A coalition of advisor advocates and firms, such as LPL Financial, Commonwealth and Raymond James, is urging Congress to reform tax law so advisors can claim a deduction on business income after the opportunity was excised from legislation in President Donald Trump’s first term.
Section 199A of the 2017 Tax Cuts and Jobs Act allows pass-through business owners to deduct up to 20% of their qualified business income from taxes. Many investment advisors would qualify for such a deduction, but they were excluded from taking it in most cases.
However, Trump is back in the White House, and significant provisions of the 2017 bill will expire this year, meaning squabbles over taxes will be on the menu for Congress in 2025.
The Investment Adviser Association is pushing for advisors to qualify for 199A this time around. President and CEO Karen Barr said they should get the same support “as other small businesses.”
“These professionals help millions of Americans save for the future, yet they are unfairly excluded from the full benefits of Section 199A,” she said. “Congress must act to level the playing field.”
According to IAA Director of Public Policy and Associate General Counsel William Nelson, lawmakers formulated the 20% deduction to extend lowered corporate tax rates to other types of businesses, including pass-through companies.
However, Treasury Department guidance carved out a section of “specified services trade or business,” or SSTBs, that included financial services. If a business was categorized as an SSTB, it would be excluded from the deduction if it exceeded a certain income threshold.
“And it’s pretty low, especially for investment advisors,” Nelson said. “So basically, we’re asking that these definitions be updated to that … they wouldn’t apply to advisors providing advice to retail investors.”
The Financial Services Institute is also pushing to expand the deduction. At the organization’s annual OneVoice conference this week, Senior Vice President of Policy and Deputy General Counsel Robin Traxler said a deduction including advisors was originally part of the 2017 legislation but was eliminated as a “pay-for” to fund the broader tax cuts in the bill.
The IAA and FSI are two members of the “Financial Services Coalition for 199A Fairness,” which sent a letter earlier this week to the chairmen and ranking members of the House Ways and Means and Senate Finance committees calling for Congress to rescind advisors’ exclusion.
Coalition members signing on included Cetera, Commonwealth, LPL Financial, Raymond James and other advocacy groups, such as the CFP Board and the Financial Planning Association. The letter highlighted that insurance brokers currently benefit from the 20% deduction.
“We believe that this disparity is clearly unfair because financial services professionals and insurance brokers, although providing similar products and services to retail clients, face the same financial and regulatory burdens and challenges that all small business owners must deal with,” the letter read.
At OneVoice, CEO Dale Brown acknowledged they were “pushing against the tide” by asking Congress to expand the breadth of the original deduction.
In addition to extending the old bill, Brown presumed Republicans would want to deliver on promises Trump made during the 2024 presidential campaign (including reducing taxes on tips and overtime), and that would mean finding pay-fors in other places.
“But there is no rational justification for excluding our members. It was simply a means of paying for other things that they wanted to do,” Brown said. “And with so much emotion, we think we have a good opportunity to make our case that our members deserve the same tax treatment as architects, lawyers and other professionals.”
Many of the tax cuts in the original bill will sunset if they’re not renewed by the end of this year, which is setting a fire under Republicans in Congress hoping to keep them in place. However, when (and how) they will pass legislation remains to be seen, and what will be in (and out) if it does pass.
During OneVoice, Brown realized the difficulty of solving “this puzzle of pay-fors and tax cuts” to satisfy Trump, his supporters and legislators.
“When it comes to taxes, sometimes logic does not carry the day,” he said.