Taxes Are Investment Advisory Fees Still Tax Deductible? By Dana Anspach Dana Anspach Dana Anspach is a Certified Financial Planner and an expert on investing and retirement planning. She is the founder and CEO of Sensible Money, a fee-only financial planning and investment firm. learn about our editorial policies Updated on February 17, 2023 Reviewed by Ebony J. Howard Reviewed by Ebony J. Howard Ebony Howard is a certified public accountant and a QuickBooks ProAdvisor tax expert. She has been in the accounting, audit, and tax profession for more than 13 years, working with individuals and a variety of companies in the health care, banking, and accounting industries. learn about our financial review board Fact checked by Mrinalini Krishna In This Article View All In This Article The Rules for Claiming a Deduction Paying Fees Out of an IRA Paying From a Roth IRA Internal Mutual Fund Fees Paying for Advice Separately Managed Accounts FAQs Photo: Hero Images / Getty Images Investment management and financial planning fees were tax deductible through tax year 2017. They fell into the category of miscellaneous itemized deductions, which were eliminated from the tax code by the Tax Cuts and Jobs Act (TCJA) effective tax year 2018. All isn't necessarily lost, however, if you could have claimed these fees but you didn’t. You can go back and amend a tax return for three years from the date you filed it, or for two years from the date you paid any resulting tax, whichever is later. The three-year deadline has passed, but you can still amend a return if you made your last tax payment on it in the last two years. Key Takeaways Investment advisory fees haven't been tax deductible since 2017, but there are a couple of ways in which you might be able to get around this.You might still be able to deduct fees that you didn't claim in previous years by going back and amending the tax return(s) in question.You can pay fees that derive from assets held in a traditional IRA from that IRA and realize some tax benefits for doing so. The Rules for Claiming a Deduction Investment management fees and financial planning fees could be taken as a miscellaneous itemized deduction on your tax return prior to 2018, just like tax preparation fees, but only to the extent that they exceeded 2% of your adjusted gross income (AGI). You'd get no deduction for the first $2,000 of fees you paid, but you would be able to deduct the last $1,000 (the amount that exceeds $2,000 of 2% of your AGI) if your AGI was $100,000 and you paid $3,000 in financial planning, accounting, and/or investment management fees. Tip You might be tempted to pay these fees by check, using after-tax dollars, because it's easy, but there could be a better way if you have money in an IRA. Paying Fees Out of an IRA You can pay investment management fees or financial planning fees that are structured as a percentage of assets directly out of the account that's being managed. It’s not considered a withdrawal from an IRA account when fees are paid this way. It's an investment expense, so you’re paying the fees with pre-tax dollars. It makes sense to pay fees directly out of traditional IRAs when possible because the funds held in a traditional IRA will be taxed eventually. You’re avoiding paying income tax on that portion if you pay fees out of this type of account rather than your taxable income. Unfortunately, you can only pay the portion of the fee that's attributable to that particular IRA. If you have $500,000 in an IRA and $100,000 in a non-retirement account, and if you pay 1% a year in fees, the $5,000 attributable to the IRA can be deducted out of the IRA, but the $1,000 attributable to the non-IRA account cannot. Paying From a Roth IRA It doesn’t make sense to pay fees from a Roth IRA, because these IRA withdrawals aren't taxed. Contributions to Roth accounts are made with after-tax dollars. You’ll want to let the money grow tax free in a Roth IRA for as long as possible. Internal Mutual Fund Fees and Trading Costs Mutual fund fees are charged in the form of an expense ratio. This cost is deducted out of the return of the fund before your share is allocated to you. This is a return or gain that was never reported to you because that portion was used to directly pay the expenses. You don’t have to total up your mutual fund fees and claim them as a deduction for this reason. Tip The money is added to the cost basis of the stock if you buy a stock and pay $10 for the trade. The capital gain reported is reduced by the amount of the trading cost when you sell the stock. Paying for Advice Some investment advisors offer financial planning services as well as tax preparation services. They're usually provided as part of a bundled service offering and are charged based on a percentage of assets managed. You might find that these services are surprisingly reasonable when you view the costs on an after-tax basis for tax years in which these costs are deductible. Another consideration is the cost of actively managed mutual funds. These employ a management team of research analysts who study stock market data in an attempt to earn higher returns. It costs more to pay for this team of research analysts, so actively managed funds have higher fund fees, sometimes as high as 0.71% a year. You could hire a fee-only investment advisor who uses low-cost index funds to build the portfolio instead of using actively managed funds. These funds have low expense ratios, and some funds may charge zero expense fees. You might be able to get far more personal advice for about the same cost by structuring services this way. Separately Managed Accounts Many financial advisors recommend separately managed accounts instead of mutual funds for high-net-worth families with a large number of invested assets. You own the stocks directly, so there's no expense ratio. Instead, all fees are paid in the form of an investment management fee that's debited from the account. The fees debited from an IRA are paid with pre-tax dollars. Fees qualified for the miscellaneous itemized deduction, subject to the 2% limit, prior to tax year 2018. Frequently Asked Questions (FAQs) What's the Difference Between a Roth IRA and a Traditional IRA? The major difference between a Roth and a traditional IRA is in the tax treatment of your contributions to each. You can claim a tax deduction for money you contribute to a traditional IRA, but it's then taxable at the time you withdraw it. Roth contributions are made with taxed dollars because no deduction is available for these accounts, but the money and its growth can be taken tax free in retirement if it's a qualified distribution. That's why it doesn't make much sense to pay advisory fees from a Roth account. Can I Still Deduct Financial Investment Advisory Fees If I'm Self-Employed? You can deduct fees you pay for legal and professional services on Schedule C, Profit or Loss From Business, if you're self-employed. But check with a tax professional first to be absolutely sure that the fees you want to claim qualify. Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. IRS. "Publication 529 (2017) Miscellaneous Deductions." TurboTax. "Can I deduct IRA management fees?" IRS. "Traditional and Roth IRAs." Investor.gov. "Expense Ratio." U.S. Securities and Exchange Commission. "Mutual Fund Fees and Expenses." Investment Company Institute. "Trends in the Expenses and Fees of Funds, 2020." Fidelity Investments. "No Minimum Investment Mutual Funds." IRS. "Publication 529 Miscellaneous Deductions."