Are investment management fees tax-deductible? This very simple question has been made more complicated by the tax code.

Taxable Accounts

For taxable accounts, investment management fees are a tax-deductible on your Schedule A.  There is a section called “Job Expenses and Certain Miscellaneous Deductions.”  Here, the IRS allows you to deduct “investment-related expenses”. That includes charges such investment management fees and account fees.

However, your ability to fully deduct these expenses depends on two factors:

Schedule A only provides tax savings if your deductions exceed 2% of your Adjusted Gross Income. Only the portion that exceeds 2% of AGI is tax deductible.

Miscellaneous Deductions are a “tax preference item” for     purposes of calculating the Alternative Minimum Tax. If you are subject to AMT, some or all of these deductions could be disallowed.

For IRA and Other Tax-Qualified Accounts

Whether or not investment management fees are deductible for IRA accounts is open to debate.  Because these accounts are already not subject to taxation until distributed, some tax preparers argue that the fee is only deductible if the IRA generates taxable income for that year.  Furthermore, the fee is only deductible if it is paid from money outside of the IRA account.

Where Can I Find Fee Amount Information?

For taxable accounts, you can find the fee on your Form 1099 Composite under “Summary of Fees & Expenses – Advisor Fees”.

For non-taxable retirement accounts such as IRAs, the information is obtainable on the year-end statement under “Fees & Charges”.

All this information can also be found on the Schwab Client site.  But of course, if you have any trouble finding this information or have any questions about the deductibility of investment management fees, we are here to help.  Please feel free to give us a call!

This material was prepared for informational and/or educational purposes only. SimpliFi does offer tax or legal advice. Be sure to consult with a qualified tax or legal professional regarding the best options for your particular circumstances.

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