Could someone provide an answer on the following: 1) Individuals paying a management fee through an IRA, are these fees deductible, including more specifically, hedge fund style management fees (upwards of 20%)? 2) Individuals paying a management fee outside an IRA, is the management fee considered an expense? Thanks
Abosolutely NONE of any fees associated with an IRA are deductibe... some, however, are able to be reimbursed to the account and the reimbursed amount may or may not be partially deductilbe.... all in all, a complex tax issue. (If you're hoping the 20% incentive fee the manager gets is deductibe, the answer is an emphatic NO!)
If fees of any type are business related they should be deductible...perhaps you might just add that since the IRA profits are not taxable, there can be no tax deduction (from other income)....is that not right? Don (ex Public Accountant, a long time ago, LOL).
The street article seems to indicate that if the advisor bills you either outside the IRA or thru a taxable account, that the fees are deductible. Article quotes- " Fees taken from your taxable accounts are deductible. But remember, these fees are investment-related expenses, so they're deductible only once they exceed 2% of your adjusted gross income." I was just looking at the returns of a system I plan to trade, and I could get rich with it in 20 years, but with taxation of even 20%- that set up as a corporation, it ate up a huge amount of the potential gain of the system over the years. No wonder people look offshore.
No tax deduction for expenses paid directly from the account. Reimbursed expenses may or may not be deductible... some may have to meet the "cumulative personal exemption" minimum first.... you know, expenses > 2% of Adjusted Gross Income...
Both 1 & 2 address the same issue... If the Advisor bills you "separately, outside the account" , the amount is included in Miscellaneous Expenses on your 1040, and is deductible only to the extent that total Miscellaneous Expenses exceed 2% if Adjusted Gross Income. Fees taken "from your account" are NOT deductible unless reimbursed according to the above. That is, an Adviser might deduct say $2000 from your account. If you write a check to your IRA custodian to reimburse that fee, it's included in Miscellaneous Expenses and deductible only to the extent the total is > 2% of AGI. Bottom Line?... If possible, have the fees deducted directly from the account and do not reimburse the fee. Also, any manager's incentive fee will not be reimbursable nor deductible.