade for the Basic Plan - which would make them a part of the cost basis). This makes it an investment fee and therefore a miscellaneous itemized expense/deduction subject to the 2% limit.

BELIEVE ME...I would LOVE for it to be a part of the cost basis, as not only do I use ShareBuilder, but I also use Buy & Hold and would love their $6.99 per month to be a part of the cost basis of the first two trades.

I would also LOVE for the Service Charges on Dividend Reinvestment plans to be part of the cost basis, but alas, it isn't either, see Page 10: Service Charges on Dividend Reinvestment Plans. [It makes no sense as the only reason they charge it is because you are reinvesting...BUYING investment property...but who says the IRS makes any sense!] Sigh...

Ed
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