A memo issued by the Internal Revenue Service’s Office of Chief Counsel could possibly eliminate a tax-saving strategy used by some investors with brokerage accounts.Wrap accounts charge a flat percentage fee instead of a commission, and for tax purposes, the annual fees that investors pay are often treated as miscellaneous itemized deductions. But under a provision, some taxpayers can instead opt to add the fees to the cost basis of the securities, which could reduce potential capital-gains taxes (or enhance potential losses).
The IRS has told newspapers that it doesn't break out how many taxpayers deduct their fees for investment advice as miscellaneous itemized deductions and how many instead add those fees to the cost basis (capitalizing the fees), but the move comes as Wall Street is shifting away from commission-based brokerage accounts to fee-based accounts.
