Come-On May Be Bad for Tax Health

Question: I have been getting come-ons in the mail from a new health club in my neighborhood. Besides touting their weightlifting equipment and clinicians available to help members set up exercise and weight-loss programs, they claim that the $20 monthly fees are tax-deductible. True?--B.K.

Answer: Don’t believe it. Various promoters have been making such claims for years as a sales incentive for their programs. But the IRS and the tax court have consistently ruled that memberships in health clubs, exercise programs or weight-loss clubs aren’t deductible medical expenses.

The reasoning is that such programs are designed as broad-brush aids to better health rather than as treatments for a specific ailment; therefore they are not deductible.

Q: The company that I work for was bought out by another company, and I (along with about 25 others) was let go by the new owners. Those of us who had worked there for at least 15 years got a small amount of severance pay. Can we just consider this a gift? Or must we report that money as income?--Y.R.

A: In the view of the U.S. tax laws, severance pay is not a gift of appreciation. It is a lump-sum payment for cancellation of your employment contract and, therefore, is income. It is taxable in the year that you receive it.

Q: I am 20 years old, and before Christmas I got my first job--working part time at a Christmas-tree lot. The owners (who also own a tree farm and a nursery) have now asked me to stay on indefinitely to do odds and ends. I know that I won’t make enough money either this year or next year to owe any income taxes, but my boss is taking taxes out of my paycheck. Is there any way I can stop those deductions? I need every penny that I can make for college.--L.E.

A: All you have to do is get a W-4 form from your employer, and on Line 6, claim the exemption from withholding. You’re entitled to your full earnings, with no tax withholdings, if you had no income-tax liability last year and expect none this year.

Editor’s Note: In a recent column, we responded to a reader’s question about old stock certificates by bringing to her attention a Canadian company that specializes in tracing old stocks and determining whether they are worthless or have some value. We now have additional information.

Prudential-American Securities Inc., a Pasadena securities dealer, runs a financial library that specializes in tracing old stock certificates. The service is principally used by corporate trust departments. But for a $16 fee, Prudential-American will research the value of old stocks for individuals.

To enlist Prudential-American’s help in tracing an old stock, send a photocopy of the stock certificate and a check for $16 per company to be researched to Prudential-American Securities Inc., Financial Information Center, 747 E. Green St., Suite 300, Pasadena 91101.

If the company that issued your stock certificates cannot be located, Prudential-American will return your money. If your certificates are found to be worthless as investments, the company will provide a list of collectors who may be interested in the certificates as collectors’ items. And if the certificates prove to be valuable, you are only out $16; Prudential-American doesn’t keep a percentage of the amount recovered.

Beginning next Thursday, Debra Whitefield’s money column will appear in the Business Section.