Are financial advisor fees tax deductible?
Wondering if you can deduct financial advisor fees from your taxes? This article breaks down the current IRS rules, what investment expenses may still be deductible, and tax-saving strategies to help you keep more of your money.
Summary
Due to the Tax Cuts and Jobs Act of 2017, financial advisor fees are no longer tax deductible for most individuals.
Some investment-related expenses, such as margin interest, rental property management fees, and business-related financial advice, are still deductible.
Tax-saving strategies, such as tax-loss harvesting, using tax-advantaged accounts, and holding long-term investments, can help reduce your overall tax burden.
Need expert financial guidance? Find a qualified financial advisor through Unbiased to help you navigate taxes and optimize your investments.
Are financial advisor fees tax deductible?
Financial advisor fees are not tax deductible in most cases.
Before 2018, individuals could deduct certain investment-related expenses, including advisor fees, if they exceeded 2% of their adjusted gross income (AGI). However, the Tax Cuts and Jobs Act (TCJA) of 2017 eliminated this deduction for individuals, making most financial planning and investment advisory fees non-deductible on personal tax returns.
However, there are some exceptions.
If you're a business owner and pay for financial advice related to your company’s finances (such as hiring a CPA for taxes), those fees may be deductible as a business expense.
Similarly, financial advisor fees may also qualify under specific circumstances if they are tied to managing tax-exempt income.
However, financial advisor fees no longer offer a tax break for the average investor seeking retirement planning or general investment advice.
As an investor, what fees are deductible?
While financial advisor fees are generally not deductible, certain investment-related expenses qualify for tax deductions.
Some examples include:
If you trade actively, margin interest - the interest paid on money borrowed to buy investments - can be deducted up to the amount of your net investment income.
Rental property investors may also deduct property management expenses, including financial or tax advice, for their rental business.
Self-employed individuals who receive financial planning services related to their business can deduct those costs as a business expense.
However, general investment management fees, mutual fund expenses, and brokerage fees are not deductible under current tax laws.
When did investment advisory fees stop being deductible?
Investment advisory fees became nondeductible in 2018 due to the Tax Cuts and Jobs Act (TCJA) of 2017.
Before this law took effect, investors could deduct certain miscellaneous itemized expenses, including financial advisor fees, if they exceeded 2% of their adjusted gross income (AGI).
However, the TCJA eliminated this deduction through to at least 2025. Unless new legislation reinstates it, individuals cannot claim investment management fees or financial planning costs as deductions on their tax returns.
How can I save money on investment taxes?
Even though financial advisor fees are no longer tax deductible, there are several strategies investors can use to reduce their tax burden. Thoughtful tax planning can help you keep more investment gains while complying with IRS rules.
Some strategies include:
Use tax-advantaged accounts
One of the easiest ways to reduce investment taxes is using tax-advantaged accounts like 401(k)s, IRAs, and Health Savings Accounts (HSAs). These accounts offer tax benefits that can help grow your investments more efficiently:
Traditional IRAs and 401(k)s: Contributions may be tax-deductible, and investments grow tax-deferred until withdrawal.
Roth IRAs and Roth 401(k)s: Contributions are made with after-tax dollars, but qualified withdrawals are tax-free.
HSAs: Contributions are tax-deductible, and withdrawals for qualified medical expenses are tax-free.
Take advantage of tax-loss harvesting
If you have investments that have lost value, you can use a tax-loss harvesting strategy to offset your taxable gains.
This involves selling underperforming investments at a loss to reduce the capital gains tax owed on profitable investments.
If your losses exceed your gains, you can deduct up to $3,000 per year against other income and carry additional losses to future tax years.
Hold investments for the long term
The length of time you hold an investment affects how much tax you’ll pay when you sell.
Short-term capital gains (on assets held for one year or less) are taxed as ordinary income, and the rate can be as high as 37%.
Long-term capital gains (on assets held for more than a year) are taxed at much lower rates—0%, 15%, or 20%, depending on your income.
Holding investments longer can significantly reduce your tax bill.
Invest in tax-efficient funds
Some mutual funds and exchange-traded funds (ETFs) are designed to minimize taxable distributions.
As they trade less frequently, index funds and ETFs typically generate fewer taxable capital gains than actively managed funds. Choosing tax-efficient investments can help reduce annual tax liabilities.
Consider municipal bonds
Municipal bonds (or “munis”) offer tax-free interest income at the federal level and, in some cases, at the state and local levels.
Investing in municipal bonds can provide tax-free income while keeping your portfolio balanced if you're in a high tax bracket.
Gift or donate appreciated assets
Instead of selling investments and paying capital gains taxes, consider donating appreciated assets to charity.
When you donate stocks or other investments directly to a qualified charitable organization, you can avoid paying capital gains tax and may be eligible for a charitable deduction.
Similarly, gifting appreciated assets to family members in a lower tax bracket can help reduce capital gains taxes overall.
Work with a tax professional
Tax laws change frequently, and working with a financial advisor or tax professional can help you take full advantage of deductions, credits, and tax-saving strategies. While their fees aren’t deductible, their expertise can help you minimize taxes and maximize investment returns. Implementing these strategies can reduce your tax liability and allow you to keep more of your investment earnings, even without deducting financial advisor fees.
Should I still work with a financial advisor?
Even though financial advisor fees are no longer tax deductible, working with an advisor can still be a wise investment, especially if you need help with tax-efficient investing, retirement planning, or managing complex financial situations.
A good financial advisor can help you minimize taxes, optimize your portfolio, and plan for major life events in ways that could save you far more than the cost of their fees.
If you’re unsure whether an advisor is worth the expense, consider their value beyond tax deductions - such as helping you avoid costly mistakes, maximize returns, and create a solid financial strategy tailored to your goals.
Get expert financial advice
While financial advisor fees are no longer tax deductible for most investors, strategic tax planning can help reduce your tax burden.
Unbiased can connect you with a qualified financial advisor to guide you through the best strategies for your situation.
Content Writer
Brian Nibley is a copywriter and journalist who has been writing about cryptocurrency and finance-related topics since 2017. His work has appeared in publications such as MSN Money, Business Insider, Cointelegraph, BitPay, and Finance Magnates. He is also an avid social media content creator on LinkedIn, X, Instagram, and YouTube