Are Asset Management Fees Tax-Deductible?
By Ric Edelman
Is an Asset Management Fee Tax-Deductible?
The question is simple. Thanks to the tax code, the answer is complex.
One of the many benefits of investing in a fee-based investment program is that you pay no commissions. Thus, you avoid a common conflict-of-interest that often exists when working with financial advisors.
An asset management fee is based on the value of your account. Advisors who use this method want your account value to rise, just like you do. Having such a shared goal is an essential basis for an effective long-term partnership.
Can you list the fee as a deduction on your federal tax return? It’s a simple question, but the answer is complex. Blame the Internal Revenue Code.
For Taxable Accounts
An asset management fee is a tax-deductible expense. List the fee on your Schedule A under the section called "Job Expenses and Certain Miscellaneous Deductions." You can clearly see where the IRS allows you to deduct investment expenses.
However, your ability to enjoy tax savings via Schedule A depends on two factors. First, Schedule A provides tax savings only to the extent that your deductions exceed 2% of your Adjusted Gross Income. Furthermore, Miscellaneous Deductions are a "tax preference item" for purposes of calculating the Alternative Minimum Tax. If the AMT applies to you, some or all of these deductions could be disallowed.
For IRA and Other Tax-Qualified Accounts
Tax professionals debate whether an asset management fee is a deductible expense for IRA accounts. Many agree that the fee is deductible, just as it is for regular accounts. Some tax preparers disagree, however, and suggest that the fee is only deductible if the IRA generates taxable income for that year.
Many also suggest that the fee is only deductible if paid with money outside of the IRA.
Where can I find the fee?
You can find the Edelman Managed Asset Program® fee for 2012 on your December account statement (TD Ameritrade lists it on page 1 next to "Other Income or Expense").
This material was prepared for informational and/or educational purposes only. Neither Edelman Financial Services LLC nor its affiliates offer tax or legal advice. Be sure to consult with a qualified tax or legal professional regarding the best options for your particular circumstances.