Are financial advisor fees deductible

Fee-based advice is tax deductible

Consulting fees can be tax deductible as business expenses. To do this, the advice must be related to taxable income. These revenues can also lie in the future. Advice on lump-sum taxable income from capital assets or tax-free life insurance is unfortunately not deductible.

Fee advice or insurance advice, pension advice, financing advice or investment advice can be tax deductible. This goes from the BMF letter of October 16, 1997 as administrative instructions regarding the Income tax treatment of consulting, litigation and similar costs in connection with pension claims emerge. The BMF letter is no longer binding, but can still serve as a guide.

Accordingly, expenses are deductible as business expenses if they are economically related to the generation of income. The expenses may not serve to build up capital. The advice is therefore not usually deductible if it relates to a life insurance policy with a lump-sum option or a right of termination.

Individual consulting services are accordingly to be classified differently as deductible or non-deductible. It always depends on the topic of the advice whether the advice is deductible.

Fees for investment advice can be tax-deductible as income-related expenses. For this purpose, the income from capital assets must not be subject to the income tax rate and not the withholding tax, or the investments must be relocated to another type of income.

Investment advice can be tax deductible. This goes from the BMF letter of October 16, 1997 as administrative instructions regarding the Income tax treatment of consulting, litigation and similar costs in connection with pension claims emerge.

Selling investment advice

Systems with final withholding tax

In principle, the saver lump sum of € 801 and capital gains tax of 25% plus solidarity surcharge apply to income from capital assets. In principle, further advertising costs cannot be claimed. This also applies to consulting fees. There are exceptions, however. The acquisition costs or transaction costs can be deducted. Up to 50% of all-in fees from banks can be taken into account as transaction costs.

Insurance jacket

Instead of investing your assets in a custody account for tax purposes, you can invest your assets within a unit-linked pension insurance or life insurance policy. There are now some tariffs where the fees for investment advice can be taken from the contract balance. The fees then do not have to be stated in the tax return, but directly reduce the profits.

Business assets

If money is invested within a company, the profits are not taxed at a flat rate of 25% withholding tax, but at the normal tax rate. In this case, consulting fees and other costs can be deducted as advertising costs.

However, in most cases a withdrawal from the business assets is unfavorable. The tax burden is usually cheaper as a private person. However, this depends on the individual case and should be calculated carefully.

Discontinue insurance advice

Fees for insurance advice can be tax deductible as business expenses. For this, the insurance advice must be related to taxable income. These revenues can also lie in the future. Insurance advice on lump-sum taxable income from capital assets or tax-free life insurance is unfortunately not deductible.

Insurance advice on the following insurances are regularly deductible as business expenses, as they only cover a risk and accumulation of assets can be excluded.

Advice on old-age provision

In the case of old-age provision in the first shift, the insurance cannot be canceled and a pension is always paid in retirement. Insurance advice on:

  • statutory pension insurance
  • Rürup pension, basic pension
  • professional pension fund
  • Civil servant supply

In the case of old-age provision in the second shift, the insurance can be terminated, but termination is associated with considerable disadvantages, so that the focus here is always on paying out in retirement. A lump-sum settlement may not be an option. However, it is regularly possible to have a severance payment instead of a pension at the start of retirement. Insurance advice on:

  • company pension scheme without lump-sum option
  • Riester pension without lump-sum option

The conditions are seldom met for third-tier old-age provision, since private pension insurance can usually be paid out at any time. Insurance advice on:

  • private pension insurance without lump-sum option or right of termination

In the meantime, some unit-linked annuity insurances offer the possibility to take advisory fees from the contract balance. These do not have to be stated in the tax return, but directly reduce the payment. Insurance advice on:

  • private life insurance or pension insurance with consulting fee in the contract

Advice on loss of income

In the case of insurance policies to secure income, this is deductible as income-related expenses, as they only cover a risk and the accumulation of assets is excluded. Insurance advice on:

  • Term life insurance
  • Work & disability insurance
  • Accident insurance with an accident pension
  • Dread Disease Insurance

Flat rate for advertising expenses

Unfortunately, the consulting fee has no tax impact if the sum of your advertising expenses exceeds the lump sum of 102 € does not exceed. Only expenses beyond the lump sum are tax-effective.

The BMF letter of October 16, 1997

Income tax treatment of consulting, litigation and similar costs in connection with pension claims

BMF letter of October 16, 1997 - IV B 5 - S 2255 - 286/97 ll -

It was asked whether legal advice and litigation costs, fees paid to insurance advisors and similar expenses in connection with claims from the statutory pension insurance or from private pension insurance as well as from company pension schemes should be deducted as business expenses. With reference to the result of the discussions with the highest tax authorities of the federal states, the following statement is made:

A deduction of expenses as business expenses according to § 9 Paragraph 1 EStG always presupposes that the expenses are economically related to the generation of income; it must be ruled out that they serve to build wealth.

Under this condition, the specified expenses are to be recognized as business expenses, irrespective of whether they arise during the drawing of the pension benefits or before. They are to be deducted for the type of income to which the income from the services in question belongs, namely expenses in connection with claims from the statutory pension insurance, even if they arise during an activity that is subject to pension insurance.

The prerequisite for an economic connection with the generation of income is in connection with expenses in connection with claims from a private pension insurance with the right to choose capital or the right to terminate - the exercise of which would conflict with the subsequent generation of income— not given. In the case of private pension insurance, which only covers one risk, as well as employment and occupational disability insurance, it must always be assumed that this requirement is met, because wealth accumulation is excluded.

The full amount may be deducted if necessary. This also applies if the pension benefits are only partially used for income tax (BFH judgments of January 23, 1991, BStBI 1991 ll p. 898,899, and of - July 21, 1981, BS'IBI 1982 ll p. 41, 43) . However, if the expenses are related to other claims (e.g. to benefits from health insurance) in addition to pension claims, they do not serve to generate income, but to lead a life (Section 12 No. 1 EStG). In such cases, the expenses can only be partially deducted as income-related expenses.

(Source: Federal Tax Gazette 1997, Part I, page 126)

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