Nov 18

Remember New Coke?

Remember Qwikster?

My Spidey senses tell me that Intuit’s TurboTax product is about to have its own moment of marketing mishap. Now. As a tax nerd, I don’t put my TurboTax on the shelf after I file my return. I open it regularly to plan my year. Since one of my goals is to avoid paying more tax than I have to, I use it to plan my stock sales, Roth conversion, if any, and forecast my tax bill well in advance of April 15th. It’s been a ritual of mine to buy the new tax year software the weekend it’s out, usually the weekend after Thanksgiving. This year, as I started to look to see a product release date, I found that the versions offered had their contents revised.


(Right-click to open in new screen)

You can see, the Deluxe version no longer handles any stock transactions, i.e. Schedule D, or any rental property details, Schedule E. Last, with part time blogging income, I need to file a Schedule C, which is now a Home and Business offering.

Here’s my concern – people are creatures of habit. When was the last time you “read the fine print”? We buy what we’ve bought and rarely catch the changes until it’s too late. Unfortunately, in this case, it with be a painful process, realizing your return wont have the forms you’re expecting and you need to upgrade the software (hopefully that option will be available, to pay the difference and move on) or buy the right one for your needs. The 2014 version was just released, and Amazon reviews are already running negative, 8 reviews so far with 7 showing One Star.

I’ve been a user of TurboTax since filing my first return in 1985. We’re having our 30th anniversary with this next purchase. For the last decade, I’ve taken advantage of the ability to produce multiple returns, using my copy to print returns for my daughter, mother-in-law, sister and sister-in-law. I’m not going to quibble over a change that I read about and can adjust to. But I’ll sit back and watch how the reviewers are already having their say and see how my friends at TurboTax respond.

Update (11/22) – The reviews on Amazon continue to mount –


The one star reviews are all focused on the price increase. Unfortunate, I hope TurboTax jumps on this to stop the potential loss of customers.

written by Joe \\ tags: , ,

May 26

It’s that time of year again, graduation time. And that’s why today’s round up starts with The Most Important Piece of Financial Advice for College Graduates. I’m not going to spoil the punchline, but I will say, I agree with the article’s advise, and college grad or not, you’ll be a bit wiser for reading it as well.


Above is an image of the new sized fries that are soon to be sold in Japan. It weighs in at 350 grams (just over 3/4 lb) and will sell for 490 Yen ($5 or so). Rumor has it that Mayor Bloomberg is already planning a to launch a pre-emptive strike, writing a law limiting the size of a portion of fries that can be sold in New York City.

The Weakonomist asked Has The Recession Made Us More Informed About Economics? I was asking a similar question after the crash of 2000. And of course I remember the banking crisis of the early ’80s, you know, the Resolution Trust Corp? But I digress. We’ll see if this generation learns any of lessons the prior ones missed.

Next, the Debt Princess tell us What NOT to Do: Live in Denial. It seems the Princess has made a few mistakes and she’s working to right size her financial life. Jessica writes from the heart, and writes in the hope that her story will help others to avoid the mistakes that she’s made. An article that might help you look at your own choices more closely.

Kay Bell offered her take on the Senate’s Inquisition of Apple’s Tim Cook at Apple lauded on Capitol Hill at hearing about its low U.S. taxes. Kay’s not quite as sympathetic to Apple as I am, but I offer her article as a counterpoint to my opinion, and because Crossfire is no longer on the air.

As much as I love a bargain, and often fill a space in the closet with half price laundry soap or TP, it’s good to know What NOT to stock up on in your stockpile! An excellent tutorial at Couple Money on the items you should buy with caution.  I agee with the caution on buying too much fish, meat, etc, so keep an eye on your supermarket sales cycle, usually six weeks from one chicken sale to the next.

And to wrap up the week, at Money Under 30, Can In-Store Health Clinics Save You Money? I’ve found the Minute Clinic at CVS to be a great service, a time saver for me and a savings on the system. No need to go to my doctor’s office for a flu shot. Have you visited your local drug store clinic?

written by Joe \\ tags: , , ,

May 07

After I wrote The Step Transaction Doctrine at my companion site, RothMania, I received a number of emails asking about situations where this might apply. Here’s an example of another disallowed series of transactions:

A) A son and wife are in a high tax bracket. Enough so the AMT effect causes there long term capital gain to be taxed at 22.5% (really 15% plus extra due to AMT). They gift the son’s parents $50,000 in appreciated stock.
B) The parents, who are in a low bracket, sell the shares and have no tax due as there’s no cap gain tax if you are in the 10 or 15% bracket.
C) Parents then gift their son and his wife $50,000, the proceeds of the sale.


In a Q&A a few years back my favorite IRA author Ed Slott offered a definition of the Step Transaction Doctrine:

The step transaction doctrine can be a bit complicated, but essentially, when applied it treats what are actually several independent steps as if they were a single transaction for tax purposes. 

