Tax season is here, and many people are wondering if they can deduct investment advisory fees on their taxes. The answer is yes! Investment advisory fees can be deducted from your taxable income if you meet certain criteria. In this article, we'll discuss how to deduct investment advisory fees and what you need to know to maximize your deductions.
First, it's important to understand what qualifies as an investment advisory fee. Investment advisory fees are typically incurred when you hire a financial professional or firm to manage your investments, perform estate planning, or provide tax advice. Generally, these fees are deductible as miscellaneous itemized deductions on your income tax return.
The amount of investment advisory fees you can deduct is limited to the amount of your adjusted gross income. The IRS allows a maximum of 30% of your adjusted gross income to be deducted for investment advisory fees. However, it's important to note that this deduction is subject to the 2% of adjusted gross income floor, meaning that any amount over 2% of your adjusted gross income cannot be deducted.
In addition, certain types of investment advisory fees are not deductible. These include fees for services related to tax preparation, such as preparation of your tax return or advice regarding your tax liability. Also, fees for services related to estate planning, such as the preparation of a will or trust, are not deductible.
It is also important to note that if you itemize deductions, your medical expenses may be deductible. This includes any fees paid for medical advice or services, as well as medical insurance premiums. However, medical expenses usually only matter if you itemize deductions.
Another way to deduct investment advisory fees is through a family office. The IRS released a ruling in 2017 that provides family offices with a potential way to obtain trade or business expense deductions under Internal Revenue Code Section 162. This ruling allows family offices to deduct up to 50% of their expenses, including investment advisory fees, from income.
Finally, it's important to consider the impact of deductions on your tax refund. While deductions may reduce your tax liability, they can also reduce your tax refund. So by taking all deductions, you might inadvertently get less of a tax refund. Similarly, medical expenses usually only matter if you itemize deductions.
When it comes to deducting investment advisory fees, it is important to understand the rules and limitations. The IRS allows a maximum of 30% of your adjusted gross income to be deducted for investment advisory fees, but certain types of fees are not deductible. Also, deductions may impact your tax refund, so it is important to consider the impact of deductions on your tax refund.