Tax deductible advisor fees
Which financial advisor fees are tax deductible once I have exceeded the 2% AGI threshhold. I have a financial analyst that gets a 1% yearly fee from me and they invest through a custodial broker that charges fees for managing my portfolio (which at this point consists of mutual fund). I tried to investigate this in IRS publication 529 but was left with two different opinions. I know I need to diversify but that’s not the issue right now.
Thanks,
Bryant
Permalink Submitted by Alan Spross on Tue, 2011-03-08 23:54
You can deduct the advisor fees allocated to the specific account as a misc deduction. If the account is an IRA, you must pay the fees with outside funds in order to deduct them.
You cannot deduct fees that are part of the investment, such as mutual fund loads or commissions. However, the IRS approved an exception in the event you have what is known as a “wrap account” where the wrap fee includes commissions and management fees, and sometimes administrative fees as a % of account assets. See PLR 2005-07021.
One issue with the Pub 529 explanation relates to “investments that produce taxable income” limitation. This lacks clarification regarding WHEN THIS taxable income is produced, ie in the future in the case of a traditional IRA or perhaps never if the fees are for a Roth IRA that is qualified or will be qualified in the future. Most tax preparers are taking the aggressive approach and deducting all advisory and management fees that are separately billed and paid from non retirement funds, when stated as a % of assets including IRA and taxable assets.