Do you itemize your tax deductions? If so, you might have a chance to partly or fully deduct the cost of the advisory fees you pay for the investment, legal, and tax advice you receive.
Under federal tax law, you may deduct “investment fees, custodial fees, trust administration fees, and other expenses you paid for managing your investments that produce taxable income.” In addition, you can “usually deduct legal expenses that you incur in attempting to produce or collect taxable income or that you pay in connection with the determination, collection, or refund of any tax.” (These passages come from Internal Revenue Service Publication 529.)1
What is the big takeaway here? If you are in a fee-based investment program, you have an opportunity to deduct fees charged to you by investment professionals if such advice helped you generate taxable income. (Additionally, you can also possibly deduct the cost of hiring an accountant to help you prepare your federal tax return.)2
Before you claim these miscellaneous deductions on your Schedule A, know this. You can only begin to deduct miscellaneous items if the total of your miscellaneous deductions surpasses 2% of your adjusted gross income (AGI). Once your miscellaneous deductions are above that 2% AGI floor, you can deduct anything over that 2% threshold.2
In addition, some or all of your miscellaneous deductions may not be permitted if you find yourself subject to the Alternative Minimum Tax (AMT).3
Claiming a miscellaneous deduction for investment fees could be advantageous. Often, these fees are paid with assets held inside of a taxable investment account or tax-deferred retirement plan. When these fees are paid with money coming from within the plan or account, they are not always tax deductible (as can be the case with IRAs). Paying these fees with dollars from outside the investment account or retirement plan leaves more assets in the account or plan to compound.3
Consult your tax professional to see if you can legitimately claim such deductions. If you are in a position to do so and have a large investment portfolio under management, the potential deduction could be sizable.
If you have questions on your investment accounts with Smart Financial, advisory fees, or have questions on investment accounts with other companies give us a call and we would be happy to help. We love working with you, and want to make sure we can save you money where we can, so you can spend more time doing the things you love.
This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
Citations.
1 – irs.gov/publications/p529/ar02.html [TY 2016]
2 – marketwatch.com/story/what-qualifies-as-a-miscellaneous-itemized-deduction-2015-03-24 [4/14/17]
3 – edelmanfinancial.com/education-center/articles/a/are-asset-management-fees-taxdeductible [1/13/17]
Investment advisory services offered through Capital Asset Advisory Services, LLC., a registered investment advisor. Not associated with or endorsed by the Social Security Administration or any other government agency. Smart Financial does not offer legal or tax advice. Please consult the appropriate professional regarding our individual circumstance.