Club Invest

Q: Do you Fools think investment clubs are a good idea? How do they work?

-- Robert Vick, Tulsa, Okla.

A: Investment clubs are wonderful, permitting people to learn about investing together as they pool resources and research efforts. A typical club will have 10 to 25 members, each of whom contributes $20 to $50 a month that goes into a joint brokerage account. The group will investigate various companies, discussing the advantages and drawbacks of each, then voting whether to buy or sell shares in that company. There also are clubs that don’t involve money, only the sharing of research. The Motley Fool has more information about clubs at its Web site, at https://www.fool.com/investmentclub). Or read “Starting and Running a Profitable Investment Club” by Thomas E. O’Hara and Kenneth S. Janke, the official guide of the National Assn. of Investors Corp.

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Q: Can I deduct commissions paid to brokerages from my net capital gain for tax purposes?

--M.V., Los Angeles

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A: Yes, you can, and in fact you must. The expenses incurred in purchasing or selling a capital asset (stock, in this example) are capital costs, and must be added to or subtracted from the basis (or cost, for tax purposes) of the stock.

Let’s say you buy $3,000 of stock and pay $50 in commission and other charges. Your actual cost is $3,050. You sell the stock later, at $4,000, paying another $50 to the brokerage. Your “net” sales price (generally, the amount reported to you by your broker at year-end on your Form 1099B) would be $3,950 ($4,000 less $50). On your tax return, you would report a gain of $900 ($3,950 less $3,050 equals $900.) There’s a side benefit to this exercise: It’ll help you keep a close eye on how much you’re paying in commissions.