Tax tips for financial advisors

Tax Tips For Financial Advisors– Like all small business owners, financial advisors look for ways to reduce taxes, maximize income and save for retirement.

Counselors who own their own businesses incur a number of unique costs for their work, but there are also measures that most or all taxpayers can take to reduce their reported income.

Separate commercial entities

Many financial advisors follow the same strategy as other small business owners, rotating their activities into a separate business entity, such as a subchapter S company, C corporation, partnership, or LLC.

They then pay their own salaries from their businesses, leaving the residual income from the practice on loan to the business itself.

This prevents the practitioner from being personally liable for all taxes on the business and also allows him to escape labor taxes.

It can also reduce the consultant’s liability in litigation. If a client sues a consultant for any reason, the company itself may be liable but not a consultant, depending on how the company is organized.

standard business rate

There are a large number of business costs that consultants can complete just like any other small business. Including:

  • Marketing and Advertising
  • Business and cell phone
  • rent, utilities
  • employee salary
  • Life and health insurance and other benefits, Health Savings Account
  • Standard office equipment such as paper, copiers and furniture
  • Computer and software costs, such as accounting programs that record a company’s revenue, recipients, and expenses…
  • Contributions Traditional retirement plans (which have now been reduced with distributions that can be borrowed at retirement)
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However, financial planners also have a set of fees unique to their profession. Depending on your business model, most or all consultants must pay for some or all of the following:

Most brokers charge their employees annual fees of various types, such as maintenance and administrative fees. They also often keep a portion of the gross commissions received from their brokers and advisors. (Some broker/dealer fees are non-advisory and just keep a larger portion of the commission earned.)

Many advisors bypass brokers/dealers to get their clients the best market rates when placing bonds for their clients. Trading platforms connect advisors directly to the market and bypass the market makers used by brokers/dealers to trade for them.

Most trading platforms charge a monthly fee for this service, which may vary depending on the services requested by the advisor.

  • financial planning software

Most advisors today use sophisticated computer programs to analyze securities and portfolios. There are also many comprehensive financial planning programs that allow consultants to cover all aspects of a client’s financial situation.

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And then generate a detailed report showing what might happen in various what-if scenarios that the customer can choose to follow. Many of these programs cost thousands of dollars to purchase and hundreds more to maintain each year.

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Education and certification fees

The costs of higher education and tuition for professional certificates like CFP ® , CLU or ChFC can be significant and undeniable for counselors. License fees to sell securities or insurance may or may not be reduced, depending on the advisor’s circumstances.

A new consultant who has just come out of a completely different job to start a new practice will not be able to reduce these costs as it will qualify the consultant to work in a different line of business.

But counselors who already practice in some capacity can override this if the IRS deems they work in the same field.

Tax Report

Financial advisors must report their business and personal income on the same tax forms as all other small business owners.

Those working as sole proprietors must report all business income and expenses on Schedule C, while others must file corporation or corporate tax returns.

Financial advisors who work as employees must report all work-related expenses on Form 2106 and bring them to Exhibit A (those who cannot complete a deduction cannot).3

Important extensions, such as new furniture, may be withheld for the year purchased pursuant to Section 179 of the Internal Revenue Code on the appropriate type of tax return.

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Consultants should also be careful to reduce their per-client business expenses for registration purposes, as the IRS may require this in the event of an audit.

It also gives consultants an idea of ​​how much they spend on each of their clients. Most consultants can easily fulfill this obligation with a standard business accounting program.


While many of the tax bailout strategies presented here can be applied to most small business owners, there are certain types of costs that only financial professionals will cover.

Some consultants are also able to prepare and fill out their own returns, but people who are not tax-trained are prepared to delegate this task to others (and then deduct tax preparation costs from their return).

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