So, can you deduct financial advisor fees? The short answer is no for most taxpayers in 2024.
According to a 2023 Northwestern Mutual survey, over one-third of Americans (37%) now work with a financial advisor. Recent tax law changes mean you generally cannot deduct fees you pay for investment advice on your federal tax return. However, there are a few exceptions and important nuances – from state tax rules to special circumstances – that every investor should know.
- 💡 2024 rules at a glance: Find out if any financial advisor fees are deductible under current IRS regulations and why the law changed.
- 📜 Past vs. present: See how tax reforms (like the TCJA) eliminated this deduction and what might happen after 2025 when those changes expire.
- 🌎 Federal vs. state laws: Learn which states still allow financial advisor fee deductions on state returns even though the federal government doesn’t.
- 💼 Special cases & loopholes: Discover when business owners or retirement accounts can deduct fees (or at least use pre-tax dollars) despite the general rule.
- ⚠️ Avoid costly mistakes: Get tips on common tax pitfalls to avoid with investment fees and how to make the most of your financial advisor without a deduction.
Quick Answer: Are Financial Advisor Fees Tax Deductible in 2024?
For the 2024 tax year, the IRS does not allow individual taxpayers to deduct financial advisor fees on their federal return. These costs are treated as personal expenses, not directly deductible against income. Even if you itemize deductions, you cannot claim investment advisory or management fees under current federal law.
The reason is a change in tax law: the 2017 Tax Cuts and Jobs Act (TCJA) suspended all “miscellaneous itemized deductions” – a category that included financial advisor fees – from 2018 through 2025. In plain terms, that means no write-off for investment fees during these years. Before 2018, you could deduct such fees (if you itemized and they exceeded certain limits), but today that deduction is gone.
Are there any exceptions? Generally, not for personal investing. However, if the fee is related to a business or income-producing activity (for example, an investment expense for a business you run), it might be deductible as a business expense. Additionally, some states still let you deduct advisor fees on your state income tax return, even though the federal government doesn’t. We’ll explore all these nuances in detail below.
From Deductible to Disallowed: How Tax Law Changed Advisor Fee Deductions
Before 2018, financial advisor fees were deductible for many taxpayers as a miscellaneous itemized deduction. If you itemized on your tax return, you could include investment advisory fees, brokerage account fees, and similar costs on Schedule A.
However, they were subject to a rule – only the portion of miscellaneous expenses exceeding 2% of your adjusted gross income (AGI) was deductible. For example, if your AGI was $100,000 and you paid $3,000 in advisor fees in 2017, only the amount over $2,000 (2% of $100,000) – in this case, $1,000 – could actually be deducted.
These deductions did help offset the cost of financial advice for some. But there were caveats: high-income taxpayers often lost much of the benefit due to the alternative minimum tax (AMT) or other deduction phase-outs in place. Still, up until 2017, writing off advisor fees was a popular tax break for those who qualified.
Enter the Tax Cuts and Jobs Act (TCJA) in 2018: This federal tax reform law eliminated all miscellaneous itemized deductions starting with the 2018 tax year. The idea was to simplify tax filings and compensate by nearly doubling the standard deduction.
As a result, expenses like investment fees, unreimbursed employee costs, and tax preparation fees suddenly became non-deductible. That, combined with the larger standard deduction, caused the share of taxpayers who itemize to drop sharply (from roughly 30% before TCJA to around 10% after). In short, far fewer people even have the chance to itemize such expenses under the new rules.
From 2018 through 2025, no matter how much you spend on financial planning or investment management, you cannot deduct those fees on your 1040. This was a major shift – essentially turning a once-useful deduction into a dead end on federal returns.
It’s important to note that this change is temporary. The TCJA’s disallowance of these deductions is set to expire after 2025. In theory, starting with the 2026 tax year, financial advisor fees would again become deductible (under the old 2%-of-AGI rules) unless new legislation says otherwise.
