Financial planning is an essential service that helps individuals and businesses manage their finances effectively, plan for retirement, and achieve their financial goals. The tax deductibility of financial planning fees can be complex.
Under current tax laws, most financial planning fees are not tax-deductible. The Tax Cuts and Jobs Act (TCJA) of 2017, effective from 2018 through at least 2025, eliminated miscellaneous itemized deductions subject to the 2% floor. This category previously included financial planning fees. Therefore, these fees are no longer deductible for most taxpayers during this period.
Exceptions to the Rule
Despite the general rule, there are certain scenarios where financial planning tax deductions might still apply:
- Investment Advice Fees: Investment advice fees related to taxable investment income may sometimes be deductible. This can include fees paid to manage your taxable investment accounts, such as:
- Fees for managing a brokerage account that generates interest or dividends.
- Fees associated with investment advice for a taxable investment portfolio, such as actively managed mutual funds.
- Business-Related Financial Planning Fees: If you are self-employed or own a business, business-related financial planning fees might be deductible as a business expense. This can include advice on managing business finances, tax planning for the business, or other business-specific financial services such as:
- Fees for developing a cash flow management strategy for your business.
- Costs associated with tax planning specific to your business structure, such as S corporation vs. LLC.
- Fees for guidance on retirement plan options for your employees.
- Retirement Planning Fees: Fees paid for retirement planning advice that are directly deducted from your retirement account may be paid with pre-tax dollars. While not a direct deduction, this offers a tax advantage similar to a deduction. Some examples of this:
- Contributions to traditional IRAs and employer-sponsored retirement plans (like 401(k)s) allow you to reduce your taxable income in the year you contribute.
- Fees associated with retirement planning advice can be deducted from these contributions, lowering your taxable income.
Recommendations
Given the complexities of tax laws and the potential for exceptions, it’s crucial to consult a tax professional to understand the tax deductibility of financial planning fees and specific deductions you may qualify for based on your circumstances. Keeping detailed records of any fees paid for financial planning and the nature of the services provided can help identify any potential tax benefits.
While financial planning fees are generally not tax-deductible for most individuals under current tax law, certain exceptions may apply. Staying informed, seeking professional tax advice, and working with experienced financial planners can help you navigate these complexities and maximize your financial planning efforts.
**Disclosure – CF Financial (“RIA Firm”) is a registered investment adviser located in Fort Worth, TX. CF Financial may only transact business in those states in which it is registered, or qualifies for an exemption or exclusion from registration requirements. CF Financial’s web site is limited to the dissemination of general information pertaining to its advisory services, together with access to additional investment-related information, publications, and links. Accordingly, the publication of CF Financial’s web site on the Internet should not be construed by any consumer and/or prospective client as CF Financial’s solicitation to effect, or attempt to effect transactions in securities, or the rendering of personalized investment advice for compensation, over the Internet. Any subsequent, direct communication by CF Financial with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides. For information pertaining to the registration status of CF Financial, please contact the state securities regulators for those states in which CF Financial maintains a registration filing. A copy of CF Financial’s current written disclosure statement discussing CF Financial’s business operations, services, and fees is available at the SEC’s investment adviser public information website – www.adviserinfo.sec.gov or from CF Financial upon written request. CF Financial does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to CF Financial’s web site or incorporated herein, and takes no responsibility therefor. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly.