Investment management fees are the costs you incur for professional advice or management of your investment portfolio. These fees are commonly charged by financial advisors, robo-advisors, mutual fund companies, and wealth management firms. While these costs can significantly impact your overall investment returns over time, many taxpayers wonder whether such fees can also reduce their tax liability or potentially increase their tax refund.
This blog explores how investment management fees affect your tax return and whether you can deduct them under current IRS rules. Understanding how these fees are treated for tax purposes will help you make informed financial decisions and ensure you don’t overlook potential tax-saving opportunities.
What Are Investment Management Fees?
Investment management fees are costs paid to financial professionals or platforms that help you manage your assets. These fees may include:
- Advisory fees charged by financial planners or portfolio managers
- Fees embedded in mutual fund expense ratios
- Robo-advisor platform fees
- Brokerage account maintenance or custodial fees
These fees are typically calculated as a percentage of assets under management (AUM) or as flat-rate fees. While they can improve your investment strategy, they are not always tax-deductible.
Are Investment Management Fees Tax-Deductible?
As of 2025, investment management fees are no longer deductible for individual taxpayers due to changes introduced by the Tax Cuts and Jobs Act (TCJA) of 2017. The TCJA suspended all miscellaneous itemized deductions subject to the 2% adjusted gross income (AGI) floor for tax years 2018 through 2025. This includes investment advisory fees and related costs.
That means if you’re an individual filing a personal return, you cannot deduct investment management fees on Schedule A of your Form 1040. As a result, these fees do not directly increase your refund or reduce your taxable income.
Pre-TCJA vs. Post-TCJA: What Changed?
Prior to the TCJA, investment management fees were considered miscellaneous itemized deductions. Taxpayers who itemized could deduct the portion of these fees that exceeded 2% of their AGI. For example, if your AGI was $100,000 and your investment fees were $3,000, you could deduct $1,000 (the amount exceeding 2% of AGI).
However, after the TCJA took effect in 2018, this deduction was eliminated until at least 2026 (unless new legislation restores it sooner). This suspension applies across the board, even if you itemize deductions instead of taking the standard deduction.
Exceptions: Who Can Still Deduct Investment Fees?
While most individual taxpayers cannot deduct investment management fees, there are a few exceptions:
1. Trusts and Estates
Investment advisory fees incurred by trusts or estates may still be deductible on Form 1041 if they are considered necessary and directly related to the administration of the trust or estate.
2. Retirement Accounts
If investment management fees are paid directly from a tax-advantaged retirement account—like a Traditional IRA or 401(k)—those fees are not deductible but they do reduce the value of the account, effectively lowering the taxable distribution amount.
3. Business Entities
If you operate a business entity (such as an S corporation, partnership, or LLC taxed as a corporation) and incur investment management fees related to business assets, those fees may be deductible as ordinary business expenses.
Tax-Efficient Alternatives for Managing Investment Costs
Although you can’t deduct investment management fees, there are ways to manage and potentially reduce your overall tax liability:
1. Use Tax-Efficient Funds
Consider low-cost index funds or ETFs with low turnover rates. These generate fewer taxable capital gains compared to actively managed funds.
2. Choose Robo-Advisors with Tax-Loss Harvesting
Some platforms like Betterment or Wealthfront offer automatic tax-loss harvesting strategies, which can help reduce capital gains taxes.
3. Pay Fees from Taxable Accounts
When given a choice, it may be better to pay advisor fees from a taxable account rather than from a tax-deferred retirement account. This keeps more tax-sheltered money growing over time.
4. Consolidate Accounts to Negotiate Lower Fees
Many advisors offer tiered pricing. Consolidating your assets in one place may help you qualify for a lower management fee tier, reducing overall cost.
Impact on Your Refund: Indirect Considerations
While investment fees do not directly affect your tax refund, they may have an indirect impact on your tax position if they influence the structure of your investments and tax-efficiency of your portfolio. For example:
- Advisors who implement tax-loss harvesting may help you offset capital gains with losses, lowering your taxable income and increasing your refund.
- Investments held in tax-advantaged accounts grow tax-deferred or tax-free, reducing your current tax burden and potentially leading to a higher refund.
- Strategic asset location (placing high-dividend or high-turnover investments in retirement accounts) can defer taxes and enhance refund potential.
Working with a tax-aware financial advisor can help you structure your investments for tax efficiency—even though their fees aren’t deductible.
What About State Taxes?
Most states conform to federal rules and do not allow deductions for investment management fees during the TCJA suspension period. However, some states that don’t fully conform to the TCJA may allow partial deductions. Check with your state’s department of revenue or a local tax advisor to confirm your eligibility.
Future Outlook: Will Investment Fee Deductions Return?
Unless Congress acts to extend or modify the Tax Cuts and Jobs Act, the suspension of miscellaneous itemized deductions, including investment fees, will expire after tax year 2025. If that happens, deductions for these fees could once again become available starting in 2026.
Until then, taxpayers should not plan on receiving any refund benefit from deducting advisory or investment management fees on their federal return.
Tips to Manage Investment Fees Smartly
- Review your advisor’s fee structure annually and ask about lower-cost options
- Evaluate performance relative to fees paid to ensure you’re getting value
- Use fee-only fiduciaries who are legally required to act in your best interest
- Ask whether the advisor implements tax-smart investing strategies
- Rebalance portfolios in a way that minimizes taxable events
Conclusion: Investment Fees Don’t Help Your Refund—But Tax Planning Still Matters
Under current law, investment management fees are not deductible for most individuals, and therefore they do not provide any direct benefit to your tax refund. However, smart investment management and tax-aware financial planning can indirectly affect your tax liability and overall financial health. Consider speaking with both a financial advisor and tax professional to ensure your investment strategy aligns with your tax goals. Even if you can’t deduct the fees, the right strategy may help you grow your wealth and reduce taxes over the long run.
