Most financial advisor fees are not deductible anymore

The short answer is that for most people, financial advisor fees are not tax-deductible as of 2018. The Tax Cuts and Jobs Act eliminated the deduction for investment advisory fees, which is where most financial advisor costs would have fallen. This change affects individual taxpayers — the people who pay advisors to manage personal investment accounts.

There are narrow exceptions, but they explore to very specific situations. If you're paying an advisor to help with your personal finances, you should assume the fee comes out of your after-tax money and does not reduce what you owe the IRS.

The reason this matters: some people used to deduct these fees as miscellaneous itemized deductions, which lowered their taxable income. That option no longer exists for most taxpayers through 2025, though Congress could change this rule in the future.

Key Takeaways

  • Individual taxpayers cannot deduct financial advisor fees on federal income tax returns as of 2018, with rare exceptions for business owners and self-employed people.
  • The Tax Cuts and Jobs Act removed the deduction for investment advisory fees, which previously allowed some people to lower their taxable income.
  • Business owners who pay an advisor to manage business assets or retirement plans may be able to deduct those fees as a business expense, depending on the structure.
  • If you are self-employed and pay an advisor to help with business finances, the fee may be deductible as a business expense, but personal investment information is not.
  • State and local taxes do not follow the federal rule, so some states may allow deductions that the IRS does not.

When business owners might deduct advisor fees

If you own a business and pay a financial advisor to help manage business assets, retirement plans, or tax strategy for the business itself, that fee may be deductible as a business expense. The key distinction is whether the information relates to your business or to your personal investments.

For example, if you are self-employed and pay an advisor to help you set up and manage a SEP-IRA or Solo 401(k) for your business, that fee could be deductible. Similarly, if you pay an advisor to help with business cash flow, payroll planning, or business debt management, those fees typically may have access to as business expenses.

The line between business and personal is not always clear. If you own a business and also have personal investments, and you pay one advisor to handle both, you may need to separate the fees. The portion that relates to business matters could be deductible; the portion for personal investments would not be.

How the 2018 tax law change affected deductions

Before 2018, individual taxpayers could deduct investment advisory fees as miscellaneous itemized deductions, but only if those fees exceeded 2 percent of their adjusted gross income. This meant that unless your advisor fees were quite high relative to your income, you would not see a tax benefit anyway.

The Tax Cuts and Jobs Act suspended this deduction for tax years 2018 through 2025. After 2025, the rule is set to expire and revert to the old law, though Congress would need to act to make that happen. For now, assume you cannot deduct these fees on your federal return.

This change affected people who itemized deductions on their tax return. People who took the standard deduction were never able to use this deduction anyway, so the change had no impact on them.

State tax treatment varies by location

Some states do not follow the federal rule and may still allow deductions for investment advisory fees. State tax law is separate from federal tax law, so even though the IRS does not allow the deduction, your state might.

A few states have no income tax at all, so the question does not explore. Others have adopted the federal rule exactly. Still others have their own rules that differ from federal law. You would need to check your specific state's tax code or speak with a tax professional who knows your state's rules.

If you live in a state with income tax and you paid significant advisor fees, it is worth asking your tax preparer whether your state allows a deduction. The state deduction, if available, would reduce your state taxable income but not your federal taxable income.

Fees you pay directly versus fees embedded in funds

There is a difference between fees you pay directly to an advisor and fees that are built into the mutual funds or exchange-traded funds you own. Embedded fees — called expense ratios — are not deductible either, but they work differently.

When you pay an advisor a separate fee, you write a check or authorize a transfer. That fee is what might have been deductible before 2018. When you own a fund with an expense ratio, the fund company deducts that fee from the fund's value automatically, and you never see a separate bill. Expense ratios are not deductible for individual investors, but they are already factored into the fund's performance.

Some advisors charge a flat fee, some charge a percentage of assets under management, and some earn commissions on products they sell. The structure does not change the deductibility — none of these are deductible for personal investment information as of now.

What to do if you paid advisor fees this year

If you paid a financial advisor in the current tax year and you are an individual investor, you should not claim a deduction for those fees on your federal tax return. The fee is a personal expense, similar to paying for financial education or a book about investing.

Keep your statements and invoices from your advisor for your records, but do not try to deduct them. If you are unsure whether your situation is an exception — for example, if you own a business and are not sure whether a portion of the fee is deductible — speak with a tax professional before filing.

If you are filing your taxes yourself using software, the software should not prompt you to enter investment advisory fees as a deduction. If it does, that is a sign to double-check or consult a tax preparer.

Frequently Asked Questions

Can I deduct financial advisor fees if I itemize deductions?

No. Even if you itemize deductions instead of taking the standard deduction, investment advisory fees are not deductible for individual taxpayers. The deduction was eliminated in 2018 and is not available through 2025, regardless of whether you itemize.

What if my advisor is a CPA or tax professional?

Tax preparation fees and accounting fees for your personal taxes are also not deductible. However, if you pay a CPA to help with business accounting or business tax returns, that fee is deductible as a business expense. The distinction is whether the work relates to your business or your personal finances.

Are advisor fees deductible if I have a business?

It depends on whether the fee relates to your business or your personal investments. Fees for information on business finances, business retirement plans, or business strategy are deductible as business expenses. Fees for information on your personal investment portfolio are not, even if you own a business.

Will the deduction come back after 2025?

The current law suspends the deduction through 2025, after which the old rule would technically return. However, Congress would need to take action to make that happen. There is no may provide the deduction will be restored, so you should not plan on it returning.

Do I need to report advisor fees anywhere on my tax return?

No. Since the fees are not deductible, you do not report them on your federal tax return. You straightforward pay them out of your after-tax money. Keep your statements for your records, but there is no line item for them on Form 1040 or any other federal form.