Monday, November 23, 2009

Taxes on the Internet

There is an interesting article on the WSJ site today touching on the topic of whether or not online gambling winnings are taxable (the answer appears to be yes - go figure...), as well as the rules for deducting your losses (MUCH more vague). If you want to read more, you can check out the article here (subscription may be required).

This leads to my question - another online tax question - when do you have to pay sales tax on the Internet?

Why is this important? If you can get free shipping on an item - and avoid paying sales tax on the item - it can be a significant savings to you. For example, if you were to find a site offering free shipping on a $500 item, you could save $35 if your state had a 7% sales tax.

According to the NOLO site,

If an online retailer has a physical presence in a particular state, such as a store, business office, or warehouse, it must collect sales tax from customers in that state. If a business does not have a physical presence in a state, it is not required to collect sales tax for sales into that state. This rule is derived from a 1992 Supreme Court decision which held that mail-order merchants did not need to collect sales taxes for sales into states where they did not have a physical presence.

It is also noteworthy that some states do not have sales taxes (Alaska, Delaware, Montana, New Hampshire, and Oregon), so they do not suffer any losses through these rules.

So unless the retailer has a physical presence in your state, you are not required to pay the sales tax on that purchase. If you do live in that state, you'll be asked to pay the additional amount to cover the sales tax (this is why you'll see a tagline that reads something like "residents of VT, please add 7% sales tax to total). However, it should also be noted that, theoretically, you are liable for the tax even if they do not ask for it if they actually do have a physical presence in the state. No word on if or how this is enforced, but you can no longer argue that you didn't know about it!

Still, there are ways to save money by purchasing goods online, especially if you can get cheap (or free!) shipping. Just another way that Everyman can save a bit of money!

Thursday, August 6, 2009

Cash for Clunkers - Not a Good Idea

Okay, everymen (and everywomen), it's time for a thought about government intervention:

So our spend-and-tax federal government has decided to continue to offer the "Cash for Clunkers" program, which effectively provides up to $4500 to those who will turn in their less-efficient vehicle and purchase a new, more fuel-efficient vehicle.

Don't fall into this trap! Unless you can afford to go and pay for the car up front, you'll end up doing what many participants of this program are doing: taking out an auto loan. Instead of driving that "clunker" - which in many cases is really a pretty good vehicle - that you've had paid off for years, you'll now saddle yourself down with an additional liability - a car payment. There are very few things in this world that this author despises more than a car payment. Not only does the vehicle depreciate with every mile that you drive it, but you also pay interest charges and other financing fees to drive the depreciating asset into the ground (sometimes literally!).

Couple of thoughts:

1. Most people are not going to get the benefit of $4,500. This would entail that your car was literally worthless. If your car was worth $3,000, they are NOT going to give you $3,000 + $4,500 for your car. No, you'll still only receive $4,500. So when you try to justify the purchase of a new car by telling yourself you're getting $7,500 or $4,500 off, don't fool yourself. You're really only getting $1,500 more than you would have had you traded your car in before this program. Is it really worth putting yourself into a position where you have monthly payments to drive a depreciating asset for a $1,500 break on the new car?

2. More directed at the government: say I was driving around a 1987 Caravan (I apologize if some car fanatic out there is saying "they weren't around then!" - I'm not sure when they were first produced, but that's not the point). And my neighbor, who is relatively better off than I am, is driving a 2000 Caravan. While I might be able to get $4,500 for my nearly worthless '87 Caravan, I can't afford to pay for a new car, even with the $4,500 'discount'. Now my neighbor: he can afford to go out and get that brand new car through the "Cash for Clunkers" program. What happens to that 2000 Caravan? It gets destroyed (by law, they must destroy the engine/tranny). Therefore, I'm still stuck driving an even less fuel-efficient vehicle, while a newer one is destroyed. Not only is it a waste, but it decreases the number of used vehicles available - driving the price of used vehicles higher - and giving less work to your local mechanic.

Does anyone else find it interesting that the government is running this program - and they are one of the largest shareholders in the industry? Go figure...

Monday, March 30, 2009

Dialing BACK on Equity Exposure?

I have to comment on this article, found on CNN's Personal Finance site.

The article talks about a "young" couple (38 and 41) that have recently married and are looking for guidance as to what to do with their portfolios. They have a goal of purchasing a new home together in 3 years and make a combined salary of $170,000 per year. So what's my complaint?

The financial planner in the article recommends that they reduce their equity exposure from 80% to 70% of their total portfolio.

WHY? Now if you were planning on doing this a year ago, that would have been a smart choice. However, what you're encouraging now is counter-productive. In essence, they'll need to sell at the bottom of the market cycle to reduce their exposure to equities. If they should be doing anything right, they should keep their exposure at the level they are at or even INCREASE their exposure. Why do I say this?

Equities are at relatively cheap levels. If you've stayed in this far, the WORST thing you can do is to sell. At $170,000/yr, with no kids, they should still be able to reach their goal of $50,000 for a down payment in 3 years time by investing their savings in an online savings account, such as ING Direct.

Disagree? Let me know.