4 Green Ways to Pay Less Tax

This month, Bridget Sullivan Mermel provides a guest post. Bridget is based in Chicago and specializes in socially responsible investing. The term and its applications are broader than you might think!

A lot of people think that green financial planning is all about investments.

I beg to differ. As a comprehensive planner, I love to talk about the good you can do without investing a dollar. One great way is to act green and save money is on your taxes. Here are four big opportunities:

1. Donate to charity
If you itemize, donating items that you don’t need is a great way to get a deduction.

When acting green, there are generally good, better and best alternatives. In this case, “good” is contributing your used clothing and household items to the charity of your choice rather than pitching it into the garbage stream.

Even better: you can also contribute used TVs and electronic items to charities that will recycle them.

And best is finding charities that will actually reuse your electronic items. Domestic violence shelters use cell phones. Other charities refurbish your old electronics and send them to schools and developing countries that need them. One time I even donated an old mountain bike to a charity that sends them overseas.

Here’s a nationwide website that connects you with local charity pickup services. You might have to scan the listings of each individual charity to figure out which accept items like mattresses and TVs that some charities won’t accept:

http://www.donationtown.org/

Here’s a Chicago charity that accepts electronics for re-use called FreeGeek. They have a resale shop and accept drop-offs:

http://freegeekchicago.org/donate

Here’s a handy list of Chicago charitable organizations that details what each organization is looking for and what they do with it:

http://www.chaostoorder.com/resources/donations/

And here’s where I donated my bike:

http://workingbikes.org/

Common sense caution applies. Donating a computer with a hard drive full of personal information? Make sure you are comfortable with programs that wipe it clean before setting up your pick-up. Even if you don’t want to donate your hard drive, giving away old printers, scanners and cords don’t offer security challenges.

2. Improve your home
These purchases get you a tax credit through 12/31/2013 if your purchases meet energy star criteria:

1. Insulation
2. Roofs (metal and asphalt)
3. Water heaters (non-solar)
4. HVAC systems
5. Windows and doors
6. Biomass stoves HVAC systems (I’ve got to admit that I didn’t even know what these were!)

Doing a more ambitious project to either your principal residence OR your second home? Consider following energy star guidelines and get a tax credit. The credit for these expires 12/31/2016:

1. Geothermal Heat Pumps
2. Small Wind Turbines (Residential)
3. Solar Energy Systems

Also for your principal residence (sorry, no second homes here) if you get one of these bad boys before 2016, you can get a credit:

1. Fuel Cells (Residential Fuel Cell and Microturbine System)

You can find more details about all the above credits here:

http://www.energystar.gov/index.cfm?c=tax_credits.tx_index

3. Buy a Plug-in Car
The credit for hybrid cars is gone, but there are still some credits left for buying a plug-in. Here’s the link:

http://www.irs.gov/Businesses/Qualified-Vehicles-Acquired-after-12-31-2009

4. Get money from your state
Finally, most states have green tax incentives. Here’s the website to help you look up your state:

http://www.dsireusa.org/

I looked over Illinois’ list and it seemed to be primarily incentives that relate to the construction industry. However Illinois is in a fiscal-crisis-mode, not a dolling-out-tax-incentives mode at the moment. Other states are more promising.

By Bridget Sullivan Mermel

Gold: a Smart Security or a Hefty Gamble?

If all of the world’s gold were squished together, it would form a cube just 68 feet on each side.  That’s a very small amount of gold in a very big world.  No wonder it’s so expensive.  In times of economic uncertainty people often rally around what they see to be smart, safe investments.  For some people this is treasury bonds and low-risk stocks, for others it is physical assets like gold.  Although gold does have substantial value, ($1,567.90 per ounce as of May 25th) nothing can be produced from it and thus the only value gained from it is having it when others do not.  This is also a quandary because the price of gold can only rise when it is highly sought after, meaning that many people must buy gold in order to keep the price of gold up.

There are tangible benefits to owning gold, such as fiscal security in the event of an extreme economic downturn or global disaster. However, the astute financial mind of Warren Buffet likens it to building a bomb-shelter in your basement.  If you ever end up needing the bomb shelter than you have made a terrific purchase. However if no crisis occurs where a bomb shelter is necessary, you will be stuck with the sunk cost of a bomb shelter.  I suppose it could make a decent man-cave.

The uncertainty in economies and markets has helped feed a frenzy in gold-buying.  GLD, the exchange-traded fund introduced by State Street in 2004 is the second-largest ETF measured by assets under management.  But with an average daily trading volume of over 10 million shares it seems that buyers aren’t  ‘investing’ as much as they are placing a bet.  Nothing wrong with trying to win a bet but with gold trading at historical highs maybe there are better bets to place.

Churn

churn (chûrn) n. A vessel or device in which cream or milk is agitated to separate the oily globules from the caseous and serous parts, used to make butter.v. churned, churn·ing, churns  v.tr.1. a. To agitate or stir (milk or cream) in order to make butter.b. To make by the agitation of milk or cream: churn butter.2. To shake or agitate vigorously: wind churning up the piles of leaves. See Synonyms at agitate.
3. To buy and sell (a client’s securities) frequently, especially in order to generate commissions.

Who wouldn’t enjoy tasting freshly churned butter?  Slather it on a thick slice of warm, homemade bread for a taste of nostalgia so good you can almost smell it.  Sad to think that such a warm, homey word has such an unpleasant meaning when used in the world of investments.

Stockbrokers generally earn a commission when they purchase an investment for you.  They also earn a commission when they sell an investment for you.  So when a broker buys, he makes money, when he sells, he makes money.  The more transactions, the better for him, but not for you because you’re paying those commissions.  The term for it is ‘churning’ and it’s against the law – though not necessarily easy to prove.

So what can you do?  Avoid the churn.  If you have someone managing your investments, make sure you pay attention to what is happening with your money.  Make sure you know how your investment manager is compensated.  Is there a fixed fee?  Or is he/she paid commissions?  These are often called ‘loads’ or ‘sales charges’. Don’t be intimidated if you get an answer that doesn’t make sense; ask again until you’re satisfied.  And if you get an answer you don’t like, don’t get agitated (see definition #1 above).Take charge and find someone to work with who will put your interests ahead of theirs.   After all, it’s your money.

The American Heritage® Dictionary of the English Language, Fourth Edition copyright ©2000 by Houghton Mifflin Company. Updated in 2009. Published by Houghton Mifflin Company. All rights reserved.

Obfuscate

ob·fus·cate ( b f -sk t , b-f s k t )tr.v. ob·fus·cat·ed, ob·fus·cat·ing, ob·fus·cates

1. To make so confused or opaque as to be difficult to perceive or understand: “A great effort was made . . . to obscure or obfuscate the truth” (Robert Conquest).

2. To render indistinct or dim; darken: The fog obfuscated the shore.


[Latin obfusc re, obfusc t-, to darken : ob-, over; see ob- + fusc re, to darken (from fuscus, dark).]


ob fus·ca tion n.

ob·fus ca·to ry ( b-f s k -tôr , -t r , b-) adj.1

Obfuscate is a wonderful word.  I just wish it didn’t apply so often to issues in personal finance.  Annuity contracts are one example.  Recently I met with a client who owned several annuity contracts and she wanted help translating them – from obfuscatory English to plain English. The contracts were thick documents that I’m convinced were carefully designed to keep anyone from actually wanting to read them.   Buried within were onerous sounding surrender charges, various subaccount fees and expenses, commissions, penalties, insurance fees, redemption fees, and enough other terms to make you nervous.  Wouldn’t it be nice if one of the insurance companies selling annuities would lay out the information in a simple diagram or a flow chart? It would make a lot more sense and it would help consumers evaluate and understand, for example, what the real cost of that death benefit is.

If you find yourself struggling to understand the costs, benefits, and tradeoffs of an investment, perhaps it’s due to a deliberate obfuscation of the information.  So what should you do?  If you don’t understand it, don’t buy it.  It’s that simple.

1. The American Heritage® Dictionary of the English Language, Fourth Edition copyright ©2000 by Houghton Mifflin Company. Updated in 2009. Published by Houghton Mifflin Company. All rights reserved.