However, Congress could act to extend the ban or even make it permanent. In fact, recent tax proposals have suggested keeping the no-deduction rule permanent, which would continue the ban beyond 2025. If no new laws pass, 2026 could see the return of the advisor fee deduction – a change that taxpayers and financial planners are watching closely.
State Tax Laws: Where Can You Deduct Advisor Fees?
When it comes to state income taxes, the rules for deducting financial advisor fees can diverge from the federal law. Each state sets its own tax regulations, and some states have chosen not to follow the federal suspension of miscellaneous itemized deductions. This means in a handful of states, you may still get a tax break for your investment advisor fees on your state return, even though you can’t on your federal.
To understand the landscape, it helps to know which states conform to federal tax law and which do not. Many states automatically adopt most federal tax rules (including deductions), so they mirrored the TCJA changes and disallowed these deductions from 2018 onward. However, several states decoupled from that change and continue to permit the deduction of investment expenses. Below is a quick overview:
| State | Deduction for Advisor Fees? |
|---|---|
| California | Yes – California tax law still allows miscellaneous itemized deductions (including investment advisor fees) if you itemize, subject to the 2% of AGI threshold. |
| New York | Yes – New York did not conform to the federal ban; you can deduct advisor fees on the NY state return (with similar limitations). |
| Minnesota | Yes – Minnesota state tax code continues to permit these deductions in calculating state taxable income. |
| Arkansas | Yes – Arkansas also allows investment management fees as an itemized deduction on the state level. |
| Most other states | No – The majority of states conform to federal rules, so no deduction is allowed for advisor fees during 2018–2025. (If your state’s tax law follows the IRS, you’re out of luck here.) |
As the table shows, states like California, New York, Minnesota, and Arkansas still offer a deduction for financial advisor fees on their tax returns. You typically need to itemize deductions on your state return to claim it, and the same kind of 2%-of-income threshold usually applies. By contrast, most other states (and those with no state income tax at all) provide no such break, aligning with the federal prohibition.
It’s crucial to check your own state’s tax rules or consult a tax professional for the latest details. State laws can change, and some states occasionally update their conformity to federal law. If you live in a state that allows the deduction, be sure you’re taking advantage of it – it won’t affect your federal return, but it could save you state tax dollars (for instance, in a high-tax state with a ~9% rate, a $5,000 advisor fee deduction could save about $450 of state tax). On the other hand, if your state doesn’t allow it, you’ll want to focus on other strategies to manage your advisor fees (which we’ll discuss later).
Who Can Deduct Advisor Fees? (Scenarios)
When it comes to deducting advisor fees, context matters. Let’s look at three common scenarios to see how the rules play out for each. Whether you’re an individual investor, a business owner, or dealing with retirement accounts, the tax outcome is different:
| Taxpayer Scenario | Can Fees Be Deducted on 2024 Taxes? |
|---|---|
| Individual investor (personal investments) | No. For personal portfolio management or financial planning, advisor fees are not deductible on your federal return under current law (2018–2025). |
| Business owner or self-employed (business-related advice) | Yes. If the advice is for a business purpose, fees can be claimed as a business expense (reducing business income) rather than a personal itemized deduction. |
| Retirement account (IRA/401(k) related fees) | No direct deduction. Fees for managing retirement accounts aren’t deductible on your 1040. However, if paid from within the account, they’re effectively paid with pre-tax dollars. |
As the table suggests, most individual investors are out of luck – you can’t deduct fees paid for personal investment advice or portfolio management. For example, if you paid $5,000 in advisor fees for your personal portfolio this year, your allowed federal deduction would still be $0. This applies whether you use a human financial advisor, a robo-advisor service, or any financial planner for personal finances. The IRS considers those personal expenses.
By contrast, business owners and self-employed professionals may have an avenue to deduct advisory costs. If you hire a financial advisor for your business – say, for managing business assets, financial consulting for your company, or advice on your self-employed retirement plan – those fees can be counted as a business expense.
