Check Documents Before Complaining

QUESTION: I am consolidating several individual retirement accounts. I have just learned that a major brokerage house is charging me $50 to close an account I have maintained there. This fee is in addition to the $30 annual custodial fee the brokerage charges. This seems grossly excessive. Am I being ripped off? --H. J. H.

ANSWER: No doubt you feel abused by the charge. And if you didn’t know about it when you opened your account, you may be justified in your feeling and entitled to launch a full-blown complaint at your brokerage. However, you should know a few things first.

It is becoming increasingly common for financial service institutions, whether banks or brokerages or insurance companies, to levy additional charges for specific services. Remember when checking accounts were free? In many cases, these fees are laid out in the paper work you sign when you open your account. You may not have paid attention to these details at the time, but chances are, the information is there.

But if, after checking your papers you discover that the closing fee was not disclosed when you opened your account, you are certainly entitled to challenge it on the ground that it was not a part of your original contract with the brokerage. You can complain to the manager of your local branch and all the way to the top echelon of the brokerage, if you want.

If you’re still not satisfied, you can complain to the stock exchanges to which your brokerage belongs, such as the New York Stock Exchange or the American Stock Exchange. You can also file a complaint with federal regulators at the Securities and Exchange Commission and state regulators. In California, stockbrokers are regulated by the state Department of Corporations. Of course, only you can decide whether a $50 fee is worth this effort.

Free-Lancer-to-Be Has Good Income Tax Plan

Q: I intend to begin a career as a free-lance artist. I anticipate that my income will be low and irregular at first. I can’t even begin to estimate my earnings for the purposes of filing an estimated quarterly tax return. So, since my husband and I file a joint tax return, is there any reason we can’t simply increase the amount withheld from his salary to compensate for my projected income? --A. M.

A: There is no reason at all why your plan won’t work. In fact, it makes a lot of sense during the initial phase of your new career.

There’s one requirement to worry about: To avoid a penalty for failing to prepay your income tax obligation sufficiently, the IRS says you must have withheld or prepay an amount equal to either 90% of your total tax obligation for the year or 100% of your tax obligation for the previous year.

So if you make sure you meet one of these conditions, you will not be penalized for not prepaying your tax obligation.

Interest Charges Can Offset Capital Gains

Q: I understand that the Internal Revenue Service allows taxpayers to use investment interest charges to offset investment income. But does investment income include capital gains received from the sale of rental properties? Specifically, I want to sell some rental property on which I will make a large gain because I am paying interest on a loan that I took out to invest in other property.--Y. Z. L.

A: Your question is not as simple as you might think, and you should consult a qualified professional before completing your tax return. But yes, basically you are allowed to offset a capital gain from the sale of investment property with interest charges paid on another real estate investment.

If your expenses are high enough, you may write off the entire gain. If after writing off the entire gain, you still have additional interest expenses, our tax experts say you may write off up to $2,000 of ordinary income on your 1989 taxes. The ordinary income you may offset with investment interest expense drops to $1,000 in 1990 and is eliminated completely in subsequent years, says Tom Gau, a Torrance financial planner. However, the interest expense can be carried forward to future years to offset future investment gains.

Again, you would be well advised to consult a professional because the laws defining investment interest expense are complicated and you should verify that your interest charges are truly deductible before the IRS sends you some sad news.

Carla Lazzareschi cannot answer mail individually but will respond in this column to financial questions of general interest. Please do not telephone. Write to Money Talk, Business Section, Los Angeles Times, Times Mirror Square, Los Angeles, Calif. 90053