I currently have a little over 47,000 miles with Alaska Airlines right now. A few years ago you could get a roundtrip ticket on Alaska for 20,000 miles but they have since increased the cost to 25,000 miles. I should have probably used my miles sooner than now. I figured I should decide on a plan to use the miles rather than hang on to them forever.
Theres a few options I've though of for using the miles:
1) I could use 20,000 of those miles to get $200 off of a reservation to some place like Las Vegas. Thats about 1¢ return per mile.
2) If I save up a few thousand more miles and hit the 50,000 level then I can get 2 round trip tickets to a destination in the continental US. Tickets to visit my wife's family in the midwest would cost us $300 to $400 each. That would be $600 to $800 total for 50,000 miles. Thats 1.2¢ to 1.6¢ per mile return.t
3) We could go to Hawaii for 45,000 each ticket or 90,000 total. Roundtrip to Hawaii is about $420 a ticket. Two tickets is $840 so for 90,000 miles that would be just 0.93¢ per mile.
4) We could save up even more and get tickets to Europe. Europe is 65,000 per ticket round trip so that would be 130,000 total for my wife and I. Using Farecompare maps I can see that I could get tickets to Europe for as low as $600. Two tickets would cost us around $1200 so for 130,000 miles that would be a rate of 0.92¢ per mile.
With current costs the #3 and #4 options of going to Hawaii or Europe would not be beneficial. I'd have to save up a ton more miles and then the value per mile would be lower.
#1 and #2 options are the preferable choices. If we save up a few thousand more miles then we could potentially get 1.2-1.6¢ per mile total.
Option #1 is an easy way to get guaranteed value out of the miles and not have to wait longer to accumulate more miles. However option #1 only has a 1¢ per mile return. Option #2 would give a better return on my miles depending on choice of destination and the cost of tickets.
I could also buy 3 thousand more miles for a cost of about $83. Then if I found a flight we wanted to take we could get 2 tickets using 50,000 miles. This would be worth it if the price of the tickets were more than $553. That would give us a return of over 1¢ per mile on the 47,000 miles we've got now. Simply flying to Vegas would cost us over $500 so that wouldn't be too hard to do.
Bottom Line: It would be best for me to cash in the points for a domestic flight of some sort. Waiting for a expensive trip to Europe or Hawaii wouldn't pay off.
January 14, 2011
Should I Cash in Airline Miles Sonner or Save Them?
January 13, 2011
The Performance of Businessweek Stock Picks for 2010
At the start of the year Businessweek picked 16 stocks for 2010. The list is here : Top Stock Picks for 2010
The 16 picks were :
Orion Marine (ORN)
Computer Sciences (CSC)
Verizon (VZ)
HESS (HES)
BB&T (BBT)
Royal Caribbean Cruises (RCL)
Varian Medical Systems (VAR)
Discovery Communications (DISCA)
Waste Management (WM)
FMC (FMC)
Blackstone Group (BX)
Teva Pharmaceuticals (TEVA)
Kohl's (KSS)
Urban Outfitters (URBN)
BorgWarner (BWA)
Priceline.com (PCLN)
HEre is how the list performed in 2010
| start | end | gain | |
| ORN | $ 21.51 | $ 11.68 | -46% |
| CSC | $ 57.74 | $ 51.91 | -10% |
| VZ | $ 33.28 | $ 35.92 | 8% |
| HES | $ 63.16 | $ 77.99 | 23% |
| BBT | $ 25.81 | $ 26.44 | 2% |
| RCL | $ 25.80 | $ 47.96 | 86% |
| VAR | $ 47.17 | $ 68.67 | 46% |
| DISCA0 | $ 31.00 | $ 39.82 | 28% |
| WM | $ 34.16 | $ 36.82 | 8% |
| FMC | $ 56.82 | $ 80.58 | 42% |
| BX | $ 13.71 | $ 14.79 | 8% |
| TEVA | $ 57.88 | $ 52.63 | -9% |
| KSS | $ 53.98 | $ 54.27 | 1% |
| URBN | $ 34.91 | $ 35.45 | 2% |
| BWA | $ 33.78 | $ 73.37 | 117% |
| PCLN | $ 223.96 | $ 415.99 | 86% |
Overall if you'd invested $10,000 equally in the 16 stocks then at the end of 2010 you'd have ended up with about $12,446 including about $123 in dividends for a total gain of about +24.5% for the year.
