No. Investment advisory fees are not tax deductible on your federal return. The Tax Cuts and Jobs Act suspended the deduction starting in 2018, and the One Big Beautiful Bill Act signed in 2025 made that elimination permanent.1Internal Revenue Service. Tax Inflation Adjustments for Tax Year 2026 It does not matter whether your advisor bills a percentage of assets, a flat annual fee, or an hourly rate. It does not matter whether the fee is drawn from your account or paid by separate invoice. The federal answer is the same.
Advisory fees used to sit in a category called miscellaneous itemized deductions on Schedule A, deductible only to the extent your total miscellaneous expenses topped 2% of adjusted gross income. That entire category is now gone. Investment management fees, custodial fees, tax preparation fees, and tax advice fees are all covered by the elimination.2Internal Revenue Service. Publication 529 (12/2020), Miscellaneous Deductions Some older planning guides suggested the deduction might return after 2025. It will not. If you see advice built on that expectation, treat it as outdated.
The Narrow Exceptions
There is one federal path to deducting investment-related expenses: qualifying as a trader in securities. This is a specific IRS classification, not a description of an active investor. You must meet three tests at the same time:
- You trade to profit from daily price movements, not to collect dividends, interest, or long-term appreciation.
- Your activity is substantial in frequency, dollar volume, and time devoted.
- You trade with continuity and regularity throughout the year, not in a few bursts.
Traders who meet all three report expenses on Schedule C as a business, which sidesteps the miscellaneous deduction rules entirely. Eligible costs can include advisory fees, market data subscriptions, and home office costs tied to the trading. Traders can also elect mark-to-market accounting under Section 475(f), which converts gains and losses to ordinary treatment and removes wash sale complications and the $3,000 annual capital loss cap.3Internal Revenue Service. Topic no. 429, Traders in Securities (Information for Form 1040 or 1040-SR Filers)
The IRS scrutinizes trader-status claims closely, and most people who think they qualify do not. Holding positions for weeks rather than hours, trading in bursts, or living off investment income rather than trading profits all cut against you. Get a written professional opinion before filing on this basis.
The other exception is state tax. A handful of states did not conform to the federal elimination of miscellaneous itemized deductions, so advisory fees may still reduce your state taxable income even though they do nothing on your 1040. State treatment varies and changes, so confirm with your state’s tax authority or a local preparer.
Fees Inside a Retirement Account
Advisory fees on an IRA or 401(k) work differently because the account is already tax-advantaged. If the fee comes out of the account, it is not deductible on your personal return — it simply reduces the balance. You also have the option of paying the fee from outside funds. That payment is not deductible either, since it falls under the same eliminated category.4Internal Revenue Service. Publication 590-A (2025), Contributions to Individual Retirement Arrangements (IRAs)
The deduction question is settled either way, so the real choice is where the dollars come from. In a Roth IRA, every dollar drained by a fee is a dollar that would have grown and been withdrawn tax-free. Paying Roth fees from outside the account keeps the most tax-efficient money you own compounding. For a traditional IRA the calculus is closer, because you are spending after-tax dollars to preserve pre-tax dollars, but many investors still prefer to protect tax-deferred growth.
Costs That Look Similar but Are Treated Differently
Transaction costs are not advisory fees, and they get separate treatment. Commissions, transfer fees, and recording fees paid to buy or sell a specific security are added to your cost basis in that investment.5Internal Revenue Service. Publication 551, Basis of Assets A higher basis means a smaller taxable gain when you sell, so the cost does reduce your tax — just at sale, not annually. A quarterly AUM fee for general portfolio oversight is not tied to any specific trade and cannot be added to basis. A commission on a bond purchase can be.
Tax preparation and tax advice fees also came up under the old rules, and people sometimes assume they survived when investment fees did not. They did not. The IRS lists both in the same eliminated category as investment advisory fees.2Internal Revenue Service. Publication 529 (12/2020), Miscellaneous Deductions An itemized bill from an advisor separating investment management from tax planning changes nothing on your federal return.
What Happens If You Deduct Them Anyway
Some taxpayers still put advisory fees on Schedule A out of habit or on stale advice. The IRS can impose a 20% accuracy-related penalty on the portion of the underpayment caused by a deduction you were not entitled to, and interest runs from the original due date.6Internal Revenue Service. Accuracy-Related Penalty On a $5,000 improper deduction at a 32% marginal rate, the underpayment is $1,600 and the penalty adds another $320 before interest. The penalty applies to negligent errors, not just intentional ones.
What to Do Instead
Losing the deduction does not leave you without ways to reduce the tax drag from advisory costs.
Tax-loss harvesting is the most direct substitute. Selling positions at a loss generates capital losses that offset capital gains dollar for dollar, and up to $3,000 of net loss can offset ordinary income each year, with the rest carrying forward indefinitely.7Office of the Law Revision Counsel. 26 U.S. Code 1211 – Limitation on Capital Losses A consistent harvesting program can produce tax savings that outweigh the advisory fee itself. If your advisor charges 0.80% and harvesting reliably saves 1% or more in taxes, the fee is paying for itself through a different mechanism than a deduction ever did.
Fee structure matters more than it used to. A 1% AUM fee on a $1 million portfolio costs $10,000 a year. A flat-fee advisor charging $5,000 for comparable service keeps $5,000 in your account annually, and that money compounds. With no deduction softening the cost, the sticker price is the real price.
Pay retirement account fees from outside funds when your cash flow allows it. The deduction question is a wash, but the location question is not: dollars left inside a Roth keep growing tax-free, and dollars left inside a traditional IRA keep growing tax-deferred.
Check your state return before assuming there is no deduction to claim at all. Federal silence does not always mean state silence.