Advisory Fees

[Super Mom]

I have a client with stock sales and a capital loss carryover. He has advisory fees, and I'm assuming that'll only help on Sched A investment expenses and if no itemize no good. Am I wrong, should I add that to the D somewhere?

[Davc]

You're right.

[origun]

Be careful of fees for IRAs

I have seen clients who bring in prior year returns and Traditional IRA fiduciary fees are deducted as investment expense on Schedule A. They are only deductible if paid separately out of post-tax funds but most people have them deducted from funds in IRA and therefore from pre-tax money.

[FEDUKE404]

Disappearing deductions

I have seen clients who bring in prior year returns and Traditional IRA fiduciary fees are deducted as investment expense on Schedule A. They are only deductible if paid separately out of post-tax funds but most people have them deducted from funds in IRA and therefore from pre-tax money.

Origun has raised a good point that is frequently "overlooked."

As for the advisory fees, depending on the size of the account some asset-based fees can be substantial. Of course, obstacle #1 is clearing the 2% floor for misc. deductions and obstacle #2 is having enough to itemize.

Helpful hint: Such fees frequently are NEVER seen on the "tax" document (Forms 1099) so you might also have to look at a summary/monthly statement to find them!

FE

[Burke]

Another thing to look out for is tax-exempt income in the portfolio. Advisory fees to the extent of tax-exempt income are not deductible, so you may have to disallow a portion.

[Super Mom]

Thanks everyone! You are why I sleep better at night!!

[DMICPA]

Is this a legal loophole

OK, No question on the advistory fees. They are only deductible if they are for the cost of producing taxable income. IRC 265(a)


NOW, client has $1,000,000 tax free interest income on Muni Bonds in his home state. Also are exempt from AMT. Has taxable interest income of $40,000. That's it.

Advisory fees are $30,000, all for the tax exempt, but no deduction allowed per above.

How about the property taxes on his home $75,000?

No mortgage interest or any other deductions.

I have searched and searched and these would be perfectly deductible on Sch A. Same with the DMV tags on the cars $3,500.

No tax Federal or State. No AMT. Does this sound reasonable?

Bob

[Burke]

If you look at Form 6251, all taxes from Sche A are a preference item. You need to complete to determine if it will actually affect him. (Advisory fees/tax prep, etc would also be a preference item, but as you state all fees are for tax-exempt muni's, they would not be deductible.)

[DMICPA]

Amt

All taxes are preference items but were not enough to cause AMT.

Barring AMT implications, the taxes are a deductible item on Schedule A and thus, the taxable income is zero.

[Burke]

What a great country! Man makes $1,040,000, and pays no tax. And legal. What about the state?

[DMICPA]

Taxing State of Tax

For the State (CA) there is about $1,200 in State AMT and $200 in regular income tax.

The taxpayer can handle it :0