The good news and the bad news – you are paying some substantial fees for investment advice from your financial advisor or financial planner. Are my investment fees or financial advisor fees tax deductible?
Further questions I hear people asking about if investment fees are tax deductible in 2023?
- Is Margin Tax Deductible in 2023?
- Investment Interest Expense Deduction?
- Are investment Fees Tax Deductible in 2023
- Is There a Financial Planning Deduction?
When working with a financial planner or advisor, you may be wondering if some or all of those fees are tax deductible or not.
The answer is – it depends…
Are Your Financial Advisor Fees Tax Deductible?
The rules changed back in 2018, and now the high level answer is “you are allowed a tax deduction for expenses that are incurred in the production of income”. If an expense fits that criteria, then it is a tax write off on line 23 of your Schedule A, above the 2% threshold of AGI. These include:
- Advisory fees for investments
- Account Maintenance Fees
- Distribution Fees
- Newsletter, services, or magazine subscriptions
- Software or online services that are related to investment or financial planning.
- Do you use anything such as a computer that is used for the sole purpose of managing your investments?
Although the fee for attending a seminar is often advertised as being deductible, I am 99% sure they are not! The same way you should not take specific tax advice from you, you certainly should not be taking tax advice from someone who is trying to take your money… As always, I advise everyone to seek the advice of a qualified tax professional for any and all questions related to what is, and what isn’t tax deductible.
Before 2018, the answer was yes – you could deduct many investment related expenses. The Tax Cuts and Jobs Act brought many changes to what an investor can and can’t write off from their taxes.
Before the Tax Cuts and Jobs Act, frequently referred to as TCJA, investors could claim a tax break for miscellaneous itemized deductions. These included fees paid for investment advice to a financial advisor, IRA custodial account fees, among others.. These were the deductions when your itemized expenses exceeded 2% of your adjusted gross income (AGI).
For example if your AGI was $100,000, your investment related expenses needed to be greater than 2%, or $2,000 for the year. You got no deduction for the first $2,000 of fees that you paid, only for the amount over 2% of your AGI.
All of these tax incentives were virtually eliminated through 2025.
So, can you deduct some or all of the fees you pay your financial advisor on your taxes? The Tax Cuts and Jobs Act, introduced some significant changes to what you can and can’t deduct as an investor. From 2018 through 2025, most financial advisor fees are no longer tax favorable.
Are Financial Planning Fee’s Deductble?
Yes, financial planning fees may be tax deductible in certain situations. If you pay fees for financial advice related to investment, estate planning, or retirement planning, you may be able to claim them as a miscellaneous itemized deduction on your tax return. However, it is advisable to consult a tax professional for personalized advice.
What Can You Deduct as an Investor Now in 2023?
It is true that most of the investment related expenses are no longer deductible, there may still be some income tax breaks you can still take advantage of as an investor.
Speak with your tax advisor if you receive substantial qualified dividends receiving preferential income tax treatment. Some choose to forego that preferential tax treatment and treat their qualified dividends as ordinary income.
Occasionally in the right circumstances – this will increase your investment interest expenses enough to be worthwhile. Do NOT do this without a tax advisor!!!
- If you have a retirement plan at work such as a 401k, Keep in mind that those contributions go in before tax – thus giving you an income tax deduction immediately. You get to take advantage of these tax write offs regardless if you itemize your deductions for the year or not. Contributing to an HSA has the same effect as well.
- Contribution to a Traditional IRA can have the same affect, but you would have to see if your taxable income will allow you to be able to deduct the contribution from your taxes. REALTED READING: 2023 Tax Tables and IRA Contribution Limits
- If you itemize your deductions on Schedule A, you may be able to claim borrowed money that you used to invest with, such as margin interest, but the deduction is capped for the year. You also cannot count interest for a loan to buy a tax advantaged investment such as a municipal bond.
But you didn’t come here to read about common investment and tax management advice. You came here for advice on how to manage your advisory fees and lower your taxes.
So which fees will still meet the definition to be able to be deducted by itemizing?
Are you paying an investment management fee by an RIA (Registered investment Advisor)? Fees for tax preparation? Then you may be in luck!
Are Financial Planning Fees Deductible?
Or hourly fees that you paid to a financial planner? Unfortunately, those are not fees “directly tied to producing income or transactions of investments” – so they cannot be deducted.
Though the TCJA limits the tax deductible options that investors can still use, there are still ways to claim your investment fees.
