topic What brokerage management fees are deductible? in Deductions & credits

What brokerage management fees are deductible?

mtiede — Fri, 02 Apr 2021 19:36:01 GMT

So on my 401k account, management fees were assessed. I didn't get a bill, it was just a line item in the yearly statement. Is that deductible?

I also have investments that are not a retirement account that have a similar "Custodian and Management Fees" itemized. Again, is this deductible. I'm guessing that since they just subtracted it from my account and didn't bill me separately that it does not qualify for a deduction. Is that correct?

Re: What brokerage management fees are deductible?

Anonymous_ — Fri, 02 Apr 2021 19:38:07 GMT

Investment advisory fees are miscellaneous itemized deductions (which are generally reported on Schedule A) and are no longer deductible after tax reform (the TCJA).

Re: What brokerage management fees are deductible?

mtiede — Fri, 02 Apr 2021 19:39:27 GMT

And is it not deductible on both feds and NY taxes? And if so, is there any reason to fill it in under misc deductions?

Re: What brokerage management fees are deductible?

Anonymous_ — Fri, 02 Apr 2021 19:44:08 GMT

There is no reason to report the fees unless they are deductible for state income tax purposes (and I am not certain about NY).

Re: What brokerage management fees are deductible?

mtiede — Fri, 02 Apr 2021 19:45:00 GMT

Thanks

Re: What brokerage management fees are deductible?

mtiede — Sat, 03 Apr 2021 13:44:23 GMT

Are "investment advisory fees" the same as "custodial and management fees" listed in the account report? I would guess that "investment advisory fees" is when you sit down with a consultant, they give you advice, and then they bill you. I'm guessing that the "custodial and management fees" subtracted from the account are not the same thing. Or are these deductible also?

Re: What brokerage management fees are deductible?

AnnetteB6 — Sat, 03 Apr 2021 13:56:48 GMT

You would probably need to talk to the brokerage to be certain of their definition for 'investment advisory fees' and 'custodial and management fees'.

Either way, fees related to managing a brokerage account (whether a retirement account or taxable account) are no longer deductible on your Federal return. This change is in effect for tax years 2018 through 2025 due to the Tax Cuts and Jobs Act passed in 2017.

@mtiede

Re: What brokerage management fees are deductible?

mtiede — Sat, 03 Apr 2021 14:29:08 GMT

TagTeam said "investment advisory fees" and the broker listed "custodial and management fees". So I can't ask the brokerage as the "investment advisory fees" is not their terminology. I was hoping someone else would know if they mean the same thing or not. And apparently NY still allows deducting "investment expenses".

Re: What brokerage management fees are deductible?

ToddL99 — Sat, 03 Apr 2021 15:02:15 GMT

Strictly speaking, "investment advisory fees" are not the same as "custodial and management fees", with some exceptions (see below).

The important distinction between the two is whether they are paid separately (directly) or deducted from investment assets (indirectly). If paid directly, they are not deductible for federal tax purposes; if paid indirectly (from investment assets), they reduce reported earnings and are, effectively, "deductible".

Unlike the federal government, NY does allow you to deduct directly-paid investment advisory fees.

As you described them, "investment advisory fees" are typically incurred when you sit down with a consultant, they give you advice, and then they bill you. These fees are paid separately (directly) - either by writing a check or electing to have them paid out of account assets.

"Custodial and management fees" are overhead costs for regular, recurring, fund-wide (account-wide) "operating expenses". Examples are shareholder transaction costs and marketing and distribution expenses. Funds typically pay these expenses out of fund assets (not individual account assets)—which means that investors indirectly pay these costs. Using this approach, these costs effectively reduce your taxable earnings on the investment and are "deductible".

Sometimes, investment advisory fees are included in the "custodial and management fees", and paid indirectly. Using this approach, the advisory fees are "deductible".

@mtiede

Re: What brokerage management fees are deductible?

mtiede — Sat, 03 Apr 2021 15:45:43 GMT

ToddL99, GREAT! Nicely described. That was exactly the information I was after.

So it appears I have the indirect management fees listed in my tax information summary. Now, where can I claim that? I think it is Miscellaneous Deductions between lines 11 and 26, but none of those look quite right. Any clues where it goes? I was trying to enter it directly in the Schedule A form so I could use its little summary worksheet popup thingee. Thanks for any hint on this part of the problem.

And while on that form, I see that the TurboTax expense was entered on line 7. That seems odd since it is underneath a heading of Employee Business Expenses. Does it apply even where there is no Business as I'm retired. Thanks in advance for information on this.

Re: What brokerage management fees are deductible?

Cynthiad66 — Mon, 05 Apr 2021 19:09:10 GMT

Unfortunately, investment expenses cannot be deducted on your return. They were eliminated with 2018 Tax Cuts and Jobs Act (TCJA).

Fees for investment costs were deductible as a miscellaneous itemized deduction, to the extent they and other costs exceeded 2 percent of your adjusted gross income

Also, tax preparation fees are no longer deductible in tax years 2018 through 2025 due to the Tax Cuts and Jobs Act (TCJA) that Congress signed into law on December 22, 2017. Self-employed taxpayers can still write off their tax prep fees as a business expense.

