I see that TurboTax provides a place under "Adjustments to Income" & "Investment Income Expenses" but I don't quite understand the instruction. I paid a few thousand dollars of advisory fee so I would really like to deduct it properly.
It said "if you had expenses related to producing California-taxed income that is not taxable at the federal level.... enter the amount as a positive number". (See screen capture below.) My investment is made up of CA municipal bonds (tax exempt-36%) and other bonds (taxable-64%). I don't see which portion of the investment is not taxable at federal but taxable at CA... How should I figure out what to fill in? Thank you!
CYY,
I ran into this myself with advisory fees. The way I handled it was to take the ratio of the December 31, 2019 CA taxed other-state municipal bonds to the total portfolio value as of that date and multiply the advisory fee by that fraction.
Thanks hbl3973! In other words, you pro-rate the advisory fee that was spent for "taxable" portion of the interest income, right? That actually sounds reasonable to me but isn't this opposite of what TurboTax instruction said though - "Nontaxable Income Expenses"? Quite misleading wording... ><"
I added advisory fee as other investment expense, and I see the same amount in both line 21 and line 27 which doesn’t seem to be right. How can I get rid of the one in line 27 in TurboTax? When I delete advisory fee in other expense, the amount in line 21 disappeared but not in line 27.
AN75,
The place to input the investment management fee for the taxable portion of your account is under the Federal area Deductions and Credits. Way down at the bottom under Other Deductions and Credits, enter it as Other Deductible Expenses, not as Tax Preparation Fees. You would also enter things like safe deposit box rental there as well.
Do you mean I need to put the same amount twice in federal area deduction AND Other Deductible Expenses for CA? I think this is how I ended up the same amount in both line 21 and line27 on schedule CA540 side 3? Is it correct way to fill? Or just line 21 for advisory fee?
Only once on Schedule A Miscellaneous deductions. This should roll over to your CA540. What year are you referring to?
if you've entered the correct amount of expense that would be deductible on the CA return, enter nothing in the Other Deductible Expenses section of the CA return.
Investment expenses such as these are no longer deductible on the federal side. The deduction applies only to the portion of expenses relating to taxable income.