Welcome To Josh's Blog O' Thoughts: Tips

Generally speaking, I've always found the energy efficiency federal income tax credits a bit confusing. To my knowledge, there are at least the two different tax credits available to home owners: the Nonbusiness Energy Property Credit and the Residential Energy Efficient Property Credit.


Nonbusiness Energy Property Credit

This tax credit allows you to recoup some of the money you spent to perform energy efficient upgrades to your home. The catch is that it must be an upgrade that is performed and not a new installation. For example, if you have your old windows replaced with new Energy Star windows, you should be able to take a credit, but if you build a new house, you won't be able to take the credit even if the windows used are Energy Star. Other items that are available for credits include insulation, lighting, heating and cooling, water heaters, and windows and doors. Every item has a maximum credit that can be taken. View the Energy Star website for more information.

What makes this credit even more confusing is that the credit expired at the end of 2007, but was then reinstated in October 2008 not to take effect in 2009.

From the 2008 Federal 1040 Booklet:
The credit for nonbusiness energy property has expired and does not apply for 2008. Form 5695 is now used only to claim the residential energy efficient property credit.

This means that you will NOT be able to take this credit for any energy efficient upgrades you made in 2008. So it really won't be usable on this year's tax return, but if you make any upgrades in 2009, you should be able to claim a credit for them when you file next year.


Residential Energy Efficient Property

This tax credit is available for installations of various Energy Star qualified, high-efficiency products. Items covered under this credit include solar energy systems, wind energy systems, fuel cells, and (as of October 2008) geothermal systems. The Emergency Economic Stabilization Act of 2008 that was passed in October 2008 not only reinstated the Nonbusiness Energy Property Credit (see above), but also expanded the Residential Energy Efficient Property credit to include geothermal systems. Even better, this credit can be used for new construction, AND can be taken for products installed in 2008! This is great news for people who installed a geothermal system in 2008.

This credit generally allows you to get back up to 30% of the investment expense in these systems. This year, the credit for each is capped at $2,000, but from what I understand, the cap will be removed starting next year allowing you to take a full 30% credit. This is even better news for people planning on installing a geothermal system in the next 7 years (expires in 2016).

To take the credit on line 53 of your 1040, you also need to file form 5696 with your return. Your total credit from this form may also be limited by your income or by some of the other credits you may be taking. Please review the instructions for more information.


I Am Taking The Credit

If you followed my blog closely, you would have seen that my family built a new home in 2007/2008 with the completion being in Jan 2008. You also would have noticed that we had a geothermal system put in for our heating and cooling solution. Since the house was completed and put into use in 2008, the installation date of the geothermal system is considered to be 2008. Therefore, I can take this credit on my 2008 return. I can get a credit of up to 30% with a cap of $2,000. This means that the total qualified expenses of the product and installation only needed to clear $6,666 to get me the full $2,000 (it easily cleared this mark). And since a tax credit drops straight to the bottom line, I’m happily I’m getting an extra two grand back from Uncle Sam this year.


Reference


Federal Form 1040 Instructions
Federal Form 5696 and Instructions
Energy Star Website
GeoExchange Website
WaterFurnace Website
About.com Energy Tax Credits
Wikipedia Article - Emergency Economic Stabilization Act of 2008
The Emergency Economic Stabilization Act of 2008

Disclaimer

I am not a tax professional, so this information should not be taken as tax advice. I'm simply stating my understanding of the situation.

Last year around this time, I posted an article about Tax Reporting For Employee Stock Purchase Plans (ESPP).

Last year, I learned the that there are specifically different rules for handling these types of capital gains/(losses) when compared with your standard stock transactions. My mistakes caused me to refile my tax returns (federal AND state) for the previous 3 years). I ended up getting about $1000 back so I didn't complain too much.

So this is just a reminder. If you sold any stock from an ESPP this past year, please follow the link above and read my detailed article on how to report this on your taxes. Also, you might want to take a look at using my spreadsheets which will help you calculate your gain/(loss) for these types of transactions. You can get the spreadsheets from the original post, or download them right from here:

I dedicate these two ESPP Tax Calculations files to the public domain so feel free to use them any way you wish.
ESPP Tax Calculations.ods - Open Document Spreadsheet format for OpenOffice.org
ESPP Tax Calculations.xls - MS Excel spreadsheet

Happy Tax Filing!

I was recently lucky enough to be the target of a hopeful phone scammer (twice). Luckily, I have a brain and did not fall for his ridiculous scam. However, I thought I would mention it here so that people would be on the lookout.