In practice, that means a sole proprietor might include the expense on Schedule C (Profit or Loss from Business), or a corporation/partnership would deduct it on the business tax return. Because it’s a cost of doing business, it reduces your taxable business income directly. (Of course, you must ensure the advice is truly for the business and not your personal investments, or the IRS could challenge it.)
What about retirement accounts? Here, the rule is tricky: you can’t deduct IRA or 401(k) advisory fees on your personal tax return, but you might not need to. If your advisor’s fees for managing an IRA or 401(k) are paid directly from the account’s funds, then no deduction is needed – you’re effectively using pre-tax dollars to cover the cost.
For example, if your IRA is charged a $500 management fee, that $500 is withdrawn from the IRA’s untaxed funds. You never had to report or pay tax on that money. By contrast, if you paid the $500 fee out-of-pocket from your bank account, you’d get no deduction – you’ve used money that’s already been taxed. Bottom line: Many retirement savers choose to have the account itself pay advisory fees whenever possible, since it’s like a tax-free payment from the IRA or 401(k).
Tax Code and Legal Evidence: Why Advisor Fees Aren’t Deductible
It might help to see exactly what the tax law says about investment advisory fees. The authority for deducting such expenses originally comes from Internal Revenue Code Section 212, which allows a deduction for ordinary and necessary expenses paid for the production of income (in other words, investment-related expenses). For decades, that provision meant you could try to deduct fees you paid to manage your investments or get financial advice. These were reported as miscellaneous deductions on Schedule A, subject to the restrictions we discussed (the 2% AGI rule, etc.).
However, the Tax Cuts and Jobs Act introduced a new clause – IRC Section 67(g) – which essentially overrides Section 212 for a while. This clause explicitly states that no miscellaneous itemized deductions are allowed for taxable years 2018 through 2025. In plainer terms, Congress temporarily wiped out deductions for things like financial advisor fees (along with a host of other items) during that period. This language in the law is why your tax software or accountant will tell you “sorry, you can’t deduct that” if you try to enter investment fees on a current tax return.
The IRS has reinforced this in its guidance. For example, IRS Publication 529 (which covers miscellaneous deductions) explicitly lists investment management and advisory fees as non-deductible under the current rules. Tax court rulings also support this outcome.
In past cases (such as a notable Supreme Court case, Knight v. Commissioner (2008) dealing with trust investment fees), the courts recognized these fees as miscellaneous deductions subject to limitations. Today, with the TCJA in effect, there’s little ambiguity – neither individual taxpayers nor trusts and estates can deduct typical investment advisory fees until the law changes.
In summary, the legal evidence is crystal clear: unless you qualify for a specific exception, financial advisor fees are treated as personal expenses that the tax code does not let you write off right now. Only a change in legislation (or the expiry of the current law) will open the door for those deductions again. So, if you’ve heard differently or are hoping for a loophole, the IRS code and the courts are aligned on this – for now, the deduction is off the table.
Pros and Cons of the Current Tax Rules for Advisor Fees
Every tax rule comes with some upsides and downsides. Here’s a quick look at the pros and cons of the current situation (with financial advisor fees being non-deductible for most individuals):
Pros:
- Simplified filing: The tax law change simplified life for many taxpayers. Instead of tracking minor expenses like advisor fees, most people just take the larger standard deduction. This can make tax filing easier and less time-consuming.
- Fewer AMT surprises: In the past, some people deducted investment fees only to have them disallowed by the alternative minimum tax. Now, with no deduction at all, there’s no risk of AMT clawing it back. Your tax picture is more straightforward.
- Alternate tax strategies: The lack of a deduction has pushed investors to find other tax-efficient strategies. For instance, using retirement accounts to pay fees pre-tax, or negotiating fee arrangements that align better with after-tax value. In a way, it encourages more proactive tax planning around investments.
