No. It isn’t since the year 2018. The TCJA, or the Tax Cuts and Jobs Act of 2017, has repealed the deductibility of financial advisor fees from 2018 to 2025.
Professionals in the industry – the clients as well as advisors - have had a couple of years to adjust to the change. The stock market, however, has prospered beyond expectations through the pandemic period. Experts, therefore, may be looking at this development (fees deductibility of advisors) with newfound interest.
Alternatives to tax deductibility of the advisor-fees
Post the coronavirus days, particularly speaking of 2021, investment returns have been so excellent that many advisor fees have increased substantially. This has raised clients’ brows. It is, therefore, beneficial for clients can make the payments with pre-tax cash. They now have the option of deducting appropriate amounts of the fees from their IRAs.
The TCJA restricts tax-saving choices for investors. Agreed. Nevertheless, there are still ways to maximize the tax deductibility of your customers’ fees. Apply heavily loaded, commission-based investments and directly bill the traditional individual retirement accounts, business accounts, and trusts.
How to bill IRA separately?
As already hinted above, there are several ways to avert taxes. You only need to find them out. Some advisers apply the tactics of directly billing their clients’ traditional IRAs. The billing is prepped on the basis of the hours spent advising the client on the IRA.
The client stands to benefit as a portion of the charges is paid from his pre-tax dollars. However, billing clients’ IRAs directly needs to be done with caution. The problem usually lies in withdrawing fees from IRAs, in case the fees do not reflect real-time spent advising on the IRA.
[Read Also: How to Select your Fiduciary Financial Advisor?]
What do the experts say?
Experts usually recommend against billing IRAs directly.
They do so because using retirement account assets to pay fees for other accounts is not a financially healthy thing to go for. The IRA is a tax-deferred account and one of the most potent retirement tools. A wise advisor would certainly not want to disrupt that compounded growth!
Although the deductions allowed under Section 212 were pleasantly beneficial, the benefits should be a wonderful bonus, but it should not or need not dictate how you choose to charge clients.
Your fiduciary financial advisor Los Angeles would rather concentrate on tax minimizations, income from qualified dividends, which are taxed more favorably, and other investments than change their billing practices.
Wrapping up
While financial advisor fees are not currently tax deductible, this does not rule out the possibility of them being so in the future. Paying attention to changes in tax legislation might assist you in looking for ways to reduce the amount of taxes you pay on your investments. If you deal with a dedicated fiduciary financial advisor, he or she can also assist you in managing your tax liabilities.
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