There are three different tests which have been used to determine if the step transaction doctrine should apply. One test, commonly referred to as the “binding commitment test” applies when there is a commitment to complete a later step in an overall transaction at the time the first step is made. Since an IRA contribution (deductible or not) does not require that one convert the contribution to a Roth IRA, this test is a non-factor here.  

Another test that is used to determine if the step transaction doctrine should be applied is the “mutual interdependence test.” This test looks at each step in an overall series of steps and determines if a specific step is meaningless unless the later step(s) actually occurs. Since a non-deductible IRA contribution is clearly beneficial (read “not meaningless”) on its own, this test is also a non-factor.  

The third and final test, known as the “end result test,” is the most applicable for this discussion. Under the end result test, the steps in a transaction are looked at to see whether the series of steps were really just predetermined steps of a single, overall transaction, aimed at achieving a specific outcome. Do clients make IRA contributions with the idea that they will later convert them? Sure. So is it possible for IRS to raise issues with this strategy in the future? Yes, but it’s not a likely scenario.

You can see that each of these events, taken alone, is perfectly legitimate. It’s only when they are combined in this way that the IRS combines the transactions and would go back to our Yuppie couple along with a tax bill.
The key thing to ask yourself is whether each event was legitimate, and in this case, there’s really no bona fide gift to anyone, the transactions are simply tax avoidance. Will you get caught? That’s the wrong question. You see, once you start asking what your chances are, it’s a slippery slope. Best to avoid deals that look like this regardless of what your ‘advisor’ tells you. At RothMania, a reader’s brother has a tax attorney who was encouraging him to skirt this rule, either that or the lawyer was completely ignorant of it. In either case, I’d stay clear of any advisor who makes such proposals.  If it sounds too good to be true, it might just be tax evasion.

written by Joe \\ tags: , ,

Apr 06


The tax code has gotten out of control, more than 70,000 pages. Some like to say that it’s ten time the size of the Bible, although I tend to stay away from religion, and prefer to compare large books to War and Peace. My latest guest post at Turbo Tax might help you with a few Last Minute Tax Tips if You’re Still Working on Your Tax Return. Check it out and ask a question if you’d like.

One week to go!

written by Joe \\ tags: ,

Mar 14

Note – this ‘letter’ is to my mother-in-law, whom I sometimes just call ‘mom,’ even though she’s fine with my using her first name. She’s a widow, and in her 80’s.

Dear Mom,
It’s no burden for me to do your taxes, in fact, I enjoy the process. After you and dad (who passed away almost 8 years ago) told me what you were paying for your tax guy, I thought I could save you that money to spend on something else. The fact that the tax guy wasn’t really a financial planner also gave me the opportunity to offer some advice that would help save on your tax bill each year.

I just looked at the folder of paper to start doing this year’s return. Wow. A lot more than we really need. Here’s why – you don’t itemize. To take any deduction for medical expenses, you need to be out of pocket more than 7.5% of your adjusted gross income. Even though your bills feel like they were in the thousands, the amount you had for copayments didn’t even add up to $1000. Your standard deduction is $7400. Your Condo property tax and interest (you own your unit, but there’s a master mortgage on the property) along with your donations aren’t anywhere near this. A few years ago, when you had one really large donation we used a Qualified Charitable Distribution from your IRA. Since you were going to make that donation anyway, by using money from your Required Minimum Distribution (RMD), it made that distribution tax free. I thought that was pretty cool, but this year it was pages of small donations, so we agreed to pass on the QCD trick.

All in all, there are a handful of numbers to enter. Your pension, dad’s pension you still receive, social security, and the transactions from your brokerage accounts. What makes it even easier is that TurboTax (disclaimer, right here, for FTC, this is an unpaid mention) will pull the yearend data from your Schwab (FTC – ditto) account, so I don’t even type those numbers in.

The other thing I do for you is to convert a bit of you IRA each year to your Roth account. This way you pay 15% on the money, and it keeps growing tax free. If we didn’t do this, your RMDs would keep increasing each year and you might be pushed into the 25% bracket. You’re not even spending your RMD, and the girls and I keep telling you that you should spend more on yourself. But, if you need to withdraw more than your RMD and should start to hit the 25% bracket, you can use the Roth money. If I did two thing right for you, it was this – a balance of stocks and CDs so you were buying in at the bottom, and rebalancing at the tops. You have more now than you did 10 years ago, even after withdrawals. And keeping your tax rate right at 15%. This is one strategy that’s perfect for someone in your situation, just enough income to let you convert a bit each year to top off that bracket.

I hope you understand a bit better why I don’t need all that other stuff every year, but I’m pretty sure it will all be there next year when I look at your 2013 return. And I’ll explain again, ‘you don’t itemize!’

written by Joe \\ tags: , , , ,