Ask the Experts!

The professionals at Advanced Underwriting Consultants (AUC) answer the tax questions posed by producers.  Here’s the question of the day.

Question:  Can my client deduct the investment fees charged inside her variable annuity from her income taxes?

Answer:  No.

If investment fees are paid in cash or otherwise taken from an already-taxed source, they are potentially deductible—if the taxpayer itemizes, and to the extent all deductible miscellaneous expenses exceed 2% of AGI.

If the fees are deducted from an untaxed source—inside an IRA or nonqualified deferred annuity (NQDA) contract, for example—they are NOT tax deductible.  See Revenue Code Section 212.

Even though the internal amounts charged in an IRA or NQDA (including VAs) are not tax deductible, the IRS allows such amounts to be deducted from the pre-tax account without being included in the client’s taxable income.

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