Are Investment Advisory Fees Tax Deductible in 2026?

Key Points:

• Advisory fees are generally not federally deductible in 2026.

• Paying fees from traditional IRAs can lower their after-tax cost.

• Fee structuring matters: Allocating fees across accounts can impact long-term tax efficiency.

The short answer for most investors is: No, investment advisory fees are generally not deductible on your federal income tax return in 2026.

However, there are important nuances involving how fees are paid, state-level rules, and certain related deductions that are still available.

Federal Deductibility: What Changed

Before 2018, investment management fees paid from taxable accounts were included as miscellaneous itemized deductions. Tax preparation fees and certain other unreimbursed expenses were also part of this category.

These deductions were subject to a 2% of adjusted gross income (AGI) threshold, meaning only the portion exceeding 2% of AGI could potentially provide a benefit — and only if total itemized deductions exceeded the standard deduction.

The Tax Cuts and Jobs Act (TCJA) suspended miscellaneous itemized deductions at the federal level beginning in 2018. As a result, advisory fees and tax preparation fees are generally not deductible federally today. Subsequent legislation has continued that treatment.

Paying Fees from Retirement Accounts

While advisory fees are not deductible in the traditional sense, how they are paid can still matter from a tax perspective.

IRS rules generally allow investment management fees to be paid directly from pre-tax retirement accounts, such as traditional IRAs, without being treated as a taxable distribution. When fees are paid from a traditional IRA, they are effectively paid with pre-tax dollars. Economically, this can produce a benefit similar to a deduction because the fee reduces assets that have not yet been taxed.

Depending on a client’s marginal tax rate and the portion of assets held in traditional IRAs, paying fees from pre-tax retirement assets can make the after-tax economic impact of the advisory fee similar to paying a lower stated advisory fee entirely from taxable assets. In other words, the effective cost may be reduced on an after-tax basis. The magnitude of this benefit varies based on individual tax circumstances and account structure.

In practice, pre-tax IRA accounts may pay their proportional share of portfolio management fees.

Roth IRAs do not provide this same economic benefit. Because Roth assets grow tax-free, it is often preferable to preserve their compounding potential. For that reason, when appropriate, fees attributable to Roth accounts are generally paid from taxable accounts instead.

State-Level Differences

Although advisory fees are not currently deductible at the federal level, some states do not fully conform to federal TCJA rules. For example, states such as California and New York may still allow a deduction for certain miscellaneous itemized deductions, including investment management fees, subject to state-specific limitations and thresholds.

This is one reason your accountant may still request documentation of advisory fees paid during the year.

In states with no state income tax, the issue is irrelevant.

Because state tax treatment varies — and conformity rules can change — it is important to consult your CPA regarding your specific situation.

What Is Still Deductible?

One deduction that remains available to some investors is the investment interest expense deduction. Interest paid on funds borrowed to purchase taxable investments (such as a margin loan) may be deductible, subject to limits based on net investment income. Any excess is generally carried forward to future years. This deduction applies only to interest expense — not to advisory fees themselves.

Practical Perspective

Even before the TCJA changes, many high-income and high-net-worth investors received limited benefit from deducting advisory fees due to the 2% AGI threshold and the interaction with the standard deduction.

For many Luminvest Wealth Management clients — who typically fall into this high-net-worth category — the prior rules often provided little or no meaningful federal tax benefit. This was particularly true given our relatively low advisory fees, which in many cases would not have exceeded the 2% AGI threshold required under the old law.

Today, while advisory fees are generally not deductible federally, thoughtful structuring of how fees are paid — particularly between traditional IRAs, Roth IRAs, and taxable accounts — can still have meaningful long-term tax implications.

As always, tax outcomes depend on individual circumstances, and coordination with your CPA is important when evaluating your overall tax strategy.