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Financial advisor fees

My question concerns the miscellaneous itemized deductions on Form

1040 Schedule A. (I understand that only the part above 2% of AGI is deductible.)

QUESTION 1: I understand that investment newsletters are tax deductible. I took out a one-year subscription to Morningstar in

2015, for about $180. Is that all deductible in 2015 only, or should it be pro rated over the subscription period, which would obviously put most of it in 2016? I am a cash-basis taxpayer. If it matters, I charged the subscription to my MasterCard on 23 Dec 2015, received the ill in Jan 2016, and paid it in Feb 2016.

QUESTION 2: I understand that financial advisor fees are tax deductible if they concern investments that produce taxable income. About 98% of my investments are taxable, though around 85% of that is tax deferred, in 401(k) and traditional IRA. My financial advisor is fee based, and the service was strictly planning and advice. I place all trades myself and manage my investments myself. I signed up with the advisor and paid the fee early this year. Under these circumstances, is any or all of the fee deductible? Some of her advice concerned retirement planning, not strictly investment planning. I didn't keep track, but let's say maybe 75% of my time with the advisor was related to investments.

Thanks in advance!

Reply to
Stan Brown
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Investment fees are deductible in the year paid. While there may be an exception for prepaid expenses, I wouldn't treat a one year subscription as a prepaid expense, and would deduct it all in 2015.

I would deduct all of the financial advisor fees. It sounds like you are concerned about the rule that you can't deduct expenses of earning tax exempt income. 401k's and traditional IRAs are not tax exempt income, they're tax deferred income and wouldn't come under that rule. The only exception would be if they were paid for by the 401k or IRA (instead of paid directly by you.) If paid by the 401k/IRA they would not be deductible, but would reduce any future taxable income.

It's difficult to answer the last portion of your question, as I'm not sure I see a difference between investment planning and retirement planning but if they both relate to structuring taxable investments I would consider them deductible.

Reply to
adjunct

The relevant date is when your bank received the request for payment; after 23 Dec 2015, but probably on or before 26 Dec 2015, so still 2015.

I'm not sure I agree with the other tax preparer. Certainly, if part of the investment advice were attributable to a Roth IRA, it would not be deductible, but there is a plausible argument that the part attributed to traditional IRAs should be deductible only as the IRA becomes taxed. Certainly, as 2% of your investments are non-taxable, you must deduct only 98% of the investment fee.

I haven't researched this issue, though.

-- Arthur L. Rubin, AFSP, CRTP, Brea, CA

Reply to
Arthur Rubin

This issue was addressed in Rev. Ruling 1984-146. Deductible under Code Section 212.

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Reply to
Alan

I could agree regarding a Roth IRA but this poster identified his IRA as a traditional IRA.

I don't agree about any plausible argument about deferring deduction until the IRA becomes taxable. First, there is no provision in the statute requiring the deduction to be deferred, and secondly a mismatch is a common characteristic to anything reported on the cash basis. With the cash basis, deductions and income commonly are reported in different years. Absent a provision requiring otherwise, I would deduct the fees when paid.

Reply to
adjunct

Reply to
adjunct

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