How to Use Investment-Related Tax Breaks

Julian Block for Accounting Web writes: Allowable deductions for investors include the cost of travel. But the line isn't always clear on what kinds of travel qualify.

Investment seminars. Internal Revenue Code Section 274(h)(7) forbids investors from deducting costs incurred attending conventions, seminars, or similar meetings at which they obtain information that helps them plot investment strategies. Disallowed expenses include air fares and other travel costs to the meeting site, attendance fees, meals, lodging, and local travel while attending the meeting.

Note, though, that Section 274(h)(7) applies solely to outlays made for investment reasons—for instance, those of an investor seeking to obtain information about whether to acquire or unload particular stocks. It doesn't apply to costs incurred for business reasons that are deductible as ordinary and necessary expenses under Section 162—for instance, those of a financial adviser who meets with prospective clients as part of his or her job.

An example: National Investors holds a convention at which stock market investors pay for the opportunity to discuss strategies with representatives of brokerage firms and listen to presentations from executives about their companies. Result: Section 274(h)(7) bars deductions of expenses by investors, but leaves unchanged the Section 162 rules governing deductions of expenses by stock brokers and others who are at the convention for business reasons. 

Shareholders' meetings. These kinds of meetings come under different rules. Back in 1956, the IRS issued Revenue Ruling 56-11. It spelled out the agency's guidelines for persons who attend stockholders' meetings of companies in which they own stock but have no other interest. The ruling bars any deduction for travel expenses when such stockholders attend merely to get information that would help in making future investments. It makes no difference that their major sources of income are dividends and profits on stock transactions.  [snip].  The article continues @ AccountingWeb, click here to continue reading.