AskDong

I filed my taxes the other day. I actually had most of my taxes already done almost a month ago, and just finished up some details. The Feds owe me about $350, and I owe the State about $600. These are numbers I can live with. Last year I had a rather large tax bill, and had to pay estimated taxes this past year. For whatever reason my company does not properly deduct taxes on my bonus, and as a result I am annually short on my taxes. How short I am varies quite a bit year to year depending on my bonus.

Ideally, I would rather just pay what I owe in taxes when I file my taxes. However, the IRS is not so willing to extend me or anyone else a free loan. Basically if you expect to owe more than $1000 in taxes then you’re required to pay estimated taxes. If you don’t pay estimated taxes then the IRS effectively penalizes you by charging interest on the amount that will be owed. The interest rate charged is based on the prevailing treasury bill rates.

So how do you estimate your taxes when you don’t know how much you’ll actually make for the next year?

1. Make a best guess
2. Pay 110% of the previous year’s taxes
3. Pay 90% of the current year’s taxes

The IRS does not charge a penalty if you pay at least 10% more in taxes than the previous year (option 2), and many people including myself use that metric to estimate what the quarterly payments should be. I know that very likely that I will have to pay more in taxes this year (2008) than I did in 2007. However by paying at least 110% of my taxes for 2007, I’m good in the eyes of the IRS. Of course, it’s quite likely someone owes estimated taxes because of a large one time items such as stock sales. Using the 110% rule is always safe, but would result in extra taxes being paid during the course of the year (which would eventually be refunded). The 110% rule is ideal for those who actually expect to owe more in taxes in the coming year. For those who expect to owe less they can get away with just paying 90% of what they actually think they’ll owe. When it comes to taxes it’s all about paying as little as you have to as late as you can.

I just got an email from HSBC indicating that they were reducing their rate on online savings accounts from 3.55% to 3.05% to better reflect the drop in rates from the Fed. I’m not much of rate chaser, but given how low rates are getting I need to give some thought into making my money work a little harder. This is not only a problem with just my HSBC savings accounts, but across all my investment accounts. I hate to say it but I’m not fully invested at the moment. I would say I have nearly 30% of my assets sitting in cash.

When interest rates were over 5%, I had plenty of options between CDs, Treasury Bills, and even bonds. Now, I don’t have that many options that I find all that attractive. I don’t want to move my money around from place to place to chase an extra $75 a year which would be approximately the after tax difference on $10,000 between what I’m getting at HSBC versus the 4.05% at Countrywide. There are better rates to be had if you do a little digging at sites such as money-rates.com. I’m not so interested in putting my money in some fly by night operation. I realize my principal would be FDIC insured, but I hate to go through any bueracratic hassle if the bank were to actually fail.

So what are my options? I’m not looking to make any long term investment with the money. I’m just looking for somewhere easy I can park money. While this money is not a part of my emergency fund, it’s not money that I’m ready to invest. It’s money that I want to have around if I were to come across a truly great opportunity. It’s not alot of money, but it’s enough that earning a better rate of return could potentially make difference of a few hundred dollars a year. I want liquidity and low risk.

• Open an Account with Fidelity, Schwab or other brokerage that offers MA Tax Exempt Money Market Fund. The expense ratios on the standard funds for the masses are only marginally better than HSBC.
• Loan Participation Funds: These are funds that effectively invest in loans that banks make. They’ve been performing terribly as of late given the current interest rate and credit environment. Not Low Risk.
• ARPS (Auction Rate Preferred Securities): These securities have yield similar to longer term yields but because they could be sold periodic auctions better liquidity. Had I known about these a year ago, I think I mightve placed much of my cash in such instruments. However, the liquidity that had previously been taken for granted is being assaulted Of course I still don’t understand how to invest in these.

The options just aren’t that great currently. Then again, maybe this is just a sign that I shouldn’t be in as much cash as I am. The Fed has been lowering the fed funds rate to increase the amount of money that is available in the economy. The corresponding reduction in what money market funds are paying may lead me to take on some additional risk.

Citibank is no Eddie Money, but they are offering two free airline tickets for opening an account with at least $25,000. I first heard about this at My Money Blog, but didn’t think much of it since I already have a Citibank Account with a full complement of savings accounts. However, today I went to Citibank to make a deposit and the teller told me that I could still qualify for one free ticket by merely opening or depositing the amount into a money market account. Jonathan has since updated his post to reflect that existing customers do qualify for the promotion.

As I was about to make the deposit, I was told my current account did not qualify. I had originally opened the account via the now defunct Citifi and as a result the account was technically based in IL. Citifi was Citibank’s online banking offering to compete with the online banks that were all the rage in 2000. Citibank quickly realized there was no reason to differentiate it’s regular banking services from online banking. All they had to do was offer online services to it’s standard bank offerings. Because my account was based in IL, I couldn’t simply deposit the check into that account. Apparently the money had to be deposited to a local account.

