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Can You Deduct Financial Advisor Fees On Taxes
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Saving money on taxes is a priority for many investors. In this article, we’ll discuss tax deductions for financial advisor fees that you may have heard about, along with several other tax-efficient investment strategies.
While you may no longer be able to save money by deducting advisor fees, you can search for financial professionals who offer services within your budget using the AdvisorMatch tool.
How To Take A Tax Deduction For Financial Advisor Fees
The Tax Cuts and Jobs Act (TCJA) of 2017 put an end to the deductibility of financial advisor fees, as well as numerous other itemized deductions. As of January 2018, these fees no longer contribute to reducing your tax bill.
Before the TCJA, investors could deduct financial advisor fees if they exceeded 2 percent of their adjusted gross income (AGI) in 2017 and prior tax years. But it really only made things a bit easier for those who have substantial consulting costs. To get it, you had to claim the benefits as various itemized deductions on Schedule A of your tax return.
The TCJA eliminated a number of other tax benefits for investors, who can no longer deduct expenses related to:
However, the tax deduction for a financial advisor may not go away forever. The changes enacted under the TCJA are set to expire in 2025, potentially reopening the door to measures put in place before 2018. Until then, investors must look elsewhere for opportunities to reduce their tax bills.
Tips To Help You Lower Your 2024 Income Tax Bill
While the deduction for financial advisor fees is not currently available, there are still opportunities for savvy investors to save money on their taxes.
These strategies may not be official tax breaks, but they can still help reduce your tax bite. Here’s what you need to know.
One way investors can reduce their tax liability is through the loss of capital gains. While no one likes to sell at a loss, working strategically with your brokerage account can help you come tax time.
When you sell an investment for less than what you paid for it, you incur what is called a capital loss. This loss can be used to offset capital gains, reducing the total amount subject to tax. For example, let’s say you sold and made a $2,000 profit on your investments, but you also sold and made a $1,000 loss. You’d end up with a taxable profit of just $1,000 and a smaller tax bill.
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But what if you had a particularly brutal year with more losses than gains — or no gains at all? If your capital losses exceed your capital gains, you can claim up to a $3,000 excess loss to reduce your ordinary income, according to the IRS.
If your excess losses total more than $3,000, you can carry those losses forward to offset capital gains in the future.
Tax loss harvesting is a strategy in which investors strategically sell investments in a losing position and then reinvest the proceeds in similar but not identical assets. If you want to buy the same investment again, you’ll have to wait at least 30 days or risk running afoul of the IRS’s wash sale rule.
By practicing tax loss harvesting, investors can potentially take advantage of realized losses without significantly changing their overall investment strategy.
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These contributions are tax-deductible, meaning they reduce your taxable income for the year in which you contributed. For example, if you contribute $5,000 to a traditional IRA, you can potentially deduct that amount from your taxable income, resulting in a lower bill.
In addition, earnings in these retirement accounts grow tax-deferred until you make withdrawals in retirement. This helps your investments enjoy years of tax-free growth — while still giving you a tax break in the present.
The downside to traditional IRAs and 401(k)s is that income taxes are eventually due when you withdraw the money in retirement. If you’d rather skip the tax bill altogether, you might consider a Roth IRA, which allows tax-free withdrawals after retirement but won’t help reduce your taxable income today.
If you hold an investment in a brokerage account for more than one year before selling it, any gains from the sale may qualify for lower long-term capital gains rates. These tax rates are usually more favorable than short-term capital gains rates, which are based on your normal tax brackets.
Are Your Financial Advisor Fees Tax Deductible?
The long-term capital gains rates are 15 percent, 20 percent, and 0 percent. In 2024, you can qualify for the 0 percent rate if your taxable income is up to $47,025 for single filers or $94,050 for married couples filing jointly. So selling long-term securities during a year when your income is particularly low can help you avoid paying capital gains taxes on your investment.
However, it can be tricky because if you get it
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