Money Management Q&As

March 18, 2005

Stock loss; vets' pension benefits; EE Bonds; leasing a car

When corporate games cause a stock to dropQ I took a big loss on the stock of a company whose chief officers have pleaded guilty to fraud and misrepresentation. Can I treat it as a theft loss and deduct all of it from my taxable income?

A Not if, as is presumably the case, you bought the stock through a broker. Where such stock was purchased on the open market, courts have consistently disallowed deductions for alleged theft due to a decline in share value resulting from officers' criminal actions. Accordingly, the IRS insists that you can claim a capital loss on the stock only when you sell it or if it becomes worthless. That means you can use the realized loss to offset capital gains but can't deduct more than $3,000 of any excess loss from your other income in this and future years.

If you'd bought the stock directly from the officers of the company, you'd probably have a stronger case for deducting the loss as a theft.

A Yes. Most such plans involve high sales commissions early on, so only part of your money-as little as half, in some cases-goes to work for you. Also, if you become dissatisfied with the fund's performance, you may be charged a penalty to withdraw from it. Generally, those fees decline if you hang on long enough. Ask your broker to estimate what the charges might come to after several years.

If you're dubious, consider arranging with a bank where you have an account to automatically transfer a specified monthly amount to a no-load mutual fund of your choice. That should minimize your expense and lessen the temptation to stray from your program. The benefits of scheduled investments, sometimes called "dollar cost averaging," become increasingly apparent as time goes by. For a detailed illustration, see "10 Simple Rules for Successful Investing," July 9, 2004 issue (available at http://www.memag.com/memag/article/articleDetail.jsp?id=108990).

Pension benefits for returning veteransQ I have a profit-sharing plan for my employees. One of them was called up for military service but will be returning to work shortly. What do I have to do about his plan benefits?

A After he comes back to work, you must make up any missed contributions for him, based on the compensation he'd have received during the time of his military service, but you don't have to include the amounts those contributions would have earned. You can stretch out your makeup contributions over a period equal to three times the length of service, though not more than five years. If the plan calls for you to match elective employee contributions, you must immediately match any he missed if he chooses to contribute retroactively when he returns.

Advice if you're finished paying a mortgageQ I've paid off the mortgage I owed to the seller when I purchased my home. What proof do I need that the debt has been canceled?

A To make sure the mortgage is no longer a lien on your property, the lender should submit a notice of cancellation (sometimes called "satisfaction," "release," or "reconveyance") to the county recorder's office. In most states, a lender who fails to do this within set time limits is subject to penalty and suit for damages. Details of your state's law and a copy of the appropriate document to be submitted are available for a fee at http://www.uslegalforms.com.