The basis of this scam is that the scammer claims to be an employee working for the federal government, and that they would like to give you $5,000 because you have paid your taxes on time. Of course they need to verify your personal information for you to get the money. Now my phone calls didn't make it much farther than this because it was an obvious scam, but a few internet searches show that if you allow them to continue, they will eventually ask you for your bank routing number and bank account number so that they can have the funds deposited to your account.

Anytime someone asks for your personal information (especially account numbers, social security numbers, etc), it should immediately set off a red flag that this person is trying to scam you. Aside from the obvious clue that they wanted my personal information, they didn't even try to make the scam believable. For one, the scammer was rude on the phone, and obviously did not have a good handle on the English language. The scammer's heavy accent made some of his words hard to understand. Another obvious problem was that the scammer actually calls for someone else who used to have my phone number, and when told they have the wrong number, they offer the money to me.

For your amusement, I now include the paraphrased text (didn't record the actual conversation) from my calls. Here's the first call that came in early September.

Scammer: Is Jeff ****** available?

Me: You have the wrong number.

Scammer: Who is this?

Me: Excuse me? Who are you?

Scammer: My name is (couldn't understand) from (couldn't understand) and we've been trying to reach you at this number for a few months. First we need to update your contact information in our system. What is your name?

Me: I'm not going to give you my contact information.

Scammer: Sir, I am calling you to let you know that we'd like to give you $5,000 for (couldn't understand). We just need to first update your contact information.

Me: I'm not interested.

Scammer: You're not interested in $5,000?!

Me: I'm not interested in your scam. (I hang up)



About 3 weeks later, we get a repeat call. This time slightly different:

Scammer: Is Jeff ****** available?

Me: Jeff ****** does not have this number anymore. We have this number now.

Scammer: My name is (couldn't understand) from the federal government and I am calling you to let you know that we'd like to give you $5,000 because you paid your taxes on time. We just need to first update your contact information.

Me: If you work for the government, you should already have my contact information.

Scammer: We just need to verify that it is correct so we can get you your money.

Me: Is there a valid phone number that I can call you back at to verify that this is legitimate?

Scammer: We just need to validate your information to get you your $5,000.

Me: If the government really wanted to give me $5,000 they already have the appropriate contact information (I hang up).


I almost hope the guy tries again. I think I'll next pretend that I work for the IRS. I'd like to see how he explains his $5,000 for paying your taxes on time to an IRS employee.

Anyway, just watch out for this and any other scam.

KEEP YOUR INFORMATION SAFE

ALWAYS REMEMBER THAT A LEGITIMATE COMPANY WILL NOT ASK YOU FOR PRIVATE OR PERSONAL DATA OVER THE PHONE OR EMAIL. NEVER GIVE OUT ACCOUNT NUMBERS OR SOCIAL SECURITY NUMBERS. IF A DEAL SOUNDS TOO GOOD TO BE TRUE, IT IS - PEOPLE DON'T JUST GIVE THINGS AWAY TO RANDOM PEOPLE.

I noticed recently that two of my most popular articles are related to toilets:

Gerber Allerton Toilet Review

And

Gerber Viper Toilet Demonstration Video

I realized that if so many people were interested in how these two toilets work, then there's likely other people interested in how other toilets perform. Therefore, I thought I'd share some of the research I used when choosing toilets for our new house.

Our decision was made on four factors Cost, Looks, Environmental Impact, and Performance.

Cost

There's a wide range of prices available to you out there from the cheapo toilet you can find at any hardware store to the ultra-expensive. As is the case with most products, there is somewhat of a relationship between cost and other elements such as looks and performance. I say somewhat because while the middle of the road toilets may perform much better than the bargain basement ones, the top of the line toilets may not perform that much better than the middle of the road toilets. The trick is finding the magic middle point, where you are maximizing your performance and looks while minimizing cost.

That said, some of the brands that tend to be higher priced, are Toto and Kohler. I'm not saying these aren't nice toilets, but I definitely think you can get a nice toilet for cheaper.

Looks

Another factor to consider is looks. I know it sounds silly because after all "it's just a toilet". But when you've spent umpteen hours picking out everything else for a new house to make it exactly the way you want it, you tend to take the same approach with the toilets.

Like price, there's quite a range of what's available. Most toilets will be your standard round or elongated bowl with relatively no frills. If you are totally into function over form, you can get toilets that look like they belong in a public restroom. On the other side of the scale, you can get toilets with such modern styling that you can barely tell what they are. For us, the choice was to pick something along the lines of a standard toilet, but with a little bit of detail to it.

