A letter sent to Congress by a coalition of financial planning trade groups calls on lawmakers to reinstate tax incentives for professional financial advice, Financial Advisor reports. The tax breaks were eliminated by the 2017 Tax Cuts and Jobs Act. (TCJA)
Members of the coalition include the CFP Board, the Financial Planning Association, the National Association of Personal Financial Advisors, the Financial Services Institute and the Investment Adviser Association. They submitted a joint letter last week calling on the House Committee on Ways and Means to restore and expand tax deductions that would make financial advice more accessible to the public.
The House committee had requested comment on the impact of expiring provisions of TCJA on families, workers, businesses and communities. Lawmakers are considering the potential extension of several provisions.
“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.
They said the elimination of the tax break has made it more difficult for middle-income Americans to afford the financial advice they need. Under the previous system, 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.
“Too many American households and workers lack access to competent and ethical financial advice as they plan for their retirement, college plans, home buying, and other financial goals,” the letter stated.
They asked Congress to restore and expand tax incentives for financial advice, including deductions, credits, or a combination thereof.
The coalition noted that the deduction was repealed in 2017 at a time when jobs and wages were growing, and the stock market was rising. But the subsequent COVID-19 pandemic and the market turbulence it caused illustrated the need for access to financial advice.
“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,” the letter said. “Many were frightened by the extreme stock market volatility, the deteriorating business environment and the state of their personal household finances. 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. These Main Street investors realize tremendous immediate benefits when they have access to affordable, professional financial advice to help them manage their finances.”
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