Stock Investment Expenses - can I claim them?

[pngbushman]

Hi all.  I read various questions and answers related to Stock trading and investment expense.  I'm still a little unsure of the right answer.   
I did a little stock trading in 2020 and made some short-term capital gains.  I bought a computer that I use 95% for stock trading and plan to continue trading in 2021.  I am doing it part-time, on the side (so I'm not a full day-trader for IRS Active Trader tax status).   I've read posts that say I can offset the cost of my computer I bought against the capital gains I made (which makes sense to me) -- however, when I go in to TurboTax (in "Other Investment Expenses") to enter the expense, TurboTax tells me these expenses won't affect my Federal return - that I basically can't claim the expense (I live in Texas so I don't have a state return).  Am I entering this expense in the wrong section or is it true - I'm not able to claim these expenses for my Federal return?
Alternatively - if I start a single-member entity (like an LLC) that I define as a Stock Trading business - can I then deduct the expenses to offset the tax burden on capital gains from my part-time stock trading?
Thank you.

[MaryK4]

Investment expenses aren't deductible on your federal return, but some states allow you to deduct them on your state return.

The correct entry is Other Investment Expenses (see below). 

If you become a trader, you would be able to deduct expenses, but not if it is only part-time.  The IRS is VERY strict on the Trader in Securities rules.  See Topic No. 429 Traders in Securities.

[Edited 03/08/2021 | 11:08 PM PST]  @pngbushman 

[pngbushman]

Hi MaryK1101 - thank you for your reply.

I think what's confusing me is whether I can take the expense at all?  You mention it being an itemized deduction and imply I can take the deduction (if my itemized are greater than the standard...)  However TurboTax, the application, says:

"Under the new tax law, investment expenses aren't deductible on your federal return, but some states still allow you to deduct them on your state return. ..."

I don't know if this message from TurboTax is accurate or an over-sight (not updated, for example).  What it implies is, I can't even take the deduction for investment expenses at all, regardless of itemized/standard deduction situation.  Is there a 'new tax law' forbidding deduct-ability of investment expenses?

Investment Expenses - as an investor - can I claim them AT ALL on my Federal return?

If not, does making capital gains through an LLC - still as investments - change that in any way?

[ColeenD3]

Prior to TCJA, they were deductible. 

From Pub 529:

Investment fees, custodial fees, trust administration fees, and other expenses you paid for managing your investments that produce taxable income are miscellaneous itemized deductions and are no longer deductible.

They are possibly still deductible for your state.

Pub 529

[ColeenD3 · Accepted solution]

Investment Expenses - as an investor - can I claim them AT ALL on my Federal return?

If not, does making capital gains through an LLC - still as investments - change that in any way?

Not yet.

A trader eligible for trader tax status can deduct business and home-office expenses and make a timely Section 475 election on securities for tax loss insurance and a potential QBI deduction. Using an S-Corp, a trader can also deduct health insurance premiums and a retirement plan contribution.

Traders can choose to use the mark-to-market rules, investors can't. If a trader doesn't make a valid mark-to-market election under section 475(f), then he or she must treat the gains and losses from sales of securities as capital gains and losses and report the sales on Form 1040, Schedule D (PDF), Capital Gains and Losses and on Form 8949 (PDF), Sales and Other Dispositions of Capital Assets, as appropriate. When reporting on Schedule D, both the limitations on capital losses and the wash sales rules continue to apply. However, if a trader makes a timely mark-to-market election, then he or she can treat the gains and losses from sales of securities as ordinary gains and losses (except for securities held for investment - see above) that must be reported on Part II of Form 4797 (PDF), Sales of Business Property. Neither the limitations on capital losses nor the wash sale rules apply to traders using the mark-to-market method of accounting.

The Mark-to-Market Election

A trader must make the mark-to-market election by the original due date (not including extensions) of the tax return for the year prior to the year for which the election becomes effective. You can make the election by attaching a statement either to your income tax return if filed without an extension or to a request for an extension of time to file your return. The statement should include the following information:

1. That you're making an election under section 475(f);
2. The first tax year for which the election is effective; and
3. The trade or business for which you're making the election.

[Solent]

Where does pub 550 p 29 or p 34 say Other Investment Expense is not federally tax deductible?

[GeorgeM777]

It doesn't, but Publication 550 does explain the limits on investment interest expenses such as, at risk rules, passive activity loss limits, and the limit on investment interest.  Additionally, investment interest expense must be itemized on Schedule A.  Thus, if your standard deduction is greater than your investment interest expense, TurboTax will default to the standard deduction and apply the standard deduction to your return.

@Solent

[Doony]

If I choose to be an investor, and not a trader, can I deduct business expenses? Or must I claim Trader Tax Status to write off any expenses such as subscriptions, software, etc?

[Doony]

I'm also struggling with whether I can write off business expenses if my occupation is investor, and not trader.

[DaveF1006]

No. You won't be able to write off any expenses except If you borrow money to finance investments. The interest you pay on these loans is considered investment interest. This deduction is an itemized deduction so if you are able to itemize this year, you may be able to take advantage of this deduction.

To claim, go to;

1. Federal
2. Deductions and Credits
3. Retirement and Investments
4. Investment Business Expenses

@Doony