Environmental Impact

Those of you who have read my blog in the past know I'm a bit of a greenie. I was appalled when I learned that toilets used to use 6-7 gallons of water per flush! These days, you can't really buy a toilet that uses that amount of water. The standard now is 1.6 gallons per flush (gpf), but it is not uncommon to see toilets that use even less. Some toilets offer two flushing options: a half flush for light duty, and a full 1.6 gallon flush for larger loads. There are also pressure assisted toilets which use compressed air to help flush with less water. This is similar to what you'd see on an airplane. The downside of these toilets is that they are pretty noisy.

Peformance

Last but not least, performance is a big player in deciding which toilet to buy. After all, what good is a toilet if it can't flush or is constantly needed to be plunged? To find out how certain toilets stacked up against each other, I hit the Internet. I happened to find a VERY informative website listing results from independent performance testing. Go to the Canadian Water and Wastewater Association website and click on their Maximum Performance Testing report. It'll tell you everything you've ever wanted to know about toilet testing and how each toilet fared.


Now you have all the information and decision points we used to decide upon the Gerber Allerton toilets. Hopefully this will be helpful to people searching for information on other toilets as well.

With gas prices on a non-fundamental (supply/demand) rise, people are looking for any way they can to save on gas. Well, have you ever wondered if the gas you're buying really is the cheapest available? Even if it is the lowest priced, it may not be the cheapest.

At my local gas stations, we normally have 3 different grades to choose from, 87 octane (Regular), 89 octane (Silver), and 91 octane (Premium). Usually, the Silver is cheapest because it is an Ethanol blend, the Regular is 10 cents higher, and the Premium is another 10 cents higher.

In theory, the octane rating has to do with the flash point of the fuel and should not really affect fuel economy. However, some claim that there IS a difference in fuel economy between the Regular and the Silver Ethanol blend. Some people claim they get 1-4 MPG better on Regular than on the Ethanol blend, and others say they saw no difference. The only way to find out for yourself would be to try a couple tanks of each and calculate your MPG.

So if you get better fuel economy on the more expensive gas, at what point does the more expensive gas become cheaper in the long run? Well that depends on how much better your fuel economy is, how many miles you drive, and what the gas prices are. If gas prices were $1.00 and $1.10 respectively, there would be little savings, but at $3.75 and $3.85, the savings could end up being substantial. There will also be more savings if you drive more miles.

To calculate savings, you need the following data:

- Number of miles you drive in a year
- The MPG you get with each type of fuel you are comparing (you will actually have to test this by filling up a couple times with each type and calculating your MPG)
- The current price of each gas type

To calculate the overall cost per year, use the following formula:

(Miles Per Year / MPG) * Price Per Gallon = Cost Per Year

So for example, if I drive 10000 miles per year and get 31 MPG with the Ethanol blend which is currently priced at $3.74 per gallon, my yearly cost would be:

(10000 / 31) * 3.74 = $1206.45

If I can get 34 MPG with Regular which is currently priced at $3.84 per gallon, my yearly cost would be:

(10000 / 34) * 3.84 = $1129.41

That's a yearly savings of $77.04 by buying the more expensive gas!

I have created a spreadsheet which you can use to help do these calculations and more. It will easily help you decide which gas is cheaper. Just download the file and fill in the cells colored yellow.

I hereby donate these files to the public domain so feel free to use them in any way you wish.

GasTypeCostComparison.ods - OpenOffice.org Spread Sheet (11KB)
GasTypeCostComparison.xls - MS Excel Spreadsheet (69KB)

I also wanted to mention that just because one gas is a little cheaper it doesn't mean that it would always be the best choice. Some people, like myself, like the fact that Ethanol burns cleaner and is a little better for the environment. Others believe that Ethanol puts too much stress on the food market. But that argument a subject for a another post.

By now, you've probably heard about the digital television (DTV) switchover coming in February, 2009. Lately, I've seen TV ads and even infomercial-like shows trying to explain what will happen, but I've found that these ads don't really do enough to educate people on the switch. Hopefully, this article will help people understand a little more.

First, I want to start out by stating that if you currently subscribe to a cable or dish television service and plan to continue this service, then this change will not affect you. The switch to DTV only applies for over-the-air (OTA) television signals that are picked up using an antenna.

What Is The Switchover And When Will It Happen?

The switchover is a government mandated change in the way OTA television broadcasts are transmitted. The current television system uses analog transmissions and the new system will use digital transmissions (more on this in the next section). The switchover will occur on February 17, 2009.

What Is Digital Television (DTV)?

To understand the difference between analog television (what we have today) and digital television, think of the difference between an analog clock (one with hands) and a digital clock (one that just displays numbers). On an analog clock, the hands are not always pointing directly to a number; the hands may be between numbers. If the time is 6:30, the hour hand is half way between five and six. So there are many (infinite) positions that the hands of an analog clock can be in. A digital clock, however, shows a specific number at all times. If if it is 6:30, the hour digit still shows a six.

