Common Cents # 19 - Coupons and Gift Cards

 

 Coupons and Gift Cards

 

Many companies we do business with provide incentives, loyalty programs, or gift cards that keep us continuing to be a regular customer.  I recently cashed in some Southwest Airline Points for a Panera Bread Gift Card which I loaded onto my Panera App on my phone. This should cover all of my Panera meals and drinks for a few months, especially since by using the phone app, I get bonus items, and save a huge amount of time at the order counter. The Southwest Airline points didn’t come from flying, but from charging my everyday business expenses to my SW Visa Card.

Whenever we eat out, we often use gift cards that we received as rewards from using various credit cards. We only use credit cards that give us points or cash back toward gift cards that we will use for other things. We charge everything we can, including some “every month subscriptions” such as the phone bill, take the 1.5% or more cash back or accumulate points, and always pay the card bill before the due date to avoid any interest, service charges, or late fees. Since we never have a credit card balance, we aren’t concerned about the interest rates they charge, but instead, look closely at the rewards for using the card. Many are quite generous.

When we shop at CVS, we usually have a small stack of coupons and “Bonus Bucks” from the last visit. When the cashier rings up the sale, not only do we have a smaller balance due, we often get enough coupons or money back awards to pay for the next visit. I don’t know if they like us because we are loyal customers or dislike us because we take advantage of the deals. These types of “loyalty” programs are popular because they encourage repeat business.

I almost always have a $5 reward card from Ace Hardware whenever I stop there for the usual household necessities.

Most coffeehouses, bagel shops, and delis have some sort of program that gives a free drink or a meal after nine visits or something similar. It may seem like a hassle to try to keep track of all of those coupons, loyalty cards, and gift cards, but a small amount of attention and discipline can save hundreds of dollars a year. If we are not taking advantage of these kind of things from businesses we would normally use anyway, we are leaving money on the table. Also, if you believe you qualify, remember to always ask for a senior discount. Some places consider anyone over fifty to be a senior. It is great to have something good accompanying the years that have been lived!

The point is to always watch for loyalty programs and awards. Over the course of year or two, they can be worth quite a bit of money toward the things we would normally buy anyway. And remember that it could mean a great deal to friends or family to have one of these gift cards tucked into a greeting card for a special occasion or because you know they could use some encouragement during these unusual days.

 

Common Cents # 18 Too Much Stuff

 Too Much Stuff

Can money buy happiness? It depends. Lack of money can bring unhappiness, but so can too much money. Surveys show that the money to happiness curve is bell shaped. The happiest people are found in the middle section of the curve with the most unhappy and stressed people being the richest and the poorest. Assuming most of us are in that middle group, money can buy a level of happiness, but if it doesn’t, it is because we have spent it buying the wrong things.

The poor are not happy because their basic needs of even food and shelter are uncertain or not in reach at all. The richest people are not happy because they have too many belongings and riches that weigh them down with responsibility, maintenance, insurance cost, and a need to maintain their elevated status. We start out being consumers until soon we become the consumed, devoured by our own stuff.

I have found that it is far easier to buy stuff than it is to get rid of it. I am determined to be very careful with what I buy, knowing that it is likely to occupy a place in my life, my house, or my mind for a long time.

If we want to spend money on things that will increase our happiness, we need to spend it on things that will count, like deeper and more interesting experiences with family and friends, not just more stuff.

There is a saying in photography, “If you want your photographs to be more interesting, first, stand in front of something more interesting.” The old photo-journalist maxim is, “F8 and be there.” In other words, exposure isn’t going to make any difference if you are not on the scene. The greatest camera in the world is useless in a drawer. When I see a beautiful ten-year-old car for sale with low mileage, my first thought is, “What a waste.” Cars are made to be driven, to see new things, and drive down long highways and country roads on adventures with our favorite people.

This principle applies to many areas of life. Experiences and actually being present are more important than what sort of camera I have, or what kind of guitar I play, or what kind of car I drive.

