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I mean lots of wealthy folks have multi-million dollar portfolios being handled by big firms such as Fidelity or by private money managers, often at 1% a year. So, that's a deduction of 10's of thousands of dollars,

I hate to be such a nag about this, but once again, repeat after me, "Deductions are bad, not good." Repeat until your reflex is to burst into laughter when someone tells you of a great tax deduction.

You must keep your eye on your pocket, not your tax bottom line. Let's examine the case of Mr. Gotrocks, who pays a $10,000 fee annually to his investment advisor. Let's put Mr. Gotrocks in the top Federal tax bracket (35%) and tack on 11% for his native state, Sockitome. Let's also tack on sufficient other miscellaneous deductions so he gets full tax value of the investment fee. We'll also assume that his regular tax liability is greater than his AMT liability.

Wow! He saves $4,600 on his taxes! Break out the champagne! Such a deal!

But wait a sec. He's out $5,400. If he hadn't incurred the $10,000 expense he'd have $5,400 more in his pocket today.

So yeah, if an expense is necessary or worthy, e.g., charity, it's nice that you get a tax benefit from it. But don't ever forget that you lose money on the deal.

Phil
Rule Your Retirement Home Fool
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