As an advisor you spend a career helping others with money -- but you may not realize tax advantages available to you, including not only the standard range of business deductions but tax breaks geared to particular types of business structures and compensation.

“I think that most advisors who are business owners have a decent idea about what is deductible, although they may be less nuanced in certain areas such as depreciation, which can be a headache for enrolled agents, as well,” says Morris Armstrong, an enrolled agent and RIA at Armstrong Financial Strategies in Cheshire, Conn.

Advisors can deduct many business expenses, from Monte Carlo software to desk chairs, like any small business. “If they’re considered self-employed, they can take the usual expenses such as advertising, dedicated business phone, office equipment, rent and utilities, liability insurance, office expenses and so on,” says enrolled agent Laurie Ziegler of Sass Accounting, Saukville, Wis. “In addition, assuming they qualify, they can contribute to a retirement plan, pay out of pocket for health insurance or make a health savings account contribution and receive a reduction in taxable income.”

(Note: Regulations for the home-office deduction recently changed and on general have become stricter.)

You can deduct major expenditures in the year purchased under Section 179 of the Internal Revenue Code. You might also want to differentiate business expenses by client for clearer recordkeeping in the event of an audit. Among other potential deductions for advisors: Fees for licensing conferences, franchise fees, membership costs in business organizations and CPE expenses, and other fees related to carrying out business and serving clients.

Tax wrinkles may hinge on how an advisor gets paid. If you receive a 1099-MISC for the gross amount, then you’re able to deduct the expenses that you paid to the firm, such as platform fees, E&O coverage, ticket charges and so on, Armstrong says.

Separate business entities -- a subchapter S corporation, C Corp, partnership or an LLC -- can offer advantages such as allowing you to pay yourself out of their businesses and leaving remaining income from the practice taxable to the business itself. This means you’re not personally liable for all of the tax on the business and means that you don’t have to pay self-employment tax.

Choosing the proper structure for your organization, however, depends on a lot of factors and can greatly affect your tax situation:

A sole proprietor or disregarded entity is the simplest form of business ownership and only requires a Schedule C on the business owner’s personal tax return, so no separate tax filing is required. “Depending on income, estimated tax payments may be required to avoid penalties and owing a large amount of tax at the end of the year,” Ziegler adds.

For two or more advisors in business together, a partnership might be the easiest structure. The partnership files a tax return but does not pay the tax. The income flows through to the partners’ returns and has the same implications as a Schedule C. Partnerships and S Corps are also among the entities that can also pass cash donations or donations of old equipment to the owner to claim on personal taxes.

First « 1 2 » Next