Investment expenses, by definition, are those expenses directly connected with the production of investment income. Please remember that investment expenses are another form of Miscellaneous Itemized Deductions, and are reported on Schedule A, and are subject to the 2% floor. I assume, since you're reading the Fool, that you use at least some of your AOL time to research investments in order to create investment income in the form of stock dividends and gains.

I personally see no reason not to classify the Fool's area as an "investment publication". One can certainly learn substantially more in the Fool's area than in many of the so-called investment publications. You can obtain general investment information (The Fool's School), specific industry information (Industry Boards), and information on specific issues (Stock Boards), and the beat goes on.

Based upon my research, I cannot find any provision that specifically bars a deduction for an electronic "investment publication." Look at it another way: I subscribe (online) to Schwab Street Smart, Reuters Network, and Dow Jones. They are all certainly investment expenses, and are legally claimed as such.

The problem is: how much of your AOL bill is for personal use? Remember that you can't deduct non-investment related online activities, like looking-for-love chat rooms. You can't make airline reservations, browse the WWW, or read an issue of Outside magazine. You see the problem? Only the investment portion of the AOL bill would be an investment expense.

What to do? Well, you could LOG every hour of AOL time for the entire year, compute your % of investment time versus other personal time, and deduct the appropriate investment amount. Another suggestion is that you use different screen names: one for business purposes, and one for pleasure, and simply log the time spent with each name. I believe that AOL allows you to still do that. Now, you might sigh and mumble "that's just too much trouble". That's fine, then don't take the deduction. Remember that deductions are not birthrights, but legislative allowances which must be proved, and for which rules must be followed.

Another issue is that of "reasonable". Would it be reasonable to spend $2,500 per year on investment publications (regardless of whether they are paper or "online") to manage a portfolio of $5,000, in which you make only 1 or 2 trades per year? Probably not, and this deduction could be reviewed and disallowed for not being "ordinary and necessary."

So there you have it. I believe, done properly, and under various circumstances, that at least a part of your AOL bill could be an allowable deduction. You might contact the IRS at 1-800-829-3676 and ask for IRS Publication 550 (Investment Income and Expenses).

- Article 01

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