To equate this to OTA television service, think about the reception and picture quality you get today with analog. It might be a perfect picture, it might be very poor with lots of snow, or it might be anywhere in between. So there are many (infinite) different levels of picture quality with an analog transmission. Digital however, will not have those different levels of picture quality. If you are picking up the signal, the TV will display a perfectly crisp image. If you are not picking up the signal, you will see nothing. If you are on the verge of the signal's range, you might pick it up but the transmission might "drop out" leading to frozen images on the screen. Chances are that any station you currently receive with a decent picture quality will become "perfect" with DTV.

Does This Mean All TV Will Be High Definition Television (HDTV)?

Although all TV transmissions must be digital, it DOES NOT mean that they will all be high definition (HDTV). Different stations and networks can choose what type of resolution they'd like to send out. Resolution refers to the number of pixels (the colored dots that make up the image) displayed in an image. Generally speaking, the higher the resolution, the more detailed the picture can be and the better it will look on a larger screen. You will see broadcasts listed in resolutions such as 1080i, 720p, 720i, 480p, and 480i. The number listed is the vertical resolution of the image (the number of pixels from top to bottom). The letter (P or I) stands for progressive or interlaced. Progressive means that the entire image is displayed in one pass on your screen. Interlaced means that on the first pass, every other line is displayed and then the remaining lines are displayed on the next pass. Progressive scan is generally considered to be a better picture quality but requires hardware fast enough to scan the entire image on a single pass. There is also a 1080p specification that, at the moment, won't really be used for broadcast but will be used by Blu-Ray discs. Generally speaking, broadcasts in 1080i or 720p are considered HDTV, and the majority of shows on major networks will likely be broadcast in one of these two resolutions. 480i (Standard Definition TV, SDTV) is the same resolution as our current analog transmissions.

One of the other advantages of DTV is the ability for a station to transmit multiple channels within their given frequency range. This is called multi-casting. An NBC affiliate which transmits on Channel 7 might also transmit 7.1 (an all weather channel) and 7.2 (a local access channel). The station has a maximum amount of data that they can send out on their frequency (bandwidth) and they can appropriate it however they choose. Higher resolution transmissions require more bandwidth so most stations will likely have a single HDTV transmission on their main channel and one or more SDTV sub-channels. Therefore, another added benefit of DTV is that you might now get more programming choices.

Finally, aside from increased picture quality and resolution, DTV comes with increased audio quality and many programs will include 5.1 channel surround sound.

How Does This Switch to DTV Affect Me?

I can't reiterate enough that this switch is just for over-the-air (OTA) transmissions received by antenna. If you have cable or dish, you will not be affected. The switch will affect anyone using OTA television service, unless you already have a very new TV.

Inside a TV is a tuner. The tuner takes all the incoming transmissions from the antenna, isolates the transmission for the selected channel, and interprets the data so it can be displayed on your TV. DTV channels are still going to be broadcast in the same frequency ranges as the old channels so they will make it to the tuner just fine, but the tuner will not be able to isolate the channel nor will it be able to interpret the data for display. To be able to interpret these signals, a DTV tuner is required.

So if you currently have a TV with an analog tuner in it, you will get NO picture at all after the switch. If you have a new TV that listed as "DTV built in", "HDTV built in", "DTV tuner", or "ATSC tuner", then your TV already has a DTV tuner and it WILL be able to isolate and interpret the signal. Please note that "HDTV ready" or "HDTV monitor" is a TV which DOES NOT have any tuner inside it and requires an external tuner..

So I Need To Buy A New TV?

Not necessarily. All you need is a new tuner. Buying a new TV with DTV tuner in it is an option, but other options exist. Electronics stores are currently selling what they call a DTV set-top box, or DTV converter box. It's a device containing a DTV tuner that you would set near your TV. Your set-top box would take the signals from the OTA transmissions, isolate and interpret, and then spit the signal out to your TV in an analog signal that it understands.

These set-top boxes can be found for about $50-$80. Since the government is forcing this switch on us, they have decided to help us out on purchasing these set-top boxes. There is currently a $40 rebate form which you can use toward the purchase of one of these boxes. Up to two rebates can be used per house, so if you have seven TVs that need to be outfitted with set-top boxes, you are on your own for five of them. The rebate form can be found here.

Here are are a few set-top boxes available on Amazon:


There are also several available at other retailers such as Wal-Mart, Best Buy, and BSAT.net.

