A coalition of leading financial planning organizations today asked a House committee to reinstate the tax deduction for financial advice, which was cancelled as part of the Tax Cuts and Jobs Act (TCJA) of 2017.
Coalition members including the CFP Board, the Financial Planning Association (FPA), the National Association of Personal Financial Advisors (NAPFA), the Financial Services Institute (FSI) and the Investment Adviser Association (IAA) submitted a joint letter to the U.S. House Ways and Means Committee in response to its request for comment on the impact of expiring provisions of TCJA on families, workers, businesses and communities.
“Prior to the enactment of TCJA, individuals who received financial advice were able to take advantage of tax deductions if the fees for that advice exceeded 2% of their adjusted gross income. However, TCJA’s repeal of this vital deduction effectively raised the cost of financial advice for everyday Americans who were able to benefit from the deduction,” the coalition said.
Before TCJA eliminated the deduction, an investor with adjusted gross income of $250,000 who paid an asset-based fee of $10,000 for asset management and/or financial planning on a $1 million portfolio, would have been able to deduct $5,000.
Now the coalition members want the valuable deduction reinstated and additional tax incentives added to expand consumers use of financial advice.
“As Congress considers extending the expiring provisions of the TCJA, we ask that Congress restore and expand tax incentives for financial advice, including financial planning. Such tax incentives may include deductions, credits, or a combination thereof,” the coalition said in its letter.
It’s critical that lawmakers ensure that tax incentives are crafted to serve the need for financial advice that all Main Street investors share, the groups said. “All taxpayers need help to obtain the critical financial advice they need now, and any tax incentives should be widely-available to American households,” they wrote.
While Congress recognized the value of professional investment and financial planning advice by providing a tax deduction for those services up until 2017, an “unintended consequence of this repeal has been that it raised the cost of financial advice that is critical to Main Street investors and workers saving for retirement,” the coalition said.
While the repeal of this deduction may have appeared inconsequential in 2017 when the stock market was rising and there was steady job growth and real wage growth, the pandemic changed that, the coalition said.
“Throughout the market fluctuations, millions of Americans, including many near retirement, watched the money they worked so hard to earn and to save for a secure retirement evaporate virtually overnight. ... They were confused and unsure about what steps they must take immediately and how to plan for the long term, including for retirement, college expenses, home buying, and other financial goals,” the coalition said.