Deducting Commissions

QHow do I deal with brokerage trading commissions when recording my gains and losses on my tax return? — G.K., Keene, New Hampshire A

It’s smart to factor them in, lest you pay extra taxes unnecessarily. Since the costs of buying or selling a capital asset (stock, in this example) are capital costs, they should be part of your calculations determining your cost basis and proceeds.

Imagine, for example, that you bought $1,000 of stock and paid a $15 commission. Your actual cost is $1,015. You sell the stock later, when it’s worth $1,600, paying another $15 to the brokerage. Your “net” sales proceeds (generally, the amount reported to you by your broker at year-end via Form 1099B) are $1,585 — $1,600 less $15. So on your tax return, you would report a gain of $570 ($1,585 less $1,015). If you’d ignored the commissions, your gain would be $600, and your taxes higher. These little sums can add up.

If you think you’re paying a lot in commissions, know that many reputable brokerages charge just $10 or less per trade. For help in finding a good brokerage, visit fool.com/how-to-invest.

*** Q

I have shares of a mutual fund that has a 4.75 percent front-end load. Should I sell it and switch to a no-load fund? — D.R., Kenosha, Wisconsin A

That’s a sizable fee, but you’ve already paid it, when you invested in the fund. If you don’t like the fund’s performance or, more important, its prospects, consider selling. There are plenty of terrific no-load funds. Also, check out the fund’s expense ratio (annual fee). If it’s much more than 1 percent, that’s not promising. Some index funds will charge you less than 0.10 percent.

Want more information about stocks? Send us an email to foolnews@fool.com.