The S&P 500 was up about 13% for the year. The Businessweek list easily outperformed the market.
This just represents one year. I don't know how well Businessweek might have done in other years or how well they'll do if they pick stocks for 2011.
January 12, 2011
2% Payroll Tax Cut vs Making Work Pay Expiration : Who Comes Out Ahead?
You may have heard that in 2011 we are getting a temporary 2% reduction in the payroll tax. This is part of the e Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. That means that your take home pay should be 2% more than normal due to the lower payroll tax. Usually your portion of the payroll tax for social security is 6.2% but in 2011 they reduced it to 4.2%. (Note that this 2% reduction does not change how much your social security benefits at retirement are calculated)
A 2% tax cut is nothing to sneeze at. News reports kindly point out that it is "worth as much as $2,136 for a worker or $4,272 for a working couple." That sounds great and for many people it is great. BUT... at the same time the 'making work pay' tax credit is expiring so people will see their IRS withholding go down a little compared to last year.
The 'making work pay' credit was $400 for a single person and $800 for a married couple. 2% of your pay from the payroll tax cut may or may not be as much as you're losing from the expired 'making work pay' credit. Some low income people will see lower take home pay after income tax withholding and the payroll taxes in 2011 compared to 2010.
For 2% to be more than $400 you would have to make over $20,000 a year. (400/.02 = 20000)
For 2% to be worth more than $800 for a married couple you would have to have household income of $40,000 or more
The break even point is $20,000 for single or $40,000 for married. The more you make over those amounts then the more the 2% payroll cut will put you ahead this year versus the making work pay credit from last year.
Another detail is that if you make over $75,000 for a single person or $150,000 as a married couple then the making work pay credit in 2010 started to phase out. Every dollar of wages over the threshold cut 2¢ off the making work pay credit. The credit was completely phased out if you made over $95,000 for a single filer or $190,000 as married.
Lets put it all together and see how the two benefits compare for different wages. For a single person here is how the making work pay credit in 2010 would compare to the 2% payroll tax cut for 2011:
| Making Work Pay | 2% Payroll | |
| $7,250 | $400 | $145 |
| $20,000 | $400 | $400 |
| $40,000 | $400 | $800 |
| $75,000 | $400 | $1,500 |
| $80,000 | $300 | $1,600 |
| $100,000 | $0 | $2,000 |
| $106,800 | $0 | $2,136 |
Social security withholding caps off at the $106,800 for a single payer so the benefit of the 2% payroll cut would max out at $2,136 for an individual.
Lower income individuals and families will have less take home this year than last year. Most people however will come out ahead this year.
January 11, 2011
Americans do NOT spend 6 Billion Hours on their Taxes
A recent CNN article states that Americans Spend 6.1 Billion Hours on Their Taxes. Sounds awful. It would be awful if I thought it were true. I just can't believe that people spend that much time filling in their tax forms and preparing their tax records.
The 6.1 billion hours number is what I believe to be an example of a "numerical fiction". A "numerical fiction" is a term that Frank from Bad Money Advice came up with when he created Curmudgeon’s Law of Numerical Fiction. In short the Curmudgeon's law of Numerical Fiction says that a fake number is numerical fiction if it meets 3 criteria which are :
1. The number reinforces previously held beliefs.
2. The number is remarkably extreme, but not ridiculous.
3. There is no organized [and credible] group that opposes the number.
I think that claiming it takes us 6.1 billion hours to do taxes annually as a nation fits all those items. Everybody believes that taxes are difficult to do. The number is extreme but not so high that people obviously know its bogus. There is nobody out there I can think of who would really be arguing against such a number. I think this fits the description of "numerical fiction" to the tee.
Why I suspected it isn't true.
I just have a 'feeling' that this is a bogus number like other numerical fiction numbers. Someone throws out a giant figure and has nothing at all to back it up then it gets reported all around the news media. Its like if I said that French people own 18 million ducks. That sure sounds like a lot. Probably too many. Where did the number come from? Who knows. But who's to say its wrong? People just accept it cause they don't have any real reason to think its invalid.
Once I am suspicious of the number I then turn to my own math to try and figure out how many hours we as a nation would spend on taxes. No matter how I add it up I can't seem to come close to 6.1 billion hours. One of the most straight forwards ways is to look at how many accountants we have in the nation if it doesn't pass that common sense check then I'm really doubtful of the legitimacy of the figure.
All the accountants in the nation...