With these converter boxes, you will be able to use your existing TV and can avoid having to buy a costly new TV set. There are, however, downsides to this method. These converter boxes take the digital signal and convert it to a standard analog signal. This means if you have an HDTV signal coming in, it will be downgraded to an SDTV signal because that's all your TV can handle, thus you don't get all the benefits of HDTV. Another thing to note is that your TV will have to stay on Channel 3 or A/V input and the converter box is where you will do all your channel changing.

So If I Buy A Converter Box For My Old TV I'm Set, Right?

In a sense, yes, you are ready to view DTV on your existing TV. However, you may still have some problems if you like to record TV programs; especially if you use a timer record feature. A VCR, DVR, or DVD Recorder (I'll just use VCR from now on as they all work similarly) also has a tuner built in to it so it can interpret the signal and record it. Unless you have one built specifically for DTV, the VCR's tuner will be an analog one. This means that if you want to be able to record any programming, you will have to hook the converter box up BEFORE the VCR. So the cabling would go from the antenna to converter box to VCR to TV. This would allow you to record programming, but has some MAJOR downsides to it.

First, when you want to record a show, you'll have to manually set the channel to record on the converter box and set the VCR to record on Channel 3 or A/V input. That's fine if you're around when the show starts, but what about a timed recording session? You'd have to remember to set the channel on the set top box before hand AND remember to leave it turned on. If you're going to be gone for a few days and want to record programs on multiple channels, you're out of luck. The converter box will only stay on one channel. The next problem is that you won't be able to record a show and watch a different show at the same time. Today, most people can do this because their VCR and TV each have separate tuners allowing each to tune to different channels. But if you have one converter box hooked up as described above, then the VCR and TV will always be on the same channel. This problem could be fixed by buying a two converter boxes for the TV and the VCR. Then things get complex in wiring and remote usage, and you'd want to make sure they were different model converters so they weren't picking up each others' remote control signals.

So if you just watch TV and rarely record it, the set top box might be a good option for you.

What's The Best Way To Record My Shows Then?

The best way is to get a DVR with a digital tuner in it and a TV with a digital tuner in it. That way the devices don't require a converter. You'll be able to do timer recording and watch a show on TV at the same time as recording another. The only problem is that DVRs with digital tuners are currently sparse on selection and the ones that do exist are rather expensive. This will get better in the future though.

Do I Need to Buy An HDTV Antenna To Get The DTV Signal?

Short answer: No! Companies have been labeling antennas as HDTV antennas as a marketing ploy. As mentioned earlier, DTV will use the same frequencies that analog TV used. This means existing antennas will still be able to pick up the signals on those frequencies. Our current OTA channel line up is broken down into 3 bands: VHF-Lo (Channels 2-6), VHF-Hi (Channels 7-13), and UHF (Channels 14-69). DTV will use the same bands.

In the old days, having a low channel number was coveted because it was easy to remember, but those days are long gone. The VHF-Lo channels are actually considered to be poorer choices now because of how difficult it is to get a good signal to the viewer. If you've seen a roof-top style antenna, you're probably familiar with the different lengths of arms sticking out from the antenna forming an arrow shape. Those arms are each tuned for a specific frequency. The lower channels have frequencies that require wider arms. Arms tuned specifically for Channel 2 will be about 110 inches wide making for a very large antenna. The UHF portion of an antenna is generally MUCH smaller than the VHF portion, especially the VHF-Lo band portion.

Due to the problems with VHF, especially VHF-Lo, it was expected that most stations would abandon their current frequency for a new UHF frequency during the switch. Manufacturers started making UHF-only antennas and marketing them as HDTV antennas. It turns out that many stations are preferring to stick with their current VHF frequency, and some (although few) are even sticking with their VHF-Lo frequency. So that means that people that have a UHF-only antenna will have a very hard time trying to receive DTV stations on VHF channels.

I Have An HDTV And A UHF-Only Antenna And I'm Getting All My Local Channels So I'm Good, Right?

Not necessarily. For the past couple years most stations have been broadcasting both their analog signal and their digital signal. Since many stations are keeping their current frequency after the switch, they've been broadcasting their DTV signal on temporary frequencies for the past couple years. This means that Channel 7 could be broadcasting analog on Channel 7 and DTV on Channel 42 right now, but once the switch is done, they will turn off Channel 42 and just broadcast DTV on Channel 7. So if you have a UHF-only antenna, you will be out of luck. To find out how the stations in your area will stack up after the switch check out the FCC's final station selection list (Excel File).

So What Should I Do About My Antenna?

If all the channels you wish to receive will be in the UHF band, then you can get by with a UHF-only antenna. If you need some VHF and UFH channels, you will need a combination antenna like the kind people currently use. If all of your channels are in VHF-Hi or UHF, you could get by with a combination antenna that is smaller and will ignore the VHF-Lo band. Check one out at Denny's Antenna Service.