Use this link for more details: Tax Prep Feed No Longer Deductible

Re: What brokerage management fees are deductible?

mtiede — Sun, 11 Apr 2021 13:24:40 GMT

@Cynthiad66, yes, understood. tagteam said that in an earlier post, but NY apparently still has that deduction as explained by @ToddL99 so I am entering it in the Federal questionnaire and it appears to get passed on to the NY forms.

Re: What brokerage management fees are deductible?

Opus 17 — Sun, 11 Apr 2021 13:41:22 GMT

@mtiede wrote:

@Cynthiad66, yes, understood. tagteam said that in an earlier post, but NY apparently still has that deduction as explained by @ToddL99 so I am entering it in the Federal questionnaire and it appears to get passed on to the NY forms.

Actually, every answer here is partly wrong, because the experts all missed that one of your accounts was a 401(k).

With a 401(k), you only pay tax on the money that is withdrawn, when you retire or otherwise. Nothing that happens in the account means anything until you withdraw the money—you don't report gains, you can't deduct losses, and you can't deduct investment fees, before or after the 2018 tax reform. Your tax "deduction" is the fact that if there is less money in the account, you will pay less income tax when you withdraw it.

For your regular broker account (not a 401(k), not an IRA, not some other kind of tax-advantaged account) the answers are correct.

Re: What brokerage management fees are deductible?

mtiede — Sun, 11 Apr 2021 14:02:37 GMT

@Opus 17 Ok, that was the other part that wasn't clear to me. Should I treat the 401k like an IRA. And you are saying yes, and that I can not deduct that fee then. I ALSO have a "Personal Savings Account" with a former employer. It isn't a 401k, or IRA as far as I can determine, so I presume THAT one can be deducted, if there are any fees mentioned?

I'm glad you caught that 401k difference, because I was about to file with those included as expenses.

... a moment passes and I checked what that account is actually called ...

I think originally it was called a "PRA" or "Personal Retirement Account". But on looking today (and management of that account changed from my employer to Voya) it is called "[Employer name] Retirement Account". I really don't recall if it was handled like an IRA or not. I suppose I'll have to ask them.

Re: What brokerage management fees are deductible?

Opus 17 — Sun, 11 Apr 2021 14:13:12 GMT

@mtiede

Basically, you can have "qualified" and "non-qualified" plans at work. A qualified plan qualifies for special tax treatment, it might be called a 401(k), 403(b), 457, 401(a), a traditional pension, or maybe something else. (Each number is the section of tax law that authorizes the plan. An IRA is controlled by a completely different part of the tax code, even though it has similar purposes. A workplace plan will never be an actual IRA.)

If the company also offers a "non-qualified" savings plan, that is basically them offering to set up a savings account for you. Any employer match would be non-qualified, which means it must be included in your W-2 taxable income and subject to social security, medicare and income tax withholding, as if they simply gave you a taxable bonus or raise (which it what it really is). Any interest or dividends would be taxable in the year paid, and you would get a 1099-INT, a 1099-DIV, or something else.

So that may help you figure out what the "PSA" or "PRA" is, are you getting annual interest statements you pay tax on, and are your employer matches included in your taxable income.

Re: What brokerage management fees are deductible?

mtiede — Sun, 11 Apr 2021 14:22:33 GMT

Ok, I see from last year's taxes, 2019, that I got 1099-R statements. And had some tax withheld from those distributions. This year, apparently because of CARES, there was no distribution, so no 1099-R.

So I think I can conclude that BOTH of those employer accounts are some sort of tax deferred plans and I can't deduct the fees (on either US or STATE forms). Does that sound right?

Re: What brokerage management fees are deductible?

Opus 17 — Sun, 11 Apr 2021 14:36:13 GMT

@mtiede

Yes, you would only get a 1099-R from a qualified plan.

Re: What brokerage management fees are deductible?

mtiede — Sun, 11 Apr 2021 17:43:19 GMT

@Opus 17 In the federal tax review I'm asked, "Are you covered by a retirement plan at work?"

This question would be clear to me if they hadn't added at the end "at work". So we are both covered by plans "from work", but we don't work anymore. So are they just trying to ask if we have a 401k, for instance, or are they again trying to determine if we are CURRENTLY employed AND have a 401k, etc.

... time passes ...

never mind. I went ahead and answered yes and it said we didn't qualify anyway. But, being curious, I'm still trying to understand that "at work" part.

Re: What brokerage management fees are deductible?

Opus 17 — Sun, 11 Apr 2021 18:49:24 GMT

@mtiede

The question of whether you are covered by a retirement at work is related to your ability to make new contributions to an IRA or a Roth IRA. You would answer no since you are not working. But, since you can only make such contributions if you have income earned from working, you can’t make new contributions anyway.

Re: What brokerage management fees are deductible?

mtiede — Sun, 11 Apr 2021 20:19:34 GMT

Yeah, I think it all makes sense now. Thanks everyone.