CPA²Connect

Fee-for-Service Minute: Are Fees Deductible?

DID YOU KNOW?
A portion of the planning fee may be a deductible expense for your client.

The IRS treats a professional fee associated with tax advice and preparation as a deductible miscellaneous expense. Even though this is subject to the 2% of AGI limit for individuals, it can still have a material impact on a client's taxes and make the planning fee more palatable.

If the client owns a business, any portion of the planning engagement related to business issues is 100% deductible to the business. Only the fee related to an individual or family is subject to the 2% limit.

This is another reason that you need to have an open line of communication with your client's CPA. Your client may not know that she needs to inform her CPA that a planning fee was paid, and her CPA needs an explanation of the services rendered to determine the appropriate deduction.

Put it into Practice
On the Financial Planning Agreement (FPA) under SERVICES AND FEES, make sure that you use appropriate terms in the explanation section. Here are a few samples.

Consultations focusing on the area(s) of:
Income Tax Planning
Income Tax Management
Income Tax Review
Income Tax Analysis

Deductions are good. Contact me for no particular reason.

Darryn Pope, CFP®, CFS
Chief Training Officer
[email protected]

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