Lets pretend that all the accountants in the entire country do nothing but fill out tax forms all year round. There are 1.3 million accountants in the entire country. If those accountants all spend 2000 hours a year working then that is a total of 2.6 billion hours. Obviously accountants do many other things than simply handle taxes. The amount of time that accountants spend on taxes is less than the 2.6 billion total.
I honestly don't see any way that the nation really spends 6.1 billion hours when all the accountants in the entire country don't work half that long.
Time spent per tax form
According to the IRS in 2008 there were a bit over 142 million individual tax returns filed Lets round that up to 143M. If we spent 6.1 billion hours each then that would be about 42.6 hours per form. Now I know that taxes can take many people a while but I don't know anyone who spends a solid week filing their taxes or sorting their receipts. I have a pretty complex tax return which includes state taxes for two states, rental income for multiple properties in different states, sales of stock and stock options, health savings account and itemized deductions. Even with our multiple pages of forms I know for a fact that my CPA spends much less than 42 hours on it given how we can give her our stuff one day and get back the finished return within a day or two.
Where do they get the number?
The article says that the figure comes from someone named Nina Olson who is the current Taxpayer Advocate. It took a bit of digging but I was finally able to find some data on the IRS site that says what they are counting for individual tax payer time requirements. You can see the table titled Estimated Average Taxpayer Burden for Individuals by Activity They estimate the total time per tax payer at 18 hours. Sounds like a lot to me. If you look at the table closer you can see that they break it into time required to fill out the form, keep records, submit the form, plan and 'all other'. I don't know why it would take everyone 1 hour to submit their taxes. If you're doing it online then don't you just hit the 'submit' button and it is then sent electronically? If you are filling the forms out by hand don't you just put them in an envelope then mail them? Do people filling out 1040EZ really need 2 hours for record keeping? That form covers virtually very little except W2 wages and interest income. Does it take 2 hours to manage those 2 things? I highly doubt it does. All these numbers seem grossly inflated.
Lots of people have easy forms
Out of curiosity on how long it would take me to do a 1040EZ form myself I filled one out using pretend figures. I printed out the form which required putting new paper in the printer since it was out of paper. I then looked up my W2 at my employers website and logged into my ING account to look up the interest paid on my savings. I filled out the entire 1040EZ form including doing all the math, doing the 'making work pay credit' worksheet and calculating the tax refund. Its really not that complex. The main 1040EZ form has 4 arithmetic operations. The form really is easy. If you can follow simple instructions and add and subtract then using a calculator you can fill out 1040EZ I then put the form in an envelope, addressed the envelope and pretend to put a stamp on it (I don't want to waste a real stamp.) I started at 04 minutes after the hour and finished it at 17 minutes so in total it took me only 13 minutes to do the 1040EZ. If you take 4 times as long as I do then you should be able to do a 1040EZ form within an hour. Yet the IRS says it takes 2 hours to fill in this 1 page form.
Most people electronically file.
The majority of income tax forms are now filed via computer. 95 million of the 2008 forms were electronic. Thats about 2/3 of the total. One of the major benefits of computerized tax filing is that the computer program makes it 'easy' for you by guiding you through the process with simple questions on your filing.
My wife used to use software to do her forms so I asked her how long it took. I asked her how many hours it took and she responded with "hours?" She guessed it was "about 40 minutes" for her to do her 1040 form with computer software. According to Turbotax "The average time to prepare a return using TurboTax is about 2 hours," Yes Turbotax obviously a biased source since they're trying to convince you to buy TurboTax software. But honestly that 2 hour figure seems realistic and reasonable to me. Even if you double it thats still less than 400 million hours spent by the electronic filers.
I think that the real number is closer to 1-2 billion
Lets say that 2/3 of the filers use electronic forms and spend 2 hours doing the form. The other 1/3 spend an agonizing 8 hours to do their forms. Combined that would be about 800 million hours to file forms. If everyone spent 8 hours to sort out their shoe box of receipts then that would be another 1.1 billion hours. I doubt most people spend half this amount of time. Added up that would be 1.9 billion hours that people would spend. If you add in 2.6 billion hours to account for time that accountants spend doing business tax forms then thats a total of 4.5 billion hours between individual and business taxes. I still think this number is much higher than it probably would be in reality and its still only 3/4 of the 6.1 billion. Of course this is just my rough estimation work.
I think that 6 billion figure is numerical fiction.
How long does it take you to do your taxes?
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