I was at a woodworking seminar a few years ago and one of the students listed all of the wood working equipment he owned. He asked what he should buy next. The instructor thought for about a half second and said, “wood.” Everybody laughed but the point was made. We probably have everything we need to do whatever we want to do. We just need to do it. One more lens, effects pedal, drill bit, or a bigger computer isn’t going to make us more productive or enrich our lives nearly as much as living each day, enjoying what we already own to its fullest potential.

Money only buys happiness if we spend it on the right things. Things like travel, an evening out with friends, or a meaningful book will bring us a lot more happiness than more belongings that weigh down our lives.

 

Common Cents # 17 - Employee vs Contractor

 

Employee verses Contractor.

Have you ever wondered about the difference of being an employee versus an independent contractor for a company?  Because of recent Uber news from California, there has been discussion about this issue. With more and more individuals looking for ways to gain extra income, it needs to be understood to get the best result from the time and effort expended.  The Internal Revenue Service sets out a clear description of each, but some details can make it confusing.

If I am an employer with employees, I am required to pay into their Social Security and Medicare account, withhold their part of Social Security, Medicare, and income tax to submit to the government for them, and am likely to provide health insurance and maybe a pension plan. Additionally, there are requirements concerning overtime, minimum wage, dismissals, record keeping and so forth.

If I contract with someone to do a particular job, I do not have to do any of those things. For example, if I hire somebody to mow my lawn, they are not an employee, they are a contractor. I just pay them when the lawn is mowed. They are responsible for reporting their income, paying their own taxes, providing for their own health care and everything else. They can come and go as they please, work as much as they like, furnish their own mower, buy the gas, and pay for repairs as needed.

If on the other hand, I own the mower, buy the gas, and tell them to be here at 9:00 and pay them by the hour, they are an employee. Obviously, there could be some gray areas, with some employers declaring employees to be independent contractors to avoid paying taxes and employment laws such as minimum wage or overtime.

When I was a tax professional this was a big issue. There would be people coming in to file their taxes, saying they were employees of a certain company and then produce a 1099-Misc, not a W-2. The 1099-Misc is the form for non-employee compensation. That means that they had no withholding, so their total tax bill was now due. Additionally, they had not paid any FICA (Social Security and Medicare) which was now due. If I receive a 1099-Misc, the IRS assumes, at least for the company issuing the 1099-Misc, I am self-employed and I must file a Schedule C and do all of the associated record keeping for the income received. For 2020 there is a new Form 1099 especially for contractors.

Every year, I had to explain to many people that their “employer” may have just ripped them off and in fact, may have committed a serious crime by illegally declaring an employee to be an independent contractor without giving them the freedom associated with being an independent contractor.

If I have people working for me, I must know the difference and be willing to follow the law. Contractors do not need to punch a time clock or have direct supervision. They just need to do the work in the agreed amount of time. If I furnish the equipment and supplies and tell them what hours to work or supervise the work, they are employees and everyone is subject to a different set of laws.

This has been in the courts recently because Uber and Lyft say their drivers are independent contractors because they furnish their own cars and do not have to answer every call. The government says they are employees because of rules concerning what kind of cars they can use, a required dress code, and other supervisory issues dictated by Uber and Lyft. The rulings that will be given by the court will be of interest to thousands of people in the “gig” economy doing all they can to provide for themselves and their families.   

Common Cents # 16 Qualified Charitable Distributions

Common Cents - QCD

This week’s information is about an opportunity to give to Charitable Organizations utilizing a special tax situation called the Qualified Charitable Distribution from an Individual Retirement Account.  This opportunity is of benefit to those age 70 ½ and older, and even if we are not yet that age, is something we should know about to share with those who are.

Generosity is a wonderful virtue. Uncle Sam even encourages our generosity by allowing us to deduct certain gifts from our income to reduce our taxes. The stipulation is that the organization we give to has to be approved and meet certain strict qualifications. These are called 501(c)3 corporations.

