Historically, you could deduct some financial advisor and tax preparation fees. Under the current tax code, that is no longer the case. For example, say that you paid $4,500 this year in fees to your financial advisor. There are no specific tax breaks for this spending for the 2024 tax year. However, the Tax Cuts and Jobs Act scheduled sunset in 2025 – if not extended by the incoming Trump administration – has the potential to impact fee deductibility moving forward. Here’s what you should know. You can also match and speak with a financial advisor for free to decide if their services are a good value for your goals.
Historic Tax Deductions For Financial Advice
Individuals could previously take a tax deduction for some forms of financial management.
This was based on a form of individual itemized (or “below the line”) tax deduction called “miscellaneous deductions.” This is a broad category of deductions that cover a variety of subjects, including financial management and advice. Specifically, when it comes to financial management, miscellaneous deductions include:
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Financial advisor fees
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Tax preparation fees
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Tax attorney fees
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Accountant fees
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IRA custodian fees
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Account trustee fees
Miscellaneous deductions work based on a 2% rule. This means that qualifying taxpayers add up their qualifying miscellaneous deductions, and can deduct any amount above 2% of their AGI. For example, say that you made $100,000 per year so that 2% of your AGI is $2,000. If you had $5,000 in qualifying expenses you would add all those up, then claim a combined $3,000 deduction. (Total expenses – 2% AGI = $5,000 – $2,000 = $3,000)
For the right household, this can be a fairly important deduction. On average, a financial manager will charge you around 1% of your portfolio’s value. This can add up quickly, particularly for high-net-worth households. However, per the IRS, individuals can no longer claim miscellaneous deductions. These are now mostly restricted to some categories of employees with unreimbursed expenses.
A financial advisor can help you execute a strategy to minimize your taxes based on your personal circumstances.
The Tax Cuts and Jobs Act
The law around miscellaneous deductions was changed by the Tax Cuts and Jobs Act of 2017, which eliminated these (among many other) individual deductions in favor of a much larger standard deduction. This has previously created significant uncertainty around the future of miscellaneous deductions.
However, Congress scheduled many elements of the TCJA to expire in 2025. While most of the law’s corporate tax provisions are permanent, many of its individual tax provisions are included in the sunset provision.
This includes the elimination of individual miscellaneous deductions, which will return if the tax law expires.
What this means is that, under the current law, in tax year 2026 individuals would be able to claim miscellaneous deductions again. This includes fees for financial advisors, tax preparation and others.
However, it is likely that the TCJA will be extended in all parts. The incoming Trump Administration has said repeatedly that it intends to extend this law, as has the incoming Republican majority in Congress. While there is no certainty, the Republican party has said that they will use their majorities to make these tax cuts permanent. As a result, it is likely that individuals will not be able to deduct financial fees going forward.
A financial advisor can help you stay on top of changing legislation and position your financial plan accordingly. Get matched today for free.
Your Advisor Fees Are Not Likely Deductible
So, here we have an individual paying $4,500 in fees to your financial advisor.
The first question is whether you are self-employed. If you are self-employed, you may be able to claim financial and tax fees as a qualified business expense. This is not technically a deduction, as it reduces your taxable profits rather than reducing your taxable personal income, but in most cases it functions the same way. This isn’t a sure thing, and will depend significantly on how much you have comingled your personal and professional assets, but it may be worth looking into.
Beyond that, however, you almost certainly cannot deduct these fees from your taxes. Even when individuals could deduct financial fees, you typically would have needed to itemize your taxes. So this deduction wasn’t available to the vast majority of taxpayers, who take the standard deduction.
Today, this deduction is not available at all. You can still claim other forms of finance-related deductions, such as the deduction for qualified retirement account contributions and capital losses on assets that you sold during the year. However, you cannot take a deduction for financial management, tax preparation, legal advice or any related expenses. But you still get to enjoy that larger standard deduction, and a financial advisor may be able to help you maximize the impact of your income and nest egg.
The Bottom Line
You cannot deduct financial management, advisor or tax preparation fees from your taxes. This was a deduction offered before the 2017 tax law. It will return if that law is not extended in 2025.
Tips On Maximizing Your Tax Deductions
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Do not miss your above-the-line deductions. While most people take the standard deduction, there are still plenty of valuable tax breaks you can claim without needing to itemize. Like these.
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A financial advisor can help you build a comprehensive retirement plan. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
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Keep an emergency fund on hand in case you run into unexpected expenses. An emergency fund should be liquid — in an account that isn’t at risk of significant fluctuation like the stock market. The tradeoff is that the value of liquid cash can be eroded by inflation. But a high-interest account allows you to earn compound interest. Compare savings accounts from these banks.
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