Tax Deductions for Financial Advisers' Fees

Tax Deductions for Financial Advisers' Fees
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Deductible Advisory Fees

Whether your financial adviser fees originate from a person, firm or advisory service, they are eligible for a tax deduction. The IRS does not specify types of financial advisers, only referring to "investment counsel and advice." Advice also could come in the form of newsletters, periodicals and research website subscriptions, all of which could potentially be deductible. Financial adviser fees are part of a larger group of deductible expenses covering expenses incurred as a result of investing, itemized as miscellaneous deductions on Schedule A of your tax return.

Rules for Deductibility

Financial advisory fees still have to stay within the guidelines of what the IRS constitutes deductible. You can only deduct these fees if they are greater than 2 percent of your adjusted gross income. However, you can also include other miscellaneous expenses to make up the 2 percent, such as unreimbursed employee expenses and tax preparation fees. Another condition is that what the financial adviser advises on must be taxable. Any cost for advice regarding nontaxable income from investments such as municipal bonds in a portfolio cannot be deducted. Also, your fees must be "ordinary and necessary," not excessive.

Retirement Fund Fees

Financial management firms charge custodial fees for IRAs and 401k's. In order for these fees to be deductible, you cannot pay the fees from within the retirement account. If the investment firm allows you to pay those fees outside the account, those fees then may be deductible. In addition, fees from Roth IRAs, Roth 401k's and regular retirement accounts that are funded with after-tax money can be directly debited and deducted from taxes.

Commissions and Other Fees

Among the no-no's in the deductible advisory fee space are commissions to brokers for buying or selling securities. These fees add to the cost basis of the property, thereby reducing your tax burden when they are sold. As a result, they are not included in deductions. Moreover, investment fees of publicly-traded mutual funds also forgo deductions. This is because they do not pass investment expenses through to you, but rather reduce your dividends by your share of investment expenses.