For the most part, if you already have a VHF/UHF antenna that is working well, it will probably be fine for DTV as well. The only thing to be concerned about is the quality of your current reception. As mentioned earlier, on analog, you can watch a channel that has really poor reception, but on digital if you drop below the threshold of quality, the picture will just go away. So if most of your channels come in really poorly, you might want to invest in a more sensitive or more directional antenna. A great resource for antenna selection is AntennaWeb.org. On this site, you can put in your exact location and it will tell you what class of antenna you need and which direction to point it to get the best reception.

If you currently use rabbit ears, they will probably still work with a DTV signal if you are close to the source. Rabbit ear antennas are not very powerful, so distance is a factor when using them.

Summary

In summary, a change in television signals in coming in under a year. If you do nothing, your old television sets will not be able to display the new signals. You can either upgrade your TV (high initial expense), get a converter box (low expense, multiple downsides), or get cable or dish (recurring costs and lower picture quality than OTD HDTV). HDTV antennas are just marketing words for UHF-only antennas and may not be useful if you need to watch VHF channels. For the most part, an existing antenna that is picking up analog signals pretty clearly should be usable for DTV.

So take the steps necessary to ensure you can watch TV after the switch and then sit back and enjoy the crystal clear TV.

If you have any questions I could possibly answer, leave a comment to this post.

Links

http://www.dtv.gov/ - Official site for the DTV switch.
https://www.dtv2009.gov/ - Government rebate form for digital converter boxes.
Wal-Mart - Digital converter box.
Best Buy - Digital converter box.
BSAT.net - Digital converter box.
FCC-07-138A2.xls - FCC List of final channel frequency selections (MS Excel 270KB).
AntennaWeb.org - Advice on antenna purchasing and positioning.
Cruthfield Electronics - Tutorial on antennas for DTV.

HDTVs:


DVR for HDTV:


TV Antennas:

I recently discovered that there are special tax laws regarding gains made from selling stock acquired through an Employee Stock Purchase Plan (ESPP). Below is the result of my research to understand these laws.

Normal Stock Transactions

In a normal stock transaction, you report a capital gain and pay tax on any money you make on the sale of the stock beyond what it cost you to buy the stock:
Capital Gain = Total Sale - Total Cost

If you were selling a batch of stock that was all purchased at the same time at the same price, this calculation can be very simple. However, it can become complex when you sell a batch of shares that have multiple purchase dates and prices. Most brokerages will keep track of this information and just tell you what your gain is for that sale thus facilitating tax reporting.

Aside from calculating your gain, the other thing you have to look at is how long the shares were held. If there were held for less than a year (short term), it will be taxed differently than shares held longer than a year (long term). Again, your brokerage's year end report should break this down for you.

Tax Reporting For ESPPs

An Employee Stock Purchase Plan is a program offered by your employer that allows you to purchase shares of the company's stock often at a discounted price. The program will usually have an offer period during which you will have a payroll deduction that goes into a holding account. When the offer period is over, the money in that account is converted to stock.

When you sell the stock, you will have a gain or a loss based on what you paid for the stock and what you sold it for. On the surface, this appears to be just another regular stock transaction, but as I found out, there is a significant difference. The difference is that the amount of discount you received when purchasing the stock will have to be reported as ordinary income (not capital gains).

Consider a plan where you get a 10% discount on your stock. At the end of the offer period, the market price for a share is $10. With your 10% discount, you pay $9 per share. If you bought 100 shares, you just got a discount of $100 ( (10 - 9) * 100 ). That $100 should be reported as ordinary income, and instead of using $9 per share as your cost basis for your shares, you use $10 per share.

The above example is overly simplified to demonstrate the principle. However, the actual law is quite a bit more confusing. Different rules apply if you sell your shares after holding them for at least two years (Qualified Distribution) than if you hold for less than two years (Disqualified Distribution) so we will examine each separately.

Disqualified Distribution

In a disqualified distribution, you held your shares less than two years. If you held less than one year, they are also a short-term gain.

To calculate the total amount of discount that must be reported as ordinary income, you must take the market price on the day the shares were purchased, minus the actual price paid (the discounted price), times the number of shares:
Discount = (Market Price Per Share - Discounted Price Per Share) * Number of Shares

The discount amount should be included in your ordinary income (Wages, Tips, etc). For a disqualified disposition, your employer should INCLUDE this in the box 1 (wages) of your W-2. Mine did, and in box 14 (other), they listed ESPP DISQ DISP and the amount of the discount that was ALREADY included in my box 1.