I thought I was out of luck again, but I was quickly shifted over from a teller to a personal banker. The banker (I’ve never worked with a banker before) told me that I could still just open account and qualify for the free ticket(s). Since I did enough business with Citibank to make me eligible for a CitiGold account, I opened that. I still have to make 2 online bill pays in the next three months and maintain a 25k deposit in the money market account.

CitiGold is Citibank’s private banking and wealth management services. I’m hardly the type of individual you would think would qualify for such an account or services, but across all items such as mortgages, investment accounts, CDs, savings and money market accounts, I do quite a bit of business with Citibank. I was pleasantly surprised to qualify as there are a number of perks including a specific banker to work with. Two years ago I would’ve shrugged off the idea of working with someone as I’ve almost always done things myself and online, but being a little older and wiser I realize calling customer service is really not all that fun. Now, I have someone who know’s my name who I can email and call directly if I have a problem. That’s valuable. I can still choose to close the account in 6 months after I’ve received the Thank You Points good for one (or maybe two) free tickets.  Plus, they even gave me free gift at the bank.  I didn’t get a toaster though, just a branded mug.

The biggest drawback is that I now have yet another checking account, making my total number of bank accounts a rather unwieldy five. My “banker” tells me that after being a CitiGold account that I’ll assuredly close at least my other Citibank account even though I have everything linked to that account currently. I’ll think about in the next a couple months and if I find that I’m committed to the idea of having a CitiGold account at least I’ll be able to make the transition slowly.

I think most people agree that parents have a financial responsibility to their children through at least the age of 18, and most people would probably agree that parents should bear at least some if not all responsibility through the end of college. Some parents take that responsibility a little too far as would seem the case here with the Blocks who gave their adult sons their Acura and mini cooper as they downgraded to a Honda Accord. I’ve always felt that parents who help their kids too much are in fact doing their children a disservice. Independence is more often than not a learned trait.

While the discussion of parental responsibility is common, the discussion of the responsibility children have to their parents much less so. Personally, I’ve always felt that children have as much responsibility for their parents as parents for their children. However, I will also acknowledge that it may be very much personal bias. Part of that bias is somewhat cultural being Chinese-American, but the greater part is just the type of relationship I have with my parents. My parents did not arrive in the U.S. until their early 40s, and made enormous sacrifices so that my brother and I are in the positions that we are. Few things make me happier than being able to give back to my parents. The financial ties I have to my parents are close and more flexible and fluid than what is typical in most families.

The question remains. What do we owe our parents? The simple answer is generally, “Alot.” However unlike children, parents are generally self sufficient through a good portion of a child’s adult life. They don’t need or don’t want anything from their children. More often than not they’re still trying give what they can to their children. The question for adult children is what can they give back? The most basic and one would think obvious is that adult children need to the be former rather than the latter, i.e. they need to be adults rather than children. Self sufficiency is the greatest gift that any child can give to his or her parents. That aside, theresponsibilities vary widely across families. What may be too much in one family is not enough in another.

I’ve made strides in the last two years of keeping better records. I keep these records mostly for the benefit of my taxes which have gotten increasingly complex in the last couple years. I used to only claim the standard deduction up through tax year 2002 when I purchased my condo. Slowly but surely I’ve added to complexity.

• Mortgage Deduction
• Rental Income Deduction
• Stock Transactions - I trade alot more than I should these days
• Small Business Income/Loss (Askdong.com) - I don’t really consider AskDong much of business in truth but since I receive some ad revenue, I should at least account for it.
• More Charitable Giving

The last one ended up biting me in the ass a bit.  One of the charitable contributions that I gave was in the form stock shares. These were “orphaned” shares I had accumulated via spin-offs.  I knew if ever wanted to account for the tax basis it was going to be complicated since I had not kept the best records.  The nice thing about gifting stocks is that you can take the full deduction of the value of the shares at the time of gifting without actually selling. Given that I owned small lots of these shares, the commission cost of selling would’ve been almost 10% the value of the shares.  Gifting the shares cost me nothing, required less accurate records, and was a good thing to do.

While I recorded the date of the gift, and have the acknowledgement of the receipt of the shares, I didn’t take the extra step of actually recording what the price of the shares at the time.  I figured that I would be able to look up the historical price later - something I’ve done many times in the past.  However, when I went to do this yesterday I had the dardnest time. Avaya, some of the shares I gifted, was taken private by TPG Capital in Oct 2007. As a result it’s ticker is no longer in circulation. I wasn’t able to get quote at Yahoo, BigCharts, SmartMoney, or even Google.  I finally found salvation at MSN who allowed me acutally get details on AV up through the time stock was delisted.   Lesson to be learned here is that I need to keep better records. I’ve gotten better, but I still have a lot of progress to make.