Are Financial Planning Fees Tax Deductible?

Is your fee for financial planning tax-deductible? That depends on which type of financial plan you have. IRA, 401k, RRSP, Nongrantor trust, etc. – some planners bundle all their services into a single AUM fee. Others itemize portions of their fees that are tax-deductible for their clients. For those who charge retainer fees, financial planners must itemize those portions.

IRA

You may be wondering if IRA financial planning fees are tax deductible. In the past, the fees paid by account holders were not tax deductible. The IRS had set a floor of two percent of adjusted gross income (AGI) before allowing a deduction. That meant that if you earned $300,000, you couldn’t deduct the first $6,000 in fees. Now, however, fees paid directly from an IRA are tax deductible.

Some advisers believe that you should pay fees from your taxable account because you can no longer deduct them. Others argue that you should leave the funds in your IRA to compound tax-deferred over the years. The compounding growth over years can be a significant amount. In either case, you can deduct IRA financial planning fees from your income taxes. This is beneficial for those who would like to maximize the tax-deferred growth of their money.

401k

You may be wondering whether your 401k financial planning fees are tax refundable. This depends on your circumstances. If you make over $100,000 a year, you are in the 25% tax bracket, which would mean that your investment fees would be deductible up to $3,000 a year. However, you can always offset this expense with the corresponding tax deduction. This is possible if you make less than this level of income. The amount of tax deductions you can claim for these expenses is subject to a cap of 2 percent of your adjusted gross income.

Previously, these fees were not tax deductible because they required you to pay them out of your IRA. Moreover, the deduction was limited to two percent of your adjusted gross income (AGI). So, if you make over $300,000, you could only deduct the first $6,000 of fees. However, these fees are now tax deductible if you pay them directly from your tax-deferred account.

RRSP

You can’t deduct RRSP financial planning fees, even if you pay them outside your registered plan. The reason for this is that you pay the fees with pre-tax dollars. CRA shares in part of the fee you pay. This way, you can maximize the tax-free growth of your registered plan. However, you cannot deduct advisor fees from your RRSP or RRIF.

An example of this is the case of a hypothetical investor who is investing in RRSPs. Let’s say that he is planning to retire in ten years’ time. He has saved up $10,000 for investments and is taxed at a rate of 6%. At this rate, he would have $168,884 at the end of the year. This means that paying the advisor’s fee with non-registered funds isn’t a good idea.

Nongrantor trusts

When are nongrantor trusts tax deductible as financial planning fees? The IRS has recently reissued proposed regulations clarifying when nongrantor trusts’ investment advisory services are fully deductible. Currently, most advisory expenses are subject to severe restrictions. For example, individuals can only deduct up to 2% of their adjusted gross income for miscellaneous itemized deductions, which can only total about $10k. Investment advisory fees can only be deducted as part of this amount.

While Knight did not specify the details of the rule, it did clarify that trust expenses for investment advisory fees may be deductible, but only to the extent they exceed 2% of adjusted gross income. On Sept. 6, the IRS issued proposed regulations clarifying the scope of the 2% floor. The regulations define the types of expenses that are subject to the 2% floor, including those typically incurred by individual taxpayers who hold property in trusts.

Travel expenses for seeking investment advice

When seeking investment advice, it’s often necessary to travel to the real estate market. Agents often need to coordinate repairs, for example, and must pay for travel costs out of pocket. Some wonder whether they can deduct their travel expenses. Fortunately, yes. You can deduct travel expenses for investment property-related purposes, and your agent can often help you determine which expenses are deductible. Here are some important considerations to keep in mind.

Continuing education for professional certifications

The ABA, the American Institute of CPAs, and the Financial Industry Regulatory Authority all require continuing education for licensed financial planners. Continuing education for financial professionals can also be tax deductible. There are two types of continuing education: regulatory and firm-sponsored. Regulatory education covers the requirements of professional certifications and firm-sponsored continuing education. Tax-deductible education is specifically designed to improve the financial planning skills of licensed professionals.

IRS-sponsored financial planning and accounting professionals can earn CE credits by volunteering their time. IRS-sponsored programs include VITA and TCE, which offer free tax preparation to qualified individuals. Attendance at these free tax preparation events can help fulfill the experience requirement for CFP(r) candidates. Continuing education credits for tax professionals may also be credited for volunteer work. However, individual education and training cannot be claimed for tax purposes unless it satisfies the IRS’ standards.