If you used the actual discounted price as the cost basis, you would be double taxed on the discount amount as it will be included in both your ordinary income AND your capital gains income. When you do your capital gains worksheet (Schedule D), you should use the Market Price as the cost basis of these shares thus avoiding the double taxation.

Qualified Distribution

A qualified distribution is a sale of shares held more than two years. This automatically means it is also a long term capital gain since it has been held for more than one year. The rules for a qualified distribution are slightly different than for a disqualified one.

First, you still have to calculate the amount of discount that your received on your shares. However, this is done by taking the LESSER of two calculations.

First, calculate the actual gain based off of the discounted price:
Actual Gain = (Sell Price Per Share - Discounted Purchase Price Per Share) * Number Of Shares

Second, calculate the discount based off the offering price (this is the market price per share on the beginning of the offer date):
Discount = Market Price on Offer Date * Discount Rate% * Number of Shares

Take the smaller of these two numbers and this is the amount that you must report as ordinary income. However, unlike a disqualified disposition, the amount is most likely NOT already reported by your employer in box 1 of your W-2. That means that you must manually add this to your income (wages, salaries, tips, etc).

Again, you need to adjust the cost basis of your shares upward by the amount you reported as ordinary income so that you are not double-taxed on that amount.

Summary

Overall, the wording of the laws is fairly complex. It took me many hours of research to get to a point where I now have a pretty good understanding of what to do for these types of transactions. I have put together a spreadsheet to help me do my ESPP reporting. You can download it here and use it to help you in your own reporting.

I dedicate these two ESPP Tax Calculations files to the public domain so feel free to use them any way you wish.
ESPP Tax Calculations.ods - Open Document Spreadsheet format for OpenOffice.org
ESPP Tax Calculations.xls - MS Excel spreadsheet



Links

TurboTax Page Regarding ESPP
Fairmark Page Regarding ESPP Qualified Distributions
IRS Publication 525 - PDF File 1.1MB


Disclaimer

I am not a tax professional, so this information should not be taken as tax advice. I'm simply stating how I have handled the situation.

Recently, I had to purchase all the light bulbs for our new house. Let me start by saying that you never really realize just how many light bulbs a house uses until you have to go buy all of them at once.

Since I was buying a bunch of bulbs, I thought it would be wise to try to stay "green" and get Compact Fluorescent (CFL) bulbs wherever possible. CFLs use roughly 75% less electricity than an equivalent incandescent (standard) bulb. So if they use less electricity and make your electric bill lower, why doesn't everyone have all CFLs in their houses? Comparatively, the technology is still new. Here's some things I have noticed about CFL technology that some people may perceive as a reason not to switch to them. Most are issues from when the technology was brand new, and have been taken care of by the manufacturers already. Others are just perceived problems.

1. CFLs Are More Expensive

Generally speaking, CFL bulbs will be a higher initial investment cost. However, many electric companies will provide cash-back rebates for buying the Energy Star CFLs. When I bought my bulbs, they were on sale and there was the electric company rebate ($2/bulb). I got some standard mini-twist bulbs for about $1/bulb and some BR30 reflector bulbs for about $3/bulb. This is very close to incandescent prices.

Additionally, these bulbs will pay for themselves in electricity savings. Check out this post to see how to calculate your savings for a single bulb. Using this formula, you can calculate that a 15 watt CFL can save you about $7.21 per year per bulb compared to an equivalent 65 watt incandescent (based on 4hrs of usage per day and $0.10 per kilowatt-hour). You can see that the savings can start to add up.

Besides electricity savings, CFLs have a longer life span. At my current home, I had a light fixture that was burning out standard bulbs every couple months. I put a CFL in there and it's been 4 years without burning out.

It is important to point out, however, that not ALL CFLs will be reasonably priced. For example, dimmable CFLs are still a very new technology. I needed six BR30 reflectors for a set of dimmed, recessed lights. The dimmable CFLs were about $11/bulb compared with $2/for the incandescent. I opted not to spend $66 on those bulbs at this time, but will check again for lower prices as the technology progresses.

So, overall, most CFLs are going to be reasonably priced and nearly all will be cost effective in the long run.

2. CFLs Come In Ugly Shapes -or- CFLs Don't Come In The Shapes I Need

It's true that the first CFLs on the market were the mini-twist style bulbs, and these bulbs are not the most aesthetic choice. However, these bulbs are great for fixtures with covers.

For fixtures with exposed bulbs, you may not want to see the twist of a CFL. Luckily, CFL manufacturers have identified this and have begun creating bulbs with covers in many of the standard shapes: Type A, Reflector/Flood, Vanity Globe, and even Candelabra.

