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Advisory Fees: Can I Take a Tax Deduction?

| February 01, 2013
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Advisory Fees: Can I Take a Tax Deduction?

By Gregg Shaw – Feb 2013

Now that tax season is in full swing and with less than one month to go until April 15th, taxpayers are looking for any deduction they may qualify for to reduce their taxes.  Unfortunately, many CPA’s fail to ask nor take the time to understand a taxpayer’s situation so as to maximize tax deductions.  Now is the time to remind your tax preparer about your advisory fee paid, which “MAY” be tax deductible. 

The IRS will allow certain deductions, such as investment expenses incurred on taxable investments limited to the amount of expenses over and above 2% of your adjusted gross income (AGI).  In other words, there’s a floor below which you lose the ability to deduct.

Given the costs associated with investment advice, clients often want to maximize any available tax benefits to help mitigate the cost.  In addition to advisory fees, a list of other investment-related expenses that could be included toward the 2% miscellaneous itemized deduction are:

  • Fees for investment counsel and advice, including subscriptions to financial publications
  • Fees for IRA’s, Simple’s, SEP’s and self-employed plans, if paid with funds outside of the plan/IRA
  • Software services used to manage investments
  • Safe deposit box rent, if used to store stock certificates or investment related documents
  • Transportation to your broker’s or investment advisor’s office
  • Attorney, accounting or clerical costs necessary to produce or collect taxable income

Clients often ask if their trading commissions are tax deductible.   Unfortunately, whether assets are being managed or not, trading commissions are NOT deductible.

While completing a financial plan for a new client last year, I inquired about the qualification of her claiming a deduction for the management fees charged by her former advisor.  Suffice to say, her returns needed to be amended (since 2009), resulting in her receiving an additional $3200 in a tax refund.   During this tax season, make sure your tax preparer is working hard….FOR YOU! 

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