Jul 25

When we look at where we were just a decade ago, Solar Power has come a long way. The little solar voltaic cells were enough to power a calculator, and I thought of it as saving me $5 every year or two for as long as owned it. In hindsight, it was less about the $5 and more about having a dead calculator when it mattered most.

We’ve come a long way and solar now seems to be hitting the mainstream, getting close to the point where it’s economical to power one’s home from these panels during the day. I specify day as there’s still a bit of an issue with storage of excess power that can bridge the gap until the next day. For now, the excess power you can produce is pushed back to the grid, driving your meter backwards. If solar continues to drop in cost, we will reach a point where the grid can’t absorb this power and local storage, either by home or neighborhood will be needed.

The math isn’t too tough. A 1KW panel enjoying 1500 hours of strong sun each year is going to produce 1500KWHs of power each year, and at 12 cents per KWH, the US average, save the consumer about $180 per year. Many electric companies are also charging for the peak demand, i.e. the top usage during a 15 minute period of time. This is the amount of generating power they need to service you, even though your average usage is far less over the full month. It varies by company, but I’ve seen a demand charge as high as $28 per kW of demand. That solar panel generating 1KW will save you $336 in demand charges over the year, this is in addition to the savings all ready mentioned. For companies with large demand, an energy conversion calculator will help keep the Kilowatts and Megawatts straight.

There are a number of variables that come into play for when the tipping point will be reached. Panel cost, cost of financing (i.e. current interest rates), average number of sun-hours per year, cost per kilowatt-hour, and demand charges. Once these are all taken into account, a clever analyst will be able to product a map of the US identifying what areas are currently candidates for profitable solar installations, and which are in line as the price of solar drops.  The cost to produce electricity and natural gas will only continue to rise, and the technology driving solar panels continues to improve.

I hope to hear my grandkids ask me, “they burned stuff to produce power? Why? The sunshine is free!”

written by Joe \\ tags: , ,

Jul 05

As my regular readers will recall, I often pass Walden Pond, as I live a few towns away, and while writing at Walden Pond, Thoreau wrote, “Our life is frittered away by detail. Simplify, simplify, simplify! I say, let your affairs be as two or three, and not a hundred or a thousand; instead of a million count half a dozen, and keep your accounts on your thumb-nail.” Partially with this in mind, I like when a bit of proposed tax code aims to provide some level of simplification to our utterly incomprehensible too-long code.

The particular proposal I am looking at today offers to simplify the tax benefits for higher education. as the Ways and Means report states:

  • Under current law, there are 15 different tax benefits relating to education that often overlap with one an other.
  • The current-law education tax benefits are so complicated that they are ineffective because many taxpayers cannot determine the tax benefits for which they are eligible.
  • The IRS publication on tax benefits for education is almost 90 pages long.
  • Streamlining education tax benefits would enable taxpayers to understand better the tax benefits for which they qualify.
  • The provisions would help to simplify considerably the tax benefits relating to education.

The above puts in perspective just how difficult it is for the average parent to navigate their choices amongst the different benefits. The new proposal appears simple, a 100 percent tax credit for the first $2,000 of certain higher education expenses and a 25 percent tax credit for the next $2,000 of such expenses. So far, so good. A total $2500 gift from Uncle Sam to pay for your child’s college tab. Not so fast, a phase out for MAGI between $86,000 and $126,000 for joint filers and $43,000 and $63,000 for other filers. This is a tough one for me. For a Joint filer, that next $20K of income will kill $2K worth of the tax credit. In effect, a 10% extra phantom tax for the AGI between $86K and $106K for that couple. Many people with college age children are not far from retirement, and on my advice, they might be navigating to avoid the phantom tax that will hit retired couples on their social security income. The effect of this phaseout is that a couple will see a phantom 25% rate for income that should otherwise be taxed at 15%, the 15% bracket I suggest that pre-retirees “top off” by converting some money to their Roth IRA. I suppose that any credit such as this one should have a cap, an income level above which one doesn’t qualify. The real question is whether a joint AGI of $86K is the right level for the phaseout. My own opinion is no, I think $125K or higher is more appropriate. What do you think?

