Love those non-cash donations..

Well, being that it’s tax time again, I just have to say how much I love giving our old junk away to charity. Lately, our favorite charity for this kind of thing is Vietnam Veterans of America. This is just such a win-win for all parties involved, that I can’t say enough about it. Consider:

  1. We get rid of stuff we don’t need any more, that was cluttering up the house.
  2. We get a tax deduction for it.
  3. It’s easier than having a yard sale or selling on EBay.
  4. The stuff goes to a good cause.

For this past year’s donations, I tried out H&R Block’s DeductionPro software, which includes a large built-in database of valuations for various items. The only reason I tried it was because they threw it in for free with my purchase of TaxCut, but I have to say I like it. It simplifies the record-keeping process and keeps a running tally of the total deduction amount. If it stays free, I’ll certainly continue to use it. If not, I’ll weigh the benefits of using it vs. using a spreadsheet or somesuch. We’ll see.

An important part of this is picking the right charity. The cause itself is important, of course, but the charity also needs to be reliable. When you go to the trouble of scheduling a pick-up and dragging the stuff outside, you want them to show up and take the stuff. After a couple bad experiences with other charities, we’ve found VVA to be very good in this department.

Again.. can’t say enough about this.. get rid of junk, help a good cause, get tax writeoff. It doesn’t get any better.

Lessons learned about check deposits..

I have this credit union account, which I keep around solely because there’s an ATM I can walk to from my office. I get the convenience of using the ATM for check deposits and cash withdrawals, and in return, the credit union gets to keep a nominal amount of my money and pay me practically zero interest on it. Any balance over and above the aforementioned nominal amount, gets transferred into my brokerage account (where it earns much better interest) as soon as the check clears. In general, this works out pretty well. But, there are certain rules which must be followed, which brings us to today’s tale of woe.

Monday, January 23, 2006: I went to the ATM and deposited a check for a few thousand dollars. As usual, the ATM receipt showed that $100 of the deposit was available immediately, and the rest was on hold until the check clears. Now, ever since the new Check 21 system was implemented, the credit union has been clearing my checks much more quickly, a lot of times by the next business day. Sure enough…
Tuesday, January 24, 2006: I checked my account balance online at the credit union, and it showed that the check had cleared and the entire amount was available for withdrawal. Going by this, I scheduled three transfers into various different brokerage accounts, to be completed on Thursday the 26th.
Wednesday, January 25, 2006: I checked the credit union again. Oops.. seems that my funds were mysteriously no longer available! The same day I get a snail-mail letter (handwritten, btw) stating that a “special hold” had been placed on the deposit due to the large amount. The hold was for 4 business days, meaning the funds wouldn’t be available until the 27th. It’s too late to cancel my transfers, because they’ve already gone to ACH for processing. Bummer.
Thursday, January 26, 2006: The transfers all get bounced back, and I get charged $81 in overdraft fees.
Friday, January 27, 2006: The funds become available at the credit union, and I start making phone calls to get this mess straightened out.
Monday, January 30, 2006: After two calls and about 30 minutes on hold with the credit union, my $81 is refunded. Thanks guys.
Today: I reschedule the transfers to the brokerage accounts and cross my fingers.

So, what have I learned? #1, there’s something to be said for going to the bank and making the deposit with a teller, because they probably would have told me about the special hold then and there. #2, when making a large deposit at an ATM, don’t touch the money for a week, and don’t trust the online banking system to give accurate info WRT funds availability during that period.

Can I scream now?

Mortgage escrow analysis demystified

Just found out what my mortgage payment is going to be for the next year, and the escrow amount jumped a bit more than I had expected. So, being the accounting buff that I am, I decided to try and figure out the formula the mortgage company is using to determine the monthly escrow amount. In the past, this has always seemed like some kind of arcane art shrouded in mystery. I would get my escrow analysis statement in the mail, give it a blank stare or two, note whether I was getting a refund check, write down the new mortgage payment, and move on. Well, it turns out that it’s actually pretty simple:

  1. Take the total of last year’s disbursements and divide by 12, to get the base monthly escrow amount.
  2. Multiply by two to get the minimum escrow balance required (two months worth).
  3. Starting with the escrow balance on the anniversary date, figure out the projected escrow balance for each of the next 12 months. To figure the balance for a given month, take the balance for the previous month, add the base monthly amount (from step 1) and then subtract any disbursements that were made in the same month last year.
  4. Find the month where the projected escrow balance is the lowest. If that number is less than the minimum balance from step 2, subtract the two to get the shortage. Most mortgage companies will let you either pay this amount as a lump sum, or spread it out over the next 12 months. In the latter case, divide the shortage by 12 and add the result to the base escrow amount (step 1), to get the final escrow amount.

I broke out my favorite spreadsheet and crunched the numbers for my own mortgage, and came up with exactly the same numbers as the mortgage company. So at least I know they’re not cheating me. From analyzing this method, it seems that it is definitely in one’s advantage to have most of the disbursements happen towards the end of the “mortgage year”. If the payments are skewed towards the beginning of the period, you end up with a higher payment (to satisfy the minimum balance requirement) and a larger balance at the end. If you end up with an overage (projected low balance greater than minimum required balance), the mortgage company is required to refund this to you, but you’re still giving them an interest-free loan (at least in most states).

Then, there’s the question of whether to pay the escrow shortage as a lump sum, or spread it out over 12 months. The answer is pretty simple: crunch the numbers both ways, figure out which method would result in the lowest average monthly escrow account balance, and go with that. In my case, paying the shortage over 12 months was the clear winner.

The nice thing about the escrow analysis process is that it’s very predictable, everything’s based on the disbursements made in the previous year (there’s no hand-waving or estimating of future bills going on). In my case, as soon as I get my July property tax bill, I can figure out next year’s mortgage payment. I’d just as soon not have an escrow account at all (I’m perfectly capable of earmarking the money myself and earning interest on it to boot), but at least I understand the process now.

That time of year again.

Well, it’s time once again to start working on taxes. And once again I find myself using H&R Block’s Taxcut Product. This year, they’ve gone the consumer-friendly route of including the state product with their Taxcut Deluxe package, so you don’t have to purchase it and request a rebate. Good move on their part.

Once again, the most fun part of tax time is figuring out capital gains on all of our various stock and mutual fund sales. Or more specifically, figuring out the cost basis. And it’s even more fun, when there are splits and spinoffs involved with the stock you’re selling.

Earlier in 2005 I put together a spreadsheet for each stock and mutual fund holding we own, that identifies each specific lot along with purchase date, amount invested, etc. That allows me to compute accurate cost basis info using either the FIFO method, or by specific identification of lots. It seems to work pretty well, and takes a lot of the tedium out of the process. However, it doesn’t handle the case of multiple purchases on the same day. It shouldn’t be hard to modify the sheet to handle this, but so far I haven’t needed to.

At any rate, it looks like we’re due for nominal refunds from both state and fed, which is exactly what I shot for when I last filled out a W-4. Time to have another kid, so I can do that all over again!