Understanding IRC Section 212 and Advisor Expense Deductions

You may assist clients with tax planning, but it’s also important to know how to handle your business’s tax filing. Internal Revenue Code Section 212 historically allowed individuals to deduct certain expenses related to income production, investment property and tax matters. Claiming deductions can help you reduce your taxable income for the year, though it’s important to know which expenses can be written off.

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Understanding IRC Section 212 Deductions

Section 212 of the IRC states that individuals may deduct all ordinary and necessary expenses paid or incurred during the taxable year:

For the production or collection of income;
For the management, conservation or maintenance of property held for the production of income, OR
In connection with the determination, collection or refund of any tax.

In simple terms, Section 212 made it possible for taxpayers to write off miscellaneous itemized deductions as long as they meet the “ordinary and necessary” standard. For example, investors could deduct investment fees, including financial advisor fees, under this tax rule. Advisory businesses, meanwhile, could write off tax preparation fees and other expenses.

This provision of the IRC was suspended beginning in 2018 with the passage of the Tax Cuts and Jobs Act (TCJA). Under the One Big Beautiful Bill (OBBBA), this suspension was made permanent. This prevents advisory firms from deducting miscellaneous expenses at the individual level. However, it does not eliminate tax breaks for advisors entirely.

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What Expenses Can a Financial Advisor Deduct?

A financial advisor researching which expenses she can deduct.

You can’t claim Section 212 deductions for your advisory business, but you have other avenues for managing your tax liability. Section 162 of the IRC allows for the deduction of trade or business expenses that are ordinary and necessary.

Ordinary expenses are common and accepted in your field of business. Necessary expenses are helpful and appropriate for your business, though they’re not required to be indispensable. Regardless of whether an expense is ordinary or necessary, it must be related to the operation of your business.

Following those rules, advisors may still deduct a variety of expenses when filing their tax returns. Here’s a breakdown of what advisors could potentially write off at tax time by category.

Office and Operating	– Office space, including rent and utilities – Home office expenses, such as mortgage interest, property tax and utilities – Office supplies and equipment, including hardware and software – Errors and omissions insurance, liability insurance and bank fees
Taxes, Debt and Financing	– Payroll and self-employment tax – Business loan interest – State and local (SALT) taxes – Bad business debts that are uncollectible
Travel and Vehicles	– Transportation, including airfare, train tickets, rental car fees, taxi fare and rideshare fees – Lodging and accommodations – Incidental costs, such as dry cleaning and internet service – Meals, including client meals – Vehicle expenses, including mileage, gas, oil, insurance and depreciation – Parking fees and tolls
Marketing	– Paid ad campaigns – Website design and development expenses, web hosting and domain names – Email marketing software – SEO tools – Printing and postage fees for direct mail marketing – Printing fees for business cards, brochures and flyers – Expenses incurred while hosting marketing events, such as location and equipment rental fees and fees paid to caterers – Fees paid to third-party marketing agencies or individuals, such as a public relations outreach specialist
Personal and Professional Services	– Licensing fees – Exam fees and expenses paid for study materials to obtain a professional credential (if you’re an independent RIA) – Continuing education (for independent advisors) – Membership fees for professional organizations – Fees paid to third-party businesses, such as attorneys’ fees or fees paid to a CPA
Retirement and Benefits	– Contributions to tax-advantaged retirement plans, including solo 401(k) plans, SEP IRAs and SIMPLE IRAs – Health insurance premiums and health savings account contributions

Corporations can also deduct startup or organizational costs, up to a certain limit. The IRS defines startup costs as costs to create an active trade or business or investigate the creation or acquisition of an active trade or business. Organizational costs are the costs of creating a corporation.

The IRS determines what’s deductible and what isn’t for business entities and it’s important to remember that the federal tax code is subject to change. If you’re in doubt about whether an expense is deductible under Section 162, you may want to consult a tax attorney or certified public accountant (CPA) for clarification.

What Expenses Are Not Deductible for Financial Advisors?

Just as there are limits on Section 212 deductions, there are also limits on what you can deduct under Section 162. The IRS disallows deductions for the following expenses.

Personal	You cannot deduct personal, living and family expenses, including any expenses you pay for improvements to real or tangible personal property. Dues paid to business, social, athletic, luncheon, sporting, airline and hotel clubs or associations are also excluded.
Government Fines and Penalties	Government penalties or fines imposed for compliance violations or criminal acts cannot be deducted. You can’t write off parking fines or towing fees either.
Political Donations	Advisors are prohibited from deducting political campaign contributions and lobbying expenses. You may want to review the SEC’s pay-to-play rule for clarification on political donations.
Civil Fines and Penalties	You cannot deduct any settlements or payments related to sexual harassment or abuse if the payment is subject to a nondisclosure agreement. Attorney fees related to those agreements are not deductible either.
Miscellaneous	Other disallowed deductions include entertainment expenses, charitable contributions (as a business expense) and demolition expenses or losses.

What happens if an advisor writes off an expense that does not qualify for a Section 162 deduction? The IRS can disallow the deduction and impose a 20% tax penalty, plus interest. If you claim a deduction for an ineligible expense on your return, you can amend your return to correct it and mitigate penalties.

Keeping Track of Deductible Expenses for Your Business

Good recordkeeping can help you track business expenses that are eligible for a Section 162 deduction. The IRS offers guidance on the types of records businesses should maintain to track deductible expenses. Some of the documents advisors are encouraged to keep include:

Bank deposit slips
Receipts
Invoices
Credit card statements
Forms 1099-MISC
Forms 1099-NEC
Canceled checks
Bank statements
Petty cash receipts
Mileage and travel expense logs, if applicable

You may maintain paper copies or electronic records of supporting documents. If you’re using accounting or tax planning software for your business, you may have the option to scan and upload receipts manually or integrate your bank accounts to track expenses automatically.

Frequently Asked Questions

Are Section 212 Deductions Permanently Suspended?

The Tax Cuts and Jobs Act suspended Section 212 deductions through the end of 2025. The One Big Beautiful Bill Act made these suspensions permanent.

How Long Should You Keep Records of Deductible Expenses?

The IRS says you must keep records for as long as they might be needed for the administration of any provision of the Internal Revenue Code. Essentially, this means that you must keep receipts or other documentation that supports deductions you’ve claimed until the period of limitations for that return runs out.

Are Financial Advisor Fees Tax Deductible?

Prior to the passage of the Tax Cuts and Jobs Act, financial advisor fees were tax deductible. However, that is no longer the case as this tax break was suspended along with other miscellaneous itemized deductions under Section 212.

Bottom Line

A financial advisor keeping track of deductible expenses for her business.

Claiming deductions for business expenses can reduce your taxable income, which may help push your business into a lower tax bracket. While Section 212 deductions might be off the table, advisors still have opportunities to manage their tax liability efficiently.

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