It doesn’t end there. The government gives and the government take away. This provision includes the repeal for the exclusion from United States savings bonds used to pay higher education tuition and fees. In other words, you followed the rules, you patriotically bought US savings bonds with the promise that the growth would not be taxed if these were used to fund higher education. Ouch. The estimate is that this will save $100M over 10 years, so only $10M per year or so. But save in this case means that people will be taxed when they weren’t expecting to pay tax on this money.

Other take-aways include the repeal of any student loan interest deduction, the repeal of deductions for qualified tuition, and the end of the Coverdell Education Savings Account (The account formerly known as the education IRA.)

That’s about it. It seems that simplification comes at a price, and anyone who thinks they understand today’s tax code enough to benefit from it had better keep up on changes that our congress may vote on. To miss these changes can be quite costly.

written by Joe \\ tags:

May 29

Following pi day (3/14) and “May the fourth be with you” day (5/4), we’ve now arrived at 5/29, and it’s time to ask – Do you know what a 529 savings account is? Do you care?

In the US, we have the opportunity to save money in a College Savings account, otherwise known as a 529 account. Funds go in after tax, much like a Roth IRA or Roth 401(k), grow tax deferred, and if used for higher education, can be withdrawn tax free. Sounds simple, but as they say, the devil is in the details.

First, let’s be clear, the 529, just like our retirement accounts, is a designation, a box to hold an investment. A 529 is not an investment, but a type of account. The rules on what can be put into it offer a limited selection from any provider. You can’t buy individual stocks, but most providers have an S&P fund as one of their choices. If you choose this fund, keep in mind what your child’s timing is and be sure you plan wisely. Look at our last 15 years of volatility and ask yourself if school were to start the year after a crash, will your account’s value survive or will it be decimated?

Money deposited to the 529 account is treated as a gift to your child, grandchild, or whoever is the beneficiary of the account you are funding. This means that you can gift $14,000 to the account each year with no paperwork. Your partner or significant other can also gift $14,000. A special rule permits a 5 year gifting, i.e. you may gift $70,000 in one year, with no further gifts for the next 4. A great way to jump start the account. A Form 709 must be filled out to declare this gift, but it’s a formality, no tax is due.

At the other end, the account can only be used for higher education expenses. If your child gets a scholarship, there’s likely to be far more money than you’ll need, but that’s really a good thing, right? You then have two choices, you can withdraw the extra money, paying taxes and penalty on the gains, or change the beneficiary to one of the IRS-approved relatives.

One last thought – even though the deposits are not Federally tax deductible, some states do permit a deduction of some part of the deposit. Check out the rules for your state, and Happy 529 Day, all!

(Anyone else note the irony that 401 day is April Fool’s day?)

written by Joe \\ tags: ,

May 26

When I worked for a large company, my wife and I enjoyed the use of a Flexible Spending Account, otherwise known as an FSA. This account allowed us to save up to $5000 pretax, and use it for medical expenses during the course of the year. Doctor copays, medicine copays, and expenses that our insurance didn’t cover, such as chiropractic care. For the most part, I had no complaints about this program. The FSA was a use-it-or-lose-it plan, so members needed to plan carefully, and as the year drew to a close, if there was going to be much money left, it was time to go eyeglass shopping. That purchase was always good for a few hundred dollars. Recent changes to the plan reduced the family maximum to $2500, and tempered the use-it-or-lose-it provision to permit $500 to carry into the next year. Better, but not great.


Now, the Mrs is retired and I’m working for a small company whose health insurance is an HDHP, a high deductible health plan. This means that we have at least a deductible of $1250 per person ($2500 for the three of us) and a family maximum out of pocket of $12,700. What this also means is that I was eligible to open an HSA, a health savings account. The HSA offers a maximum pretax deposit of $6,550 per year. Most important, there’s no risk of losing what you don’t spend. In fact, the account offers investment options so if you are young you can use this as a long term savings account, invest it in stocks (whatever funds your custodian offers) and have these funds available for expenses in the future. In a sense it offers the best of both the traditional IRA with money going in pre-tax, and the Roth IRA, as qualified spending allows you to make withdrawals tax free. Unlike the FSA, this account does not need to be sponsored by your employer. So long as your health insurance meets the above criteria, you can open the HSA at a bank that offers it. If your insurance qualifies you for an HSA, check it out. Many of my coworkers were unaware they could use an HSA, and I saved them over $1500 for just a quick conversation and a bit of paperwork.

