Mutual Fund Fees

Today TaxMama® hears from Farmer in the TaxQuips Forum, with a reasonable question.  “Can you take a deduction of Mutual Fund operating expenses (12b fees?
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) on Schedule A, subject to the two-percent floor?
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Dear Farmer,

Before we answer, it’s wise to look up the specific definition of the 12(b) fee. We can find that on the SEC’s website, here. They are fees that the fund managers draw from within the funds to cover their marketing and other expenses.

Mike Reed, our EA in the San Francisco Bay area and Rita Lewis, our EA in CT and New York add some specifics about deductible and non-deductible fees.

You can read the specifics here, from Mike.

Essentially, it boils down to this concept from Rita: If you are billed a fee and pay it with funds from outside the fund, by writing them a personal check, or having the money drawn from your related brokerage account, then you have a deduction.
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If the fee is paid within the fund, being deducted before your dividends are computed, for example — then you have no deduction. You are reporting the income after deductions (no double dipping).
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