Cons:
- Higher after-tax cost: Without a deduction, the full brunt of advisor fees hits your wallet. If you pay $5,000 in fees, you bear that entire $5,000 after-tax. Previously, if those were deductible, the effective cost could be lower (depending on your tax bracket). For instance, a taxpayer in the 24% federal bracket would have saved about $1,200 in taxes on a $5,000 fee before – now that benefit is gone. In short, there’s no relief, which can make advisory services feel more expensive.
- No reward for good behavior: The tax code often provides deductions to encourage beneficial behaviors (like saving for retirement or giving to charity). In this case, there’s no tax incentive to seek professional financial advice. Even if that advice helps you grow your investments (and pay more taxes on gains), you can’t deduct the cost of the advice itself.
- Unequal treatment: Business owners can still deduct financial advice costs as business expenses, but regular individuals cannot. Some view this as an inequity – a high-earning entrepreneur might write off portfolio consulting as part of their business, whereas an ordinary investor with a day job gets no break at all. From the individual investor’s perspective, it feels like a lost perk that only some can workaround.
Overall, the cons mainly boil down to paying more out-of-pocket, while the pros are largely about simplicity and forcing a fresh look at how you handle fees. Many investors would undoubtedly prefer to have the deduction back, but at least with higher standard deductions, the tax system aims to compensate in other ways.
Mistakes and Pitfalls: What Not to Do
Even savvy taxpayers can slip up when dealing with financial advisor fees under the current rules. Here are some common mistakes to avoid:
- Don’t try to “sneak” the deduction in: It may be tempting to put your advisor fees somewhere on your tax return anyway (for example, lumping them in with other expenses). This won’t fly. Tax software and the IRS know that miscellaneous investment fees aren’t deductible right now. If you try to claim them on Schedule A, it will simply be rejected or provide no benefit. Avoid wasting time looking for a nonexistent write-off.
- Don’t confuse investment fees with investment interest: These sound similar but are very different. Investment interest (interest paid on loans used to invest, like margin interest) is still deductible up to certain limits. But investment advisory fees are not. A mistake is to accidentally put your advisory fees as “investment interest” on Form 4952 or Schedule A. Keep these concepts separate.
- Don’t mix personal and business expenses: If you’re a business owner, be very careful not to write off personal financial advisor fees as a business expense. Only advice that genuinely relates to your business finances (not your personal portfolio) should go on the business books. Claiming personal investment fees as a business deduction could be disallowed in an audit (and penalties might apply).
- Don’t overlook state tax breaks: As we covered, some states still allow a deduction for these fees. A common oversight is assuming “no federal deduction” means no deduction at all. If you live in a state like California or New York that permits it, make sure you itemize on your state return and include your advisor fees. Leaving that out is essentially turning down free money.
- Don’t pay fees in after-tax dollars when you have a pre-tax option: Since you can’t deduct advisor charges personally, consider paying them from pre-tax accounts when possible. For instance, let your IRA or 401(k) pay its own management fees (as discussed earlier) rather than paying from your bank account. If you have an investment in a partnership or business, have the entity cover advisory costs where appropriate. The idea is to use untaxed dollars to cover fees whenever you legitimately can, rather than taxed personal income.
By steering clear of these pitfalls, you can avoid headaches and make the most of the current tax landscape. The key is understanding the rules and not falling for outdated advice or wishful thinking. Focus on what you can control – like fee management and alternative strategies – instead of trying to bend the rules.
Key Terms for Savvy Taxpayers
Throughout this article, we’ve mentioned several tax terms and concepts. Understanding these can help make sense of the rules around advisor fees. Here are a few key definitions:
Schedule A (Itemized Deductions)
Schedule A is a form in your federal tax return where you list itemized deductions. These are expenses that the IRS allows you to subtract from your income if you don’t take the standard deduction. Before the TCJA, investment advisor fees (along with other miscellaneous expenses) were claimed on Schedule A. Today, Schedule A still exists for deductions like mortgage interest, state taxes, and charity – but investment fees no longer appear there because they aren’t deductible in the current tax years.
