Investors often wonder if investment advisory fees are deductible from their taxes. Understanding tax rules can help determine whether these fees and other investment-related expenses reduce taxable income.

Understanding Investment Advisory Fees

Investment advisory fees are payments made to financial professionals for managing assets, providing financial planning, or offering investment advice. These fees may be structured as:

Flat Fees – A set charge for ongoing advisory services
Percentage-Based Fees – A fee based on assets under management
Hourly or Retainer Fees – Payments for periodic consultations

The tax treatment of these fees depends on how they are classified—either as investment interest expenses, miscellaneous itemized deductions, or fund-level expenses within an investment product.

The Impact of Tax Law Changes on Investment Advisory Fees

Before 2018, taxpayers could deduct certain investment-related expenses if they exceeded 2% of adjusted gross income (AGI). This included:

Investment advisory fees
IRA custodial fees (if paid separately)
Financial planning fees

The Tax Cuts and Jobs Act (TCJA) of 2017 temporarily eliminated these deductions, making most investment advisor fees non-deductible from 2018 to 2025. As a result, individuals can no longer claim these expenses on their personal tax returns during this period.

Investment Interest Expense Deduction

Though investment advisory fees are no longer deductible, investment interest expenses may still qualify. This deduction applies to interest paid on borrowed funds used to invest in taxable assets, including:

Margin loan interest
Interest on loans used to buy stocks or investment properties

The deductible amount is limited to net investment income for the year. Unused investment interest expense carries forward to future tax years.

Example:

Michael took out a margin loan and paid $4,500 in interest. His taxable investment income from dividends and interest was $3,000. Since his net investment income is lower than his interest expense, he can deduct only $3,000 this year. The remaining $1,500 carries forward to the next tax year.

Fees Paid on Tax-Advantaged Accounts

Investment advisory fees on IRAs, 401(k)s, and Roth IRAs are not tax-deductible. However, investors may choose to pay fees inside or outside the account, which affects long-term tax benefits.

For Roth IRAs – Paying fees outside the account preserves more tax-free growth.
For Traditional IRAs and 401(k)s – Paying fees from inside the account can be beneficial, as the money used is pre-tax.

Mutual Fund and Segregated Fund Expenses

Mutual funds and segregated funds charge management expense ratios (MERs), which are deducted at the fund level before distributing income. Investors cannot directly deduct these fees, but they effectively reduce taxable income.

Electing to Treat Qualified Dividends as Ordinary Income

Qualified dividends typically receive lower tax rates (0%, 15%, or 20%), but investors can choose to classify them as ordinary income. Doing so may increase their deductible investment interest expenses.

Example:

Emma has $2,500 in qualified dividends, normally taxed at 15%. She also has $6,000 in investment interest expenses but only $5,000 in net investment income. If she elects to treat the $2,500 in qualified dividends as ordinary income, her net investment income increases to $7,500. This allows her to deduct more investment interest expenses and lower her taxable income.

Since this election cannot be easily revoked, consulting a tax professional before making this choice is essential.

Capital Losses and Tax Savings

Capital losses can help reduce taxable income by offsetting capital gains. If losses are greater than gains, up to $3,000 ($1,500 for those married filing separately) can be deducted from ordinary income.

Example:

David sells stocks and realizes $8,000 in capital gains. However, he also sells other stocks at a $10,000 loss. His capital losses exceed his gains by $2,000, eliminating capital gains tax. He can also deduct $1,000 against his ordinary income, with the remaining $7,000 carried forward to future years.

What Other Deductions Can You Get from Investments?

Even though investment advisor fees are not tax-deductible, several investment-related expenses may still reduce your tax bill:

1. Rental Property Expenses

If you own rental properties, you can deduct:

Mortgage interest
Property taxes
Depreciation
Property management fees

2. Business Investment Expenses

Investors running a business may qualify for deductions on:

Investment research tools
Legal fees for investment-related business operations
Home office expenses (if investing is part of a business)

3. Retirement Account Contributions

Although fees on retirement accounts cannot be deducted, contributions to Traditional IRAs and 401(k)s can lower taxable income for the year they are made.

4. Health Savings Accounts (HSAs)

HSA contributions reduce taxable income, and investment growth inside HSAs is tax-free if used for medical expenses.

5. Self-Employed Investment Deductions

If you are self-employed, Solo 401(k) contributions, SEP IRAs, and investment-related business expenses may be deductible.

Are Investment Advisor Fees Tax Deductible in a Corporation?

When investments are held within a corporation, investment management fees can factor into the adjusted aggregate investment income (AAII) calculation. This impacts how passive income is taxed within the company. Business owners should seek advice from a tax professional to understand the specific deductions available for corporate investment accounts.

How to Reduce Taxes Even Without Deducting Investment Advisor Fees

Even though investment advisor fees aren’t tax-deductible, investors can still take steps to reduce taxes and make the most of their money. Smart tax planning and strategic investing can help offset costs and maximize returns.

Use Tax-Advantaged Accounts

A simple way to reduce taxes is through tax-advantaged accounts like 401(k)s, IRAs, and HSAs. Contributions to Traditional IRAs and 401(k)s lower taxable income, and investments grow tax-deferred until withdrawn. Roth IRAs, while not offering upfront deductions, allow earnings to grow tax-free, making them beneficial for long-term savings.

Another way to save is by paying investment fees directly from tax-advantaged accounts when possible. This keeps more taxable funds invested, potentially increasing overall growth.

Offset Gains with Losses

Investors with taxable accounts can use capital losses to reduce capital gains, lowering their tax liability. If losses exceed gains, up to $3,000 ($1,500 for married filing separately) can be deducted from ordinary income each year. Any unused losses can be carried forward to offset future gains.

For example, if you sell a losing stock, that loss can cancel out profits from another investment. This strategy, called tax-loss harvesting, can help manage your tax bill, especially during market downturns.

Deduct Investment Interest Expenses

Although investment advisor fees are not deductible, investors may still be able to deduct investment interest expenses, such as interest paid on loans used to purchase taxable investments. This deduction is limited to net investment income, which includes interest income and non-qualified dividends. Any unused portion can be carried forward to future tax years.

Some investors opt to classify qualified dividends as ordinary income to increase their deductible investment interest expenses. However, this strategy may lead to a higher overall tax burden, so consulting a tax professional is recommended before making this decision.

A Smarter Approach to Investment Fees and Taxes

The elimination of miscellaneous deductions under the TCJA means most investment advisory fees are not deductible. However, tax-saving opportunities still exist through investment interest expense deductions, capital loss offsets, and strategic asset allocation. A tax professional can provide guidance on reducing the impact of investment expenses and finding ways to maximize tax savings.