Are Club Expenses Tax Deductible?

Q. What investment club expenses are tax deductible? Thank you.

A If your club is a general partnership, then all of the club's tax liabilities -- including capital gains and losses, income from interest and dividends, and expenses -- "flow through" to the individual partners. The IRS looks at all those figures as if they were earned by the individual members, not by the club as a whole. As a result, partners can include their share of a club's "investment expenses" as outlined by the IRS on their tax returns of individual partners.

What kind of expenses are those? According to the NAIC Accounting Manual, the following expenses would be deductible:

• Postage and stationery
• Manuals or reference materials relating to an investment decision
• Costs of copying, producing, and mailing meeting notices
• Dues paid to NAIC

Expenses such as refreshments, attending company annual meetings, or attending investment seminars or conventions are not deductible. The IRS doesn't consider a club to be a "business or trade," so you can't deduct the costs of items or services which are normally classified as business-related expenses. (For more information on deductible and non-deductible investment expenses, consult the IRS's Publication 17, Your Federal Income Tax (for Individuals); Chapter 30 - Miscellaneous Deductions, Deductions Subject to the 2 percent Limit and Publication 529, Miscellaneous Deductions; Nondeductible Expenses.)

But in the end, this is probably a moot point. Why? Individual investors include investment expenses on Schedule A of Form 1040, and those expenses are only deductible for the amount that they exceed 2 percent of your adjusted gross income in that year. If your AGI was $45,000, only the investment expenses that exceeded $900 would be deductible. Most people will never have enough investment expenses to make a dent in their tax bill.