Some deductions for investors do still remain. For example, as an investor you can still claim any interest that you pay on your investment loans.
Other options include using investments such as loaded mutual funds that are based on commissions. When you eventually sell the fund, the fees and commissions are included in the cost basis – indirectly allowing your fee or commission to have become tax deductible.
Let’s take it a step further. If you want to be technical – since a mutual funds expense ratio is withdrawn before you receive income – couldn’t they be considered to be made on a pre tax basis? You still only pay on the income that you ultimately receive.
You do not get to add up the fees and report them though – since they are paid directly and never disbursed to you.
A third option is to ask to have your traditional IRA to be billed directly.
That could go for a Trust, other retirement accounts and business accounts as well. Be very careful with this though, as you don’t want to disqualify your IRA. The fees should only be charged for the actual advice and time spent advising on the IRA only.
The best way to charge fees safely and only to your IRA is to have the account fees paid directly out of the IRA’s balance. You are ensuring the fee is only for that IRA, and are essentially getting an income tax break by paying the IRA fees with pre tax dollars.
Less risky than billing the IRA is to bill a Trust – since they are not individuals. There are still rules within the tax code that allow you to deduct the expenses for advice, as long as the Trust is getting the advice, and not you as an individual.
The advice for the trust has to be beyond what an individual would ordinarily receive, and it has to be a non grantor trust with its own tax ID. Keep careful, detailed records if you plan to try to deduct these fees for income tax purposes.
Accounts for a business are a little bit more flexible when deducting fees for advice. The business may continue to write off the fees for advice on business assets, or advice specific to the business.
Ultimately, you do not want the tax tail to wag the dog. Understand what may or may not help you minimize your tax burden – but ultimately make good investment decisions primarily.
A few basic ideas to keep in mind regarding the tax deduction of investment fees.
- The investment fees need to come from the production of income
- You need to pay for the fees out of your own pocket.
- They need to be “ordinary and necessary”, and the fee amount must be “reasonable and customary”
Should I Pay My Investment Advisory Fees By Check?
Are you a dinosaur!? Do you still use paper checks? I’m kidding of course. As tempting as it is to pay your investment fees directly – think again.
It may feel like an easy way to pay advisory fees – but you are now using after tax dollars. The advantage is that you use after tax dollars, but they may be able to deduct the fee on your taxes.
Related Reading: How To Read a Check
Paying Your Investment Fees From An IRA
Do you pay a financial planning fee, or investment management fees for your IRAs as a percent of assets under management? And if so, are they paid out directly from the account that is being managed by the advisor? If so, that may be a good thing, because when you pay fees this way it is NOT considered an IRA withdrawal. It is an expense that is investment related, so you are paying for these fees with before tax dollars.
Since your traditional IRA investments will one day have to come out and be taxed anyway, you are avoiding paying taxes on these dollars by using them to pay your investment advisory fees. So your choice is to pay the fees with after tax dollars and maybe get the tax deduction. Or pay for them from within the IRA, and not have a future tax liability when those funds would have come out of the IRA account.
But the news isn’t as good as perhaps you are thinking. You can only pay fees that are attributable to your IRAs with your IRA money. You cannot pay the fee based on your non-retirement accounts with IRA money.
For example, if you have a $750,000 IRA account and a $250,000 taxable account, and your management fee is 1% annually. You would be paying $10,000 per year in asset management fees. 75% of that can be paid for by your IRA ($750,000 / $1,000,000 = 75%). The remaining 25% of the fee cannot be paid from the IRA account.
Why Would I Want To Pay Investment Fees From My Roth IRA?
That’s a great question, and you are right – you do not want to pay your investment fees from a Roth IRA. Ever. Paying fees from a Roth IRA actually has the opposite affect of a tax savings, you are actually giving up future tax free growth. So no, do not pay investment fees from a Roth IRA!! Let the Roth IRA grow untouched for as long as possible.
What If My Advisory Fees Are Bundled?
It is not uncommon for a client to pay a bundled fee for financial planning, investment advice and sometimes even tax preparation. This fee is typically charged based on a percentage of assets under management. This situation can quickly get very tricky as you can imagine, because we already went over some situations such as an IRA vs non IRA account fees being deductible or not.
In a bundled situation, I strongly suggest you speak with your tax advisor, and consider asking your advisor to either unbundle the fees or at least provided a detailed invoice to break the fees down