Dr. Diane Hamilton's Blog

Purchasers from Amazon Responsible for StateTaxes

 

Article first published as Purchasers from Amazon Responsible for StateTaxes on Technorati.

Amazon has enjoyed an advantage over their competition.  They have not had to add tax to the purchase amount in states where they don’t have a physical presence.  Slate reported, “According to Quill Corp. v. North Dakota, a 1992 Supreme Court ruling, companies are only required to collect sales taxes from their customers when they have a presence in the state in which they reside.”

This has been a sore spot for many of Amazon’s competitors.  Many of them feel that if they should have to handle the taxes for customers, so should Amazon.  This advantage has made them undersell big competitors like the Apple Store and Best Buy.

Purchasers from the Amazon site may think they are getting a better deal. In reality, there may be taxes owed, but it won’t be by Amazon.  What many people in certain states like Arizona don’t know about their purchases on Amazon, is that it is going to be up to them to keep financial records of what taxes are due.  At the end of the year, when they file their tax returns, these taxes should be included in any amount owed to the government.

According to the Arizona Republic, “If you buy something online from a retailer who doesn’t have a physical presence in Arizona and they don’t charge state tax or the tax from the state where they’re located, then you’re probably liable for the use tax – the 6.6 percent tax. The safest thing to do is if you buy something online and you get a receipt, save it. It’ll probably show if there was any sales tax from the state where it was charged. If there’s not and there is no Arizona tax, then you should think about paying the use tax on that.”

What if you haven’t kept all of your Amazon receipts?  Go to your account page on Amazon and under Order History, click on Download Order Reports.  This tool allows you to put in the date range of purchases to request a report of purchased items.

According to Amazon’s site, “Items sold by Amazon.com LLC, or its subsidiaries, and shipped to destinations in the states of Kansas, Kentucky, New York, North Dakota, or Washington are subject to tax.”  It is wise to check with your state to see what your tax obligation is.  For more information from Amazon regarding taxes, click here.

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Who is Buying Stocks When Everyone Is Selling?

With the recent stock market drop, there was a mass sale off of stocks.  This may lead to the question:  If everyone is selling, is there a chance that there are stocks that no one wants to purchase?  The answer is technically no.  There are always as many buyers as there are sellers and that keeps the system going. 

If you are wondering who would want to buy stocks when the market is going down, the answer is:  a lot of people.  Some shares are picked up through options and some are picked up through money managers that have been waiting for a strike price. 

There are many people who set up stock limit orders so that when a stock hits a certain dollar amount, it is automatically purchased.  According to Money.cnn.com, “If you place a market order with your broker, then you are saying that you’re willing to buy at whatever happens to be the prevailing price for the stock. If you have a specific price in mind, you can set a limit order specifying the price you’re willing to pay. If the stock dips down to that level, your order will be automatically filled. Limit orders can be left open for a single day (a day order) or indefinitely (good until canceled). After you’ve bought a stock, you can instruct your broker to sell it if the price drops to a level you specify (a stop loss order). That’s a kind of insurance; it means that no matter what happens to a stock’s price you’ll never lose more than a specified amount.”

Some may look at this as legalized gambling.  A capitalist is always on the look out to get a better price or better dividend yield.  Dividend yields are based on the price of the stock.  If the stock goes down, the yield may go up.  For example since dividends are in dollar amounts and not percentages, if a $1 dividend is divided by a $20/share price then the dividend yields 5%.  If that $1 dividend is divided by an $18/share price then that dividend yields more at 5.5%.

The sheer volume of trading is staggering.  A local stock broker looked up today’s trade volume.  For August 9, 2011, 9 billion shares traded. 

Defaulting on a Mortgage: How it Affects Your Credit Score

Many consumers have taken a financial hit with the recent economic climate.  As more people are defaulting on their home loans, it is interesting to see the impact on FICO scores. 

What may be a surprise is how many wealthy people with good credit are going into foreclosure.  A recent article by the Arizona Republic mentioned how affluent, savvy homeowners are choosing to default on their home loans based on weighing the pros and cons to such a decision.  “Recent research suggests that affluent people tend to be the main strategic defaulters, and these individuals are also the ones who would sustain more serious credit-score damage.  This chart shows the resulting credit scores for two hypothetical consumers – one with an average initial score of 680 on the FICO scale and another with a high initial score of 780.”

Situation Initial 680 Score Initial 780 Score
     
30 days late on mortgage 600-620 670-690
90 days late on mortgage 600-620 650-670
Short sale, no deficiency 610-630 655-675
Short sale with deficiency or foreclosure 575-595 620-640
Bankruptcy 530-550 540-560

The savvy homeowner that sees their home investment as a money pit, may go ahead and buy what they perceive as a better home  purchase, perhaps a short sale, before they default on their original investment.  In this way, they have good credit to purchase the new home before they take the hit to their credit score caused by the default of their original home purchase.

