CAN I DEDUCT THE CLEANING TAB FOR MY REQUIRED WORK CLOTHES?
(MONEY Magazine) – TAXES Q. My job as a truck driver requires that I wear a uniform and clean my own shirts. Other employees deduct $400 to $500 in laundry bills annually. This alone wouldn't exceed 2% of my adjusted gross income, which is the rule for miscellaneous deductions. But it would if I added my $400 union dues. Is this a proper deduction? Can I apply it to past returns? David Pauling Mound, Minn.
A. Yes. The Internal Revenue Service, itself something of an authority on spring cleaning, recognizes union dues and uniform maintenance as business expenses that qualify as miscellaneous itemized deductions. You must have the clothes cleaned professionally, however, and save the receipts. Also, not all dirty laundry is created equal. Your uniform has to be both mandatory for your job and unsuitable for other use. Hence, a salesperson or television anchor who's required to dress nattily has to foot his or her own dry-cleaning bills. As for past returns, you can amend your last three years' filings. And for 1986, before tax reform, you can deduct all miscellaneous expenses, not just the portion that exceeds 2% of your adjusted gross income.
INSURANCE Q. I'm 35 years old and have $200,000 worth of universal life insurance. Several term insurance agents have told me that my $104 monthly premium is a wasted investment, since my policy might be worth nothing by the time I reach 65. Is this true? Wick Hartung Canton, Ohio
A. Only theoretically. In contrast to term life, where your entire premium goes to the cost of insurance, universal life policies usually earmark no more than a part of your payment for protection. The rest goes into an investment account or ''side fund'' that accrues interest at roughly money-market rates (currently a little more than 9%). The company guarantees that the side fund will earn at least some minimum rate -- usually 4%. But it also retains the right to deduct more of your premium for insurance costs -- up to a contractual ceiling -- if the price of coverage goes up in the future. What the term agents are saying is that if the side fund's interest should fall to the minimum and if the cost of insurance should go sky-high, you would have to increase your premium, dip into your side fund or take a reduced death benefit. Some people who bought universal life in the early 1980s, when interest rates were high, actually faced this choice later when rates came down. For the side fund to be completely exhausted, however, short-term interest rates would probably have to stay at or below that 4% minimum, and they haven't been that low since 1965. For a more likely estimate of your policy's future value, ask the agent who sold it to you to calculate its worth ! when you turn 65 by using a projected interest rate of about 6.5% at both the current and the maximum cost of insurance.
TRUSTS Q. If a father puts his house in a revocable living trust that names his adult children as beneficiaries in the event of his death, could their creditors claim the property to satisfy the children's debts while he's still alive? Sally Cuffaro San Diego
A. No. By setting up a revocable trust, he -- as trustee -- retains legal control of its assets, and the children's creditors could only go after any proceeds (of which there are none, presumably) distributed to them from the trust. In addition, the father could revoke the trust at any time and take back full rights to his house. When the father dies, however, one of two things will happen. Either the trust is set up to dissolve, in which case the creditors can lay claim to any property going to the children. Or if the trust is set up to survive the father, then the trust document itself should be designed in such a way as to limit creditors' access to the assets. For advice on how to armor-plate your trust, consult an attorney well versed in California estate planning.
MUNICIPAL BONDS Q. What are pre-refunded municipal bonds? Robert Peurifoy Albuquerque
A. Pre-refunded muni bonds are generally high-quality, triple-A-rated bonds that are guaranteed by U.S. Treasury obligations at least until the first date of call (that is, the earliest time the issuer can redeem the bonds before maturity). They come into being when a state, municipality or public authority refinances an existing bond issue that it cannot yet call, usually to take advantage of lower interest rates. A new bond is issued to raise money to pay off the old one, and the proceeds are invested in Treasuries sufficient to cover all scheduled interest and principal payments until the call. Because of their high security, pre-refunded bonds usually pay about the same rate as triple-A-rated muni bonds, and they are often better investments than Treasury notes of equivalent maturity for upper-bracket taxpayers. A New York State Urban Development Corp. bond callable on Jan. 1, 1996, for example, was recently yielding 7% at a time when seven-year Treasuries were paying the equivalent of only 6.1% for investors in the 33% bracket.
COMMEMORATIVE STAMPS Q. I have been buying U.S. commemorative stamps for the past 10 years. I recently asked a stamp dealer how much the older ones might be worth, and he said 80% to 90% of their face value. Is that all? Norman Ross New York City
A. Probably. The U.S. Postal Service began mass-producing commemorative stamps just before World War II, and a minimum printing today is upwards of 90 million. Thus the philatelic market is so glutted that 90% of face value is probably the best deal you're going to find. (There are a few exceptions, like the $5 Alexander Hamilton stamp of 1956 that is now worth about $50.) If you'd like to know whether your collection contains any hidden gems, check the Scott Standard Postage Stamp Catalogue, available in most libraries. And if any seem worth selling, try advertising them in the weekly Linn's Stamp News (P.O. Box 29, Sidney, Ohio 45365); a one-time ad costs $6 for 25 words. If you don't want the hassle of selling your stamps, you can donate your collection to a charity and take a fair-market-value tax deduction. To get face value, unfortunately, you'll have to lick them and put them on letters.