written by Joe \\ tags: , ,

May 26

You’ve ordered a pretty dress online and it arrives at your home in fewer than two days. As a customer, you think that the ecommerce website probably sent an email to its warehouse. The warehouse staff then packed and mailed the product to the correct destination and you got your dress on time. That was then, but most ecommerce websites now use drop shipping to get their customers their products quickly and efficiently. You might be wondering what drop shipping is and how does it work but this is not something unique or innovative. The drop shipping method can save the retailer and the customer a lot of time and money, and it is effective.

So what is Drop Shipping and How Does it Work?

Traditionally, websites had local warehouses where they stored their goods. When customers placed an order, the POS, or point of sale, system on the website notified the warehouse and warehouse workers would pack and ship the item. However, this was expensive. It became even more expensive when large websites started stocking third-party goods. This meant they had to contact vendors individually get their goods and store them in a warehouse until customer orders came through. Drop shipping changed all that. The website no longer has to store goods and the vendor can store goods with them. When a customer order comes through the website, the website will notify the vendor and the vendor packs and ships the item to the customer. As everyone is invested in the process, vendors are paid quickly, the website gets successful, and the customer gets his product on time, states Flippa.

Does Drop Shipping Have any Benefits?

  • Smaller Inventory – For website owners, drop shipping is very useful. They no longer have to invest in inventory, as goods are stored with the vendor at the vendor’s warehouse. Website owners also now do not have to worry about maintaining a warehouse and warehouse staff, and it can save them a lot of money.
  • Expanding Website – The website owner can now retail thousands of products from vendors located all over the world and they do not have to worry about shipping costs.
  • Ready-To-Sell Data – As the goods are stored with the vendor, the website owner has no idea how the product looks. The vendor supplies a written product description, high quality images, shipping weight, dimensions, price and inventory. This can really streamline the website and ensure regular product updates on the website and high-volume sales.
  • Lower Customer Costs – As an incentive, most vendors also provide free shipping and on minimum orders or clubbed orders. This brings down the price of the item and it can be very good for the customer.
  • Immediate Shipping and Delivery – The POS system on the website can be completely automated and sales are processed quickly. For example, when an order is placed for ‘x’ vendor, the POS notifies the vendor. A shipping label and invoice customized to your ecommerce store is supplied to the vendor who will ship the item immediately. As orders are placed and processed quickly, shipping and delivery is fast and effective.
  • Highly Scalable – Drop shipping has no limits. It can be used to ship small items like clothes and shoes and large items like washing machines, air conditioners and even refrigerators depending on the vendor and his shipping costs.
  • Reliable Model – Drop shipping is reliable and website owners can trust the vendors to pack and ship items quickly to maintain sales and their personal reputations.

Drawbacks of Drop Shipping

Drop shipping does work but it is by no means a perfect solution. For website owners, the problem starts with no control over the shipping and delivery process. Sometimes, the supplier or the vendor may run out of products and this may result in a shipping delay. The supplier or vendor will charge you, the website owner, shipping and storage charges and this may add to your overall costs. As a website owner, you cannot change the overall cost of the product, as the vendor determines price, and this may affect what discounts you can offer. However, these are small drawbacks that can easily be overcome by a hands-on website owner.

Will Drop Shipping Work for Retailers?

Shipping and delivery are a critical aspect for any website and if the business can deliver goods quickly and accurately, it can make the website an immediate success. Drop shipping is popular as the vendor is motivated to ship the items quickly and it does ensure success. However, it is not right to assume that every eCommerce website will switch over to drop shipping, as large retailers like Amazon still prefer to pack and ship their items themselves. Drop shipping is an affordable and simple option for new websites and it can ensure that goods reach the customer on time but the actual choice of a shipping method will depend on the website and its goods.



written by Joe