Only part of a broker's fee is tax-deductible

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I pay my broker a fee for managing my
investments, making trades for me, and giving advice. Am I correct that all of
this fee is allowed as an itemized deduction on my tax return?

D.P., Avon

Yes and no. If part of your fee is for managing assets which produce tax-free income, you are expected to prorate the fee so that your deduction is only for the part of the fee that relates to taxable income. Also, if you pay a custodial fee for an IRA account, that fee is not deductible.

Investment-related expenses are classified as miscellaneous deductions and get reported in that section of your Schedule A, so you have to itemize your deductions in order to deduct these expenses.

In an effort to make the IRS's life simpler (an effort I'm sure we all applaud), Congress created a law several years back making these types of miscellaneous deductions allowable only to the extent that they exceed 2% of your adjusted gross income. This way people with measly little investment expenses don't have to bother the IRS with a deduction.

The interesting
thing here is that, since your deduction is a direct result of how much income
you have, and presumably the more you spend on sage investment counseling, the
more your income will grow: the more income you earn, the smaller the deduction
you get to take. I'm sure that makes sense to someone.

I attended an investment seminar recently. The seminar was put on by
a group of investment advisors and was filled with great advice that I will
definitely use to help produce taxable income. There was a small fee associated
with the seminar ($50)' can I assume this fee is deductible?

M.B., Indianapolis

It would seem that one piece of great advice that was left out of the seminar is that the fee for attending an investment seminar is specifically not deductible.

My ex-husband and I split up the ownership of
our stocks when we divorced. If I sell some of the stock I now own, is my basis
the value of the stock when we got divorced or when we purchased it?

D.B., Carmel

Your basis in the stock doesn't change due to divorce, although that's certainly an interesting concept. The only time basis changes is when stock is received in an inheritance. I suppose you could argue that your divorce is like a death of some sort and therefore the inheritance rules should apply, but that argument wouldn't get you very far. Anyway, the stock was purchased while you were married, so you had a stake in it from the start. Your basis isn't going to change just because you changed your marital status.

We have an adjustable rate mortgage and our bank
recently sent us a refund for some kind of overpayment on the mortgage. Is this
refund taxable?

L.S., Indianapolis

Do you itemize your deductions? Did you deduct mortgage interest last year? If you answer "Yes" to these questions, the refund is probably taxable. Check with your bank to find out if this is a refund of mortgage interest. If it is, and you took a tax deduction for the amount, it will be income this year. Sometimes mortgage companies refund the excess amount that's held in your escrow account, the account that funds payments of property taxes and homeowner's insurance. If that's the case, you won't have to report this as income.

I'm getting married and changing my name. When I
file a joint tax return is the IRS going to be confused, since I filed with a
different name last year?

S.M., Indianapolis

One could argue that the IRS is always confused, but that's neither here nor there. Yes, the IRS will be confused if you file your tax return under a different name. But they won't be totally confused as long as you use the same social security number that you have always used. To make matters simpler for everyone, you are supposed to contact the Social Security Administration and get yourself a new social security card with the correct name, keeping your old number, of course. In Indianapolis, call 1-800-772-1213 for a direct link with the Social Security Administration's recorded information (is there any other kind anymore?) where you can order a new card.


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