Miscellaneous Itemized Deductions
This is a category of write-offs that used to be on Schedule A, covering various expenses such as unreimbursed job expenses, tax preparation fees, and investment advisory fees. They were labeled “miscellaneous” because they didn’t fit into bigger categories like medical or charitable deductions. Importantly, you could only deduct these if – in total – they exceeded 2% of your adjusted gross income.
From 2018 through 2025, miscellaneous itemized deductions are completely disallowed by the IRS (thanks to TCJA). So for now, this entire category is essentially on pause. Come 2026, it’s scheduled to come back unless new law intervenes.
Tax Cuts and Jobs Act (TCJA)
The Tax Cuts and Jobs Act is the landmark tax reform law passed in late 2017, which took effect in 2018. It overhauled many parts of the tax code – including doubling the standard deduction and eliminating miscellaneous deductions (like advisor fees) temporarily. TCJA’s changes to individual taxes, such as this deduction ban, are set to expire after 2025. The TCJA is why you cannot deduct financial advisor fees today. Whether its provisions will be extended or not is a big question as 2025 approaches.
Fiduciary vs. Non-Fiduciary Financial Advisors
These terms describe the standard of care and compensation structure of financial advisors. A fiduciary advisor is legally obligated to put your best interests first. Fiduciary advisors typically charge transparent fees (like a flat fee or a percentage of assets under management) rather than earning commissions. A non-fiduciary advisor, by contrast, might earn commissions by selling financial products; they follow a lesser “suitability” standard (recommendations just need to be suitable, not necessarily the absolute best for you).
Tax-wise, there’s no direct difference between the two – whether you pay a fee to a fiduciary planner or incur commission costs with a broker, the tax result is the same (you generally can’t deduct either one). Still, it’s useful to know the distinction when evaluating the value and cost of advice.
FAQ: Deducting Financial Advisor Fees
Q: Are financial advisor fees tax-deductible in 2024?
A: No. Current federal tax law doesn’t allow a deduction for financial advisor or investment management fees in 2024. This has been the case since 2018 due to tax reform changes.
Q: Can a small business deduct fees paid to a financial advisor?
A: Yes. If the advice relates to the business (not your personal investments), those fees can be treated as a business expense. That means they reduce business profits and are effectively deductible.
Q: Will investment advisor fees become deductible again after 2025?
A: Yes (under current law). The tax deduction for these fees is scheduled to return in 2026 when the Tax Cuts and Jobs Act provisions expire—unless new legislation extends the current disallowance.
Q: Can I deduct the fees my advisor charges to manage my IRA or 401(k)?
A: No. Such fees aren’t deductible on your personal tax return. However, if the retirement account pays the fee directly, you’re using pre-tax dollars to cover it (effectively giving you a tax benefit).
Q: Are brokerage commissions or transaction fees tax deductible?
A: No. Commissions or trading fees are not deductible. Instead, they get factored into the cost basis of your investments (which can affect capital gains or losses when you sell, but they aren’t a direct deduction).
Q: I trade stocks full-time – can I deduct investment expenses as a trader?
A: Yes, but only if you meet the IRS’s strict criteria to qualify as a professional trader (meaning you’re essentially running a trading business). If you do meet those requirements, you can deduct your trading-related expenses as business write-offs. For instance, you’d generally need to trade almost daily and aim to profit from short-term market moves as your primary livelihood. Only then might the IRS consider you a trading business. However, very few individuals qualify – most investors won’t.
Q: Were financial advisor fees tax-deductible in the past?
A: Yes. Before 2018, you could deduct investment advisory fees as a miscellaneous itemized deduction (subject to a 2% of AGI threshold). That deduction was suspended from 2018 through 2025 by the Tax Cuts and Jobs Act.
Q: What if my advisor helps manage my rental property investments?
A: Yes. If the fees you pay are for managing or advising on income-producing property (like rental real estate), those costs are deductible against that income. For example, you could list them as an expense on Schedule E for your rental properties. Essentially, it’s considered part of the cost of earning rental income, so it remains deductible in that context.