With these shapes, you can fit most of your lighting needs. However, some of them, the candelabra bulbs for example, are still bigger and/or give off less light than an incandescent, so they may not be right for all your fixtures.

3. CFLs Produce Ugly Light

Again, the earliest CFLs produced mostly white light similar to fluorescent tube lighting in office buildings. While this is great for task lighting, it doesn't really give you a warm feeling for your house. Again, it should be noted that manufacturers have taken this into account and have begun producing bulbs with different color temperatures. The higher the color temperature in Kelvins, the whiter/bluer/cooler the light. A regular incandescent bulb will have a color temperature of around 2700K and produces light with a "yellowish" hue. A "cool white" bulb will most likely be closer to 3000K and a "daylight" bulb will be upwards of 5000K. You should be able to find the color temperature listed on the bulbs so you can choose one with the light you prefer.

Another thing to note, however, is the Color Rendering Index (CRI) given to each bulb. The CRI is a number 0-100 that describes how accurately the bulb renders color off of other objects. A bulb with a CRI of 100 will cause objects lighted by the bulb to show their true colors while a CRI of 65 will not produce truly accurate colors. I have noticed that most CFLs seem to be in the 80-90 CRI range while incandescent can be in the high 90's. This will most likely get even better for CFLs as the technology comes along.

4. The Mercury In CFLs Is Dangerous

It's true that most CFLs contain some amount of mercury, a chemical which has been shown to cause problems when in contact with the human body. Despite the fact that manufacturers are working to reformulate their products to use less or no mercury, people still hear about this in the media and just to the conclusion that CFLs are bad. It is important to note that most of the mercury dumped into the environment is emitted in air pollution from coal burning power plants. Air emissions are likely more dangerous than a contained break of a CFL bulb. In addition, the amount of mercury in a CFL is so low that is actually lower than the amount of mercury that would be spewed by a coal power plant using an incandescent bulb (remember CFLs use less energy).


Summary

So most concerns about CFL technology have been taken care of by the manufacturers and others are in the process of being fixed. As the technology matures it will only get better, but I think we are currently at a point where the cost of entry vs the benefit makes sense to start using them.

Buy CFLs:

A couple years ago, I decided it would be interesting to find out about how much it was costing me to run my Christmas lights during the holiday season. The calculation is quite simple so I'll walk you through it. Some information you need to find out ahead of time:

1. How many bulbs you put up.
2. How often you typically have them turned on.
3. The cost for a kilowatt-hour from your power company. (should be listed on your bill)

And now for a little background information. A typical mini-bulb Christmas light uses about 0.5 watts per bulb. If you have LED bulbs or the large, old-school bulbs, you'd have to find out how many watts per bulb you ware using.

Let's assume that you put up 3,000 lights (on your tree, house, bushes, etc), and that you typically have them on from 5:00PM till 11:00PM from Dec 1 to Jan 14. Let's also assume that your electric company charges you $0.10 per kilowatt-hour (kWh).

So, here we go.

3,000 lights * 0.5 watts = 1,500 watts when they are all on.

1,500 watts / 1000 = 1.5 kilowatts. So, if you have all of them on for 1 hours, you have 1.5 kilowatt-hours.

1.5 kilowatt-hours * 6 hours per day = 9 kilowatt-hours per day.

9 kilowatt-hours per day * 45 days = 405 kilowatt-hours total usage by Christmas lights during the holiday season.

405 kilowatt-hours * $0.10 per kilowatt-hour = $40.50 to run your lights for the entire season.

You can see that this is no small chunk of change. Might make you consider switching to LED Christmas lights which will use only a tenth of the electricity because they are so efficient (they're also nearly indestructible).



As a side note, this calculation can be used for anything that you know the energy use of. For example, four 60 watt bulbs left on for about 3 hours per day. Or an 1100 watt oven cooking for 2 hours. Some of it will make you sick to see how much you are spending to operate that device.

I recently discovered that the world's best cleaning product is something that almost all households already have: Baking Soda. It's cheap, it's easy to use, it's readily available, and it really works. What more could you ask for? Oh yeah, it helps battle odors too!

It works really good on surfaces that have dirt or grime "caked" on. On these surfaces it's often difficult to wipe the dirt off with a soft rag or sponge. You need something stronger. Here's what I do to clean my stainless steel kitchen sink which tends to get pretty grimy and dirty.

1. Get the bowls of the sink wet.
2. Sprinkle with baking soda.
3. Scrub with sponge and rinse.

After that, your sink will have a clean polished look to it, and you'll have the satisfaction of knowing that you cleaned it with an everyday household product.

Works great on other surfaces too.