Here are 4 tax deductions for stock investors to claim this tax time and maximise their refund!

Nick Sundich Nick Sundich, April 3, 2024

There are plenty of tax deductions for stock investors to claim, they just need to be aware of them! Although tax time is not until the start of the new financial year, it cannot hurt for investors to know at any time of year. Because come July 1, it will be too late for investors to claim for their forthcoming tax return if they have not spent the money already.

Although we cannot offer personal advice, that is to say advice to your specific situation, there are some deductions available generally to all investors, and we’ve outlined some of the most prominent. By using some of these, we hope the money you owe to the ATO will be minimal.

 

 

4 tax deductions for stock investors can claim!

1. Losses

Now, this is not a strict deduction – meaning if you lose $500 on a stock you can claim the $500 back as a tax refund. Rather you can use losses to reduce the amount you pay on capital gains. Any capital gains need to be included in your assessable income. But what you must do is calculate a net capital gain and include that – any capital losses can reduce the net capital gain. So let’s say you lost that $500 in one stock but made $1,000 from one other whilst making no further trades. If you didn’t include the $500 loss in your net capital gain, you would include the $1,000 in your assessable income, but include the $500 and you can reduce the amount to be included in your assessable income to $500. We stress this is a very simple example, not accounting for further trades you may have made, or any further deductions you can claim.

 

2. Investment fees

Most retail investors will pay brokerage on their trades, and this can be tax deductible. For occasional investors, the minimal brokerage fees (if indeed there are any) may not be worth the effort of claiming. However, the costs can add up for frequent investors and they can be claimed in your tax return.

For those who seek financial advice, they will inevitably pay fees to their advisers and this may be tax deductible. You may even be able to claim subscriptions to investment-related publications that help out, although this might be contentious with the ATO.

Obviously, it’s crucial for investors to maintain detailed records of these expenses and to understand the specific requirements set forth in applicable regulations to ensure they’re maximizing their potential deductions but that they are doing so legally.

 

3. Home office costs

This may not be relevant for many, but costs associated with a home office can be claimed if used primarily for work. These can include office equipment and utility bills. If you are a full time trader or work in investment management from home, you can claim it. Of course, you cannot claim these expenses if you’re just an amateur trader who happens to trade at home sometimes. The ATO advises to claim for these expenses, you must:

  • be working from home to fulfil your employment duties, not just carrying out minimal tasks, such as occasionally checking emails or taking calls,
  • incur additional running expenses as a result of working from home, and
  • have records that show you incur these expenses.

Investors need to use one of two methods set by the ATO. Either the fixed rate method or actual cost method. The first of these is an amount per work hour for additional running expenses, while the second just involves claiming actual expenses as they incur.

 

4. Interest on investment loans

One potential deduction for stock investors include interest on loans that were taken out to purchase stocks or other investments. It is similar to how property investors can claim as deductions interest paid on home loan interest.

However, it’s important to note that this deduction may be limited based on the amount of investment income an individual has or the extent to which the proceeds were used for investing.

 

Other important aspects to consider

As we implied above, investors need to consider is the timing of their investments. Strategically buying and selling investments at certain times can help to minimise their individual liability. For example, selling investments with losses before the end of the financial year can offset gains from other investments and reduce overall taxable income. Given the Stage 3 tax cuts, you may be better off delaying the payment of certain expenses until the next financial year (i.e. FY24) and claiming it in the tax return for that year. This will mean you’ll need to wait longer to reap the benefit (i.e. in the form of a bigger refund), although you’ll be paying less to the ATO in FY25 anyway given the cuts. So perhaps just be a Hodler (i.e. buy and hold for a time rather than day trade).

 

 

Obviously it is essential for stock investors to stay up-to-date on changes in tax laws and regulations that may impact their investments. Tax laws can change frequently, so it’s important for investors to regularly review their investment strategies and perhaps consult with a financial advisor or tax professional.

 

Conclusion

In conclusion, stock investors have various opportunities to reduce their taxable income through deductions. These include (but are not limited to) investing fees, using capital losses to offset gains, home office expenses and interest on investment loans. It’s crucial for investors to understand and utilize these options to maximize their potential tax savings and ultimately increase their overall investment returns. By staying informed and proactive, investors can minimize the impact of taxes on their investment portfolios and achieve long-term financial success.

 

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