The Tax Treatment of Advisory Fees

To bring clarity to an often-confusing topic, the fees paid to a financial advisor are tax-deductible to a limited extent. It is our understanding (but please follow the advice of your tax professional) that fees paid from a taxable account (i.e., after-tax money) are deductible even if those fees include payment for management of your IRA account. The fees are included in Schedule A under “Job Expenses and Certain Miscellaneous Deductions.”  However, Schedule A expenses are only deductible to the extent they exceed 2% of adjusted gross income.

For those taxpayers who are subject to Alternative Minimum Tax, Miscellaneous deductions are a “tax preference item” for the purpose of calculating the Alternative Minimum Tax, meaning that the deduction may be disallowed.

Although they are not reported to the IRS, advisory fees do show up on the 1099 received from the custodian of your assets. Specifically, they are listed as “Fees & Expenses – Miscellaneous Fees” in the section titled “Reconciliations, Fees, Expenses and Expenditures.” They can also be found in the December 31st statement from the custodian.

If we can be of further assistance to you in this matter, please don’t hesitate to e-mail us at info@clarityca.com or call us at 800-345-4635.