Are Estate Planning Fees Tax Deductible?
Prior to the year 2018, the IRS allowed itemized deductions on eligible estate planning fees. However, the Tax Cuts and Jobs Act of 2017 (TCJA) ultimately changed that rule. Today, estate planning fees are no longer deductible from your taxable income.
Are Estate Planning-Related Fees Tax Deductible?
As detailed above, estate planning fees are not tax deductible like they were before the TCJA ruling. Prior to the TCJA, the IRS did consider estate planning-related fees to be tax deductible.
The good news for those seeking tax deductions is that this ruling is up for renewal in 2025, meaning estate planning fees could possibly be deductible once again.
Previous Estate Planning Deductions
Before the tax reform changes were made, some estate planning fees were eligible for itemized deductions, according to IRS rules. Less complicated matters, such as property transfers, were not tax deductible because the IRS considered them personal expenses.
The IRS used to allow taxpayers to deduct some fees related to estate planning, under Schedule A rules for miscellaneous deductions. These deductions included expenses related to the following:
- Tax preparation, advice, and accounting from a tax professional.
- Collection or production of income like investment advice.
- Legal expenses for powers of attorney, trusts, wills, and other legal documents.
- Management, conservation, and maintenance of real estate considered income-producing property.
Estate Planning Fees After The Tax Cuts And Jobs Act
With the TCJA in effect, taxpayers can no longer deduct estate planning fees as miscellaneous deductions. Typically, though, this only has a minimal impact on the majority of taxpayers.
Before the reform, taxpayers were only allowed to deduct expenses that were related to the production of taxable income. In order to qualify for the deductions, the miscellaneous expenses needed to exceed 2% of the taxpayer’s adjusted gross income (AGI).
This number is used to determine the taxpayer’s income. The number is calculated by taking an individual’s total income and subtracting adjustments, such as the following:
- Alimony.
- Pre-tax retirement contributions.
- Select medical costs.
- And more.
These items would then be subtracted from the individual’s taxable estate. Once the deductions cleared the 2% AGI bar, they still had to exceed the individual’s standard deduction amount to qualify.
Conclusion
It’s quite possible that estate planning fees become deductible sometime in the near future. Most provisions of the TCJA remain in effect until the end of the year 2025. At that time, Congress must decide whether or not to renew these changes.
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