Monday, March 15, 2010

How Much Does A Free TV Set Cost?

A while back, I wrote a post about receiving a free HDTV when I opened a new Certificate of Deposit (CD) account at Irwin Union Bank. Specifically, the offer was made to customers who open an 11-month CD with a minimum deposit of $20,000. At the time, the bank informed me that they would report the value of the free gift ($280) to the IRS (on a 1099 form). Since it was clear that a 1099 form would translate into additional income taxes, I knew that the free TV set was not truly free.

The TV itself is a 22 inch Toshiba model 22AV600U. It is the first HDTV that I've owned, and the picture is quite sharp compared to our old tube TVs. The new TV includes a built-in NTSC/ATSC/clear QAM tuner that can tune into both broadcast TV and cable. (It is an unadvertised fact that cable subscribers who have a clear QAM tuner can often receive unencrypted HD cable TV, without adding "digital" cable to their service.)

Anyway, how much did the "free" TV end up costing me? Our Federal marginal tax rate (aka: tax bracket) is 25%, and our California state tax bracket is 9.55%. So, the TV costs is (25% + 9.55%) * $280 = $96.74. It is not a free TV, but that is still a lot less than the retail price for a new 22" HDTV (typically about $250-300).

I deposited $20,000 in the CD for an 11-month term with an interest rate of 1.96% in July 2009. Then in September 2009, Irwin Union Bank was closed by the FDIC with its accounts and assets transferred to First Financial Bank (of Ohio). Subsequent to the Irwin Union Bank closing, the acquiring bank (First Financial) sent me a letter saying that it reduced my CD interested rate to 1.5% for the remainder of my CD's term. Ironically the FDIC says that this is all perfectly legal. However, they would let me withdraw my money from the CD without any early withdrawal penalty. And I would get to keep the free TV, too.


Monday, March 8, 2010

Fake USB Flash Drives

A while back, I wrote about collecting free promotional USB flash drives at various investment conferences that I've attended. I have been searching the Internet to see if I could also find websites that offer USB flash drives freebies. For reference, a USB (Universal Serial Bus) flash drive is a portable computer memory that plugs into a computer USB port and can be used like a miniature hard disk. Also known as thumb drives, they were once considered a novelty among computer enthusiasts. But nowadays, USB flash drives can often be purchased in many commonplace stores, including drug and discount stores.

Anyway, I did find a few websites that claim to offer USB flash drive freebies. In many cases, the website is outdated, and that particular offer has expired. Among the unexpired offers, I ended up submitting my mailing address and contact information to a few sites. But, I am disappointed to report that I haven't received a free USB flash drive from any of them. Can anybody report on any successes (or failures) that they've had?

In my searches on the web, I did uncover a disturbing trend: fake USB flash memory. To be clear, the flash memory itself is not fake; rather the capacity that the USB device reports to the operating system is fake. For example some people have reported purchasing a 32GB flash drive on eBay that they later found out could only store 4GB of data. To make matter worse when the real capacity of the drive is exceeded it starts to overwrite their existing data. Not surprisingly, when the end user finally realizes that they've been duped, they also learn that the eBay seller has closed shop and doesn't respond to Email messages.

As a technical matter, these unscrupulous sellers are reprogramming the USB controller chip to falsely report the capacity of the flash memory. To help detect this fake flash memory, there is a tool called h2testw that tests your USB flash drive by filling the memory with real data and trying to read back every bit of it. The tool can be be downloaded here: h2testw. This site is written in German. If you can't read it, you can click here for a translation that somewhat resembles English. The tool itself has instructions in both German (liesmich.txt) and English (readme.txt).

There is a website called SOSFakeFlash that contains a lot of helpful information about the problem of fake flash memory. It seems that much of fake flash memory sold on eBay originates from foreign sellers in Asia and Europe. However, there also appear to be domestic (U.S.) sellers who are also getting into the act. Their tactics are similar.

In my experience, I have purchased items on eBay before, such as a used DVD recorder. Regardless of the item, one suggestion that I can offer about buying items on eBay is to avoid sellers that have little feedback history, and are listing a large number of items for sale at once. These sellers are trying to make as many sales as possible before they get caught selling fraudulent goods. If it is a legitimate deal from a legitimate seller, it will still be there in the future. Also, bear in mind that the price of flash memory goes down in time (Moore's Law).

If you are a victim of this scam, I would first suggest contacting the seller. Inform them that you know that they are selling bogus flash memory, and demand a refund. If they don't respond, open a dispute on eBay that the item is not as described (e.g., I paid for a 64GB USB flash drive, but received a 4GB flash drive). I don't recommend that you claim the item is counterfeit because many of the fake flash drives out there are generic and don't represent a particular brand name (e.g., Sandisk, Sony, HP, etc.) If you make a counterfeit claim, eBay may ask for third party verification of the claim which you would have to pay for.

From my standpoint, I am glad that I haven't bought any bogus USB flash drives. All of the flash memory that I do have seems to check out fine when I run the h2testw program. But, I am curious if any of my readers have any experience with this bogus flash memory.

Note: While I was writing this post, I saw a 128GB Kingston DataTraveler 200 USB flash drive offered on eBay at the "Buy It Now" price of only $27. However, Kingston's list price for this item is $547. A few hours later, the seller had racked up hundreds of sales. And shortly after that, the listing and the seller disappeared from eBay... Doesn't that sound suspicious to you?


Tuesday, March 2, 2010

Decoding Tax Acronyms

The PR people at TurboTax recently sent me a list of "taxcronyms". Presumably, a taxcronym is a tax acronym that many people are not familiar with. In any case, I found their blog post to contain a lot of useful information, and I have asked for permission to reproduce it on my blog. Note: The views expressed are those of the original blogger, and do not necessarily reflect those of PFStock.

