Dan Kuchan, the Fountain Hills Accountant CPA gives tax advice on new laws.
To begin with, in 2018, the Investment Advisory fee will no longer be tax deductible. This change will affect many taxpayers, especially those who have individual accounts for retirements. Just what are investment advisory fees? Assets under management include fees and fees for money management or nontrading services will no longer be tax deductible. So, if you are accustomed to paying a quarterly asset management fee, those fees will no longer be deductible. For example, I work with a local brokerage firm and that firm charges me a quarterly fee to manage my investment funds. Before 2018, those investment fees would be deductible on my income tax return. In 2018, they are not deductible.
On the other hand, commissions paid on stock trades will still be tax deductible. So, if you have a brokerage account with, for example, Charles Schwab or Fidelity, and you choose to buy or sell some securities, you will likely incur commission expenses on your trades. Those commission expenses will still be able to be deducted in 2018. If you took money out of your individual Roth retirement account in 2018 to pay for those fees, you would not get the tax deduction. The smarter approach is to pay for those fees directly from your individual retirement account. According to IRS letter 89510100, the individual retirement accounts can be used to pay for advisor fees. This is true, especially if yours is a traditional IRA account.
Individual Roth Retirement Accounts are a different story. Roth Accounts should never be used to pay for advisory fees. Since your Roth account is made-up of after taxed dollars, it would not be wise to pay for the potentially deductible advisory fees with funds that you have already been taxed on.
Taxpayers who do not fully understand the new tax laws of 2018 could get into trouble with their individual retirement accounts if they do not understand the prohibited transactions involved. The prohibited transactions cover a wide range of activity, but for simplicity sake, these are the two most important things to remember. First, never use your individual retirement account to pay for other types of professional fees such as legal fees. And second, never use your individual retirement as collateral on loan. Keeping just these few things in mind will hopefully help you steer clear of any significant issues when filing your 2018 tax return.
For any questions on this or any other tax-related topics, please feel free to contact Dan Kuchan, the Fountain Hills Accountant CPA. His office phone number is (480) 837-6083. For more information please visit dankuchan.com