The way it works is that an organization incorporates in the usual way with the state and then applies to the IRS for not-for-profit status. They have to demonstrate that the purpose is not to make a profit, but to operate for the benefit of the community. The exempt organization cannot participate in political activity in any way. There are no shareholders or owners and a 501(c)3 corporation is considered to be owned by everyone. Some examples of 501(c)3 organizations are churches and other religious organizations, private schools, arts organizations, museums, and some health care organizations.

To deduct our contributions, we may need some documentation, depending upon the amount of the gift and whether it is cash or property and we must itemize our deductions using Schedule A on our income tax return.

Since the Standard Deduction has gone up in recent years, fewer people itemize their deductions, meaning that fewer people experience a tax benefit by their contributions.  There is a little-known provision in the tax code which allows some very cool tax benefits if the taxpayer qualifies.

If a person is over age 70 ½, they can make a contribution directly from an Individual Retirement Account (IRA) to the eligible organization without any income tax having to be paid on the contribution. The retirement fund trustee or financial institution who manages the IRA sends a check or electronic transfer directly to the charity of choice. Doing this withdraws money from the IRA and gives it to the church or whoever is chosen, except that by giving directly from the IRA it does not count as income to the IRA account owner. Since the funds are not touched by the owner, it is not reported as income on the tax return. That means that the Standard Deduction can be taken, the contribution doesn’t increase the taxable amount of Social Security, and even more importantly, does not affect state or federal income taxes at all.

This arrangement is called a Qualified Charitable Distribution (QCD) and counts toward the Required Minimum Distribution (RMD). While the RMD was set aside this year as part of the Covid-19 financial relief provisions, it is likely to resume at some point in the future.  It also became possible as part of the Covid-19 changes for people over 70 ½ to continue contributing to their IRA if they are still earning income.  So, one could reduce the amount of taxable income by the amount put into the IRA and also not pay tax on the funds given away using the Qualified Charitable Contribution.

It’s always good to know that generosity can be rewarded by getting the most from each dollar given, even tax-free in cases like these. 

 

Common Cents # 15 - Long lasting verses disposable.

Common Cents # 15 - Long lasting verses disposable. 

We spent some time with friends this weekend, outside and social distancing, of course. We were discussing the value of buying things that will last a long time, maybe a lifetime, verses items that are essentially disposable. This borders on the idea of investing verses spending that we’ve been speaking about these last few weeks, but mainly the ideas reveal wise spending verses foolish spending.

The examples in question for each extreme are a Danish leather chair in our living room and a white straw hat. We paid $425 for the chair in 1973, the equivalent of $2,450 in 2020 dollars. For us, just out of college and still paying off student loans, that was an absurd amount for a piece of furniture, except that we loved everything about it.  However, 47 years later, it is in a prominent place in our living room and still looks just like it did the day we brought it home in our ’73 Saab. The same model chair is in the Nelson-Atkins Museum as an example of mid-century modern design in the Contemporary Art wing, and ones like it regularly sell on eBay for around $1,000. At the time, we could have bought a nice chair for less than $100 that would have been adequate but ordinary, and discarded a long time ago.

The second example is a straw hat I bought at Target last month. The funny thing is that there was a review of this hat on Target’s website. The reviewer said that the hat was poorly made and literally fell apart in less than a year. The reviewer declared that this is OK, because he just buys a new one every spring. I figured I could do the same thing. It is a disposable hat as far as I am concerned.

So, we bought a chair knowing we could have it our whole lives, and a hat, fully knowing that it probably won’t make it until next spring. Which was the wiser purchase? These are the kinds of decisions we make all the time. Do we go for quality at a premium price, or buy something cheap that will serve our purpose for a while and then be thrown away?

It comes down to how much we are committed to the item, what we are asking it to do for us, and how owning it impacts our daily life. If I like having a different kind of hat every year, I will be glad I didn’t spend a lot on this one. But if, over time, we decided we didn’t like the style or the craftsmanship of the expensive chair, the decision would be a lot more painful.

Knowing what we like and what is important to us, understanding what we hold as important in all that we purchase makes for wise decisions and dollars and sense in the long run.