Common and Complex Taxcroynms Decoded
The TurboTax Blog
By Lauren Young, TurboTax Deductionista

Anyone who has ever looked at the tax code knows about the alphabet soup of acronyms associated with taxes. In addition to the big one—IRS a.k.a. Internal Revenue Service—I’m guessing that there are more than 100 taxcronyms out there. Here’s a guide to decoding some common as well as complex tax acronyms.

Your Adjusted Gross Income is key to figuring out your taxes, but computing it can be tricky. Thankfully, TurboTax takes care of the legwork for you. The AGI includes your income, minus certain deductions such as alimony, interest for student loans and contributions to a retirement account.

The Alternative Minimum Tax was originally designed to tax the 150 most wealthy Americans back in 1969. But because the AMT was never indexed for inflation, millions of people pay it today. A temporary patch for 2009 returns sets the AMT exemption at $46,700 for single filers and $70,950 for joint filers.

Here’s how I describe the AMT: It’s a bizarre parallel tax universe in which you lose most of your valuable tax deductions, including the standard deduction along with state and local taxes. Overall, some 4 million taxpayers are expected to pay $35.5 billion in AMT in 2009, at an average of about $8,400 each, according to the Tax Policy Center.

It’s pretty hard to avoid the AMT, if you stuck in this tax trap—I know this firsthand. We’ve been paying the AMT for nearly a decade.

If you work in corporate America , your employer has a nine-digit Employer Identification Number. And this number is key to making online tax filing easy. With this number you can import your employment tax information directly into TurboTax.

The Earned Income Tax Credit is designed to give the lower-paid workers—I like to refer to them as the worker bees—a chance to lower their taxes or claim a refund. To get the credit, your income cannot exceed $13,440 if you are single and have no children. (The income threshold is $18,440 if you are married and filing with your spouse). If you fit the bill, you are eligible for a $457 credit.

Those little (or not-so-little) bundles of joy living in your home make this tax credit even more valuable. Depending on the number of children you have, the credit increases from $3,043 (one child) to $5,657 (three kids or more), But you cannot earn more than $43,279 if you are single and $48,279 if married and filing jointly with three or more qualifying kids.
Overall, the EITC was responsible for helping Americans realize $49 billion in tax credits in 2008.

A Flexible Spending Arrangement lets you save pretax money for qualified health-care services every year. They are typically a use-or-lose proposition, though, so it is important to set a careful estimate of your health-related expenses. If you end up with a lot of money left in your FSA at the end of the year, consider donating medical supplies to a local school or clinic.

As the cost of health insurance continues to climb, more employees are opting for Health Savings Accounts. These high-deductible health plans (HDHP) let employees make contributions to a savings account with pretax dollars. While your employer may or may not contribute to the account, any money you do not use can continue to grow, similar to a retirement savings plan.

For the 2009 tax year, HSA holders can deduct up to $5,950 if the account is for family coverage. And if you are 55 or older, you can add another $1,000.

An Individual Retirement Arrangement is one of the best—and simplest—ways to save for retirement, especially if you don’t have an employer-sponsored retirement savings plan. Since your savings are tax-deferred, IRAs also help reduce your overall taxable income. If you discover that you have a big tax bill, you may be able to open a traditional IRA for the corresponding tax year to minimize your financial burden. But, like everything related to taxes, there are bells and whistles.

If you are under age 50, the maximum amount you can stash in a traditional IRA for 2009 is $5,000. If you are older than 50, the contribution cap rises to $6,000. But you also have to meet certain income restrictions to get the tax benefit of an IRA. For example, if you are married filing jointly, your modified adjusted gross income must be $89,000 or less to get the maximum deduction.
IRAs come in several distinct flavors: while traditional IRAs help cut your tax bill now, it makes sense for some folks to use Roth IRAs which require you to pay your taxes upfront. In 2010, the once-restrictive rules for Roth eligibility are shifting in a big way. Here’s a rundown of the changes.

A Medical savings account is mainly used by self-employed folks or employees of small businesses along with their spouses and dependents. They are similar in scope to HSAs–you can accumulate savings for medical expenses tax-free. The money you save is portable if you change employers.

Married couples have the option to file their taxes together or separately, but most save thousands of dollars by filing jointly (married filing jointly). That’s because filing separately disqualifies you from some of the most significant tax credits and deductions which include the EITC (above) along with valuable childcare and dependent care deductions.

While it usually makes sense for married couples to file their taxes together, there are a few exceptions to this rule-of-thumb. You’ll want to use the married filing separate tax status if your spouse is in trouble with the Feds and hasn’t paid taxes in a while. (I actually know a couple who encountered this problem. NOT good.) Married couples should also consider filing separate returns if one of you has a huge tax bill and the other could get a refund. Here’s some more information about marriage and taxes from TurboTax.

In addition to traditional IRAs and Roth IRAs, there is also the Savings Incentive Match Plan for Employees. SIMPLE IRA plans are a favorite retirement savings vehicle for small businesses (100 employees or less) because they are actually fairly easy to set up. Employees and employers can make contributions to traditional IRAs, although there are limitations.

The financial crisis has left a lot of taxpayers with big bills and little financing options. An Offer in Compromise is an agreement between a taxpayer and the IRS to settle a taxpayer’s tax debt for less than the full amount owed. But the reduced equity taxpayers have in their real estate holdings may complicate the deal.
To decode more taxcronyms, check out this handy, dandy IRS tip sheet.