New Study Shows Young Adults Find Power in Debt: Lack of Education to Blame

In recent research published in the journal Social Science Research, the data showed that young adults aged 18-27 actually felt empowered by having debt.  They felt that it increased their self-esteem and made them feel in control of their lives.  Because they were able to attain goals of buying things, they perceived this as a good thing.

ScienceDaily reported, “The study involved 3,079 young adults who participated in the National Longitudinal Survey of Youth 1979 — Young Adults sample. The NLSY interviews the same nationally representative group of Americans every two years. It is conducted by Ohio State’s Center for Human Resource Research on behalf of the U.S. Bureau of Labor Statistics.”

The young adults who had less money to begin with, felt more empowered by this new found ability to purchase things.  “Results showed that those in the bottom 25 percent in total family income got the largest boost from holding debt — the more debt they held, both education and credit card, the bigger the positive impact on their self-esteem and mastery.”

The study found that as young adults became older, they had a more realistic idea of what this debt was doing to their lives.  By age 28-34, the stress caused by the debt was starting to be felt.

The results of this study back up what has been called a movement toward an instant gratification society.  The Arizona Republic reported, “Many young adults might feel good about incurring debt because it lets them purchase desired items without having to delay gratification.  They are happy they can actually get credit and feel more like adults now.  .  .But they don’t actually understand what that entails.”

Eventually the bills start piling up and these young adults will have to face the consequences of paying off what they have charged.

How did this generation get to this point?  Lack of education may be to blame. Here is a reprint of an article I wrote several years ago that addressed this problem:

Lack of Education to Blame for Financial Crisis 

The current financial crisis is entirely our fault.  We are a nation of financially-ignorant people doing crazy things like buying a $450,000 home on a $40,000 a year salary with a 120% loan. How in the world did we think that this was OK?  What are we doing to be sure that this won’t happen again?  People are sick of reading about bad news and the economy. They’d rather just put their heads in the sand and hope Obama is here to save the day. Well I’m here to tell you, if we don’t change the way we teach personal finance to the youth in our country, we will have learned nothing from this economic disaster and future generations are doomed to repeat our mistakes.

FROM AN EDUCATOR’S PERSPECTIVE

Having taught college business students for many years, I am horrified by the lack of personal finance training our youth receives.  Should it be up to the young adult to learn this on their own? There are a lot of books on personal finance out there.  If you hang out at a bookstore and watch the type of people who are reading them, however, you will notice it is not the young generation purchasing them.  It is usually the 30 and older crowd that has now found themselves in financial straits and want to know how to get out of it.  The younger generation doesn’t realize that they need this knowledge yet.  Their parents probably never taught them because they probably have a limited understanding of personal finance themselves.  How can we expect parents to teach children something they never learned in the first place?

Shouldn’t personal finance be something we learn in high school and college to prepare us for our financial futures?  Arizona State University’s W.P. Carey School of Business has a good reputation.  I use that as an example because that is where I received my BS in Business.   Business Week lists ASU in its 2007 rankings as 66th out of the top 100 business schools.  I am not trying to pick on ASU because it is a wonderful school.  However, last semester they offered only one course that addressed personal finance and retirement planning.  Only three sections of this course were even offered.  For one of the largest business schools in the US, there was not much of a focus on educating our youth to be financially savvy.   ASU only required that business minors take this course.

I recently ordered the textbook that ASU uses for this course. I love to read all I can read about personal finance; I realize that I am not typical in that regard.  However, even with my keen interest in the subject, just looking through this text, I was so bored!  If I see the words “net present value of money” . . .  even I want to run.  I just don’t think that it teaches the types of things young people need to know in a way that would spark their interest.  This text is busy with charts, pictures, numbers and balance sheets.  A young adult that isn’t savvy in math might get immediately turned off by that.  To be fair, this course is offered to business majors who are probably decent in math.  However, what about the rest of the students who are not?  Why are we only teaching personal finance to business majors?  Granted, it is a class that is open to everyone, but it is not required.  To me, this text would be a “next level” type of teaching tool for those who understand the basics already.  Unfortunately if ASU is typical of what other schools offer, they are missing the boat of what it takes to reach the average student.

Even if some form of money management is taught before college, part of the problem stems with allowing kids to be able to advance through school without passing tests to prove their personal finance knowledge.  Dr. Danielle Babb, author, entrepreneur and professor who appears frequently on national television and radio claims, “Kids shouldn’t be allowed to move on if they haven’t mastered the basics.”  Unfortunately many are learning about finance the hard way.  Right now that may be through watching the collapse of the current economy. As Dr. Babb pointed out, “Right now an entire generation is learning about markets; that they don’t just go up – they can go down, too.”

Paula Zobisch, Ph.D., a well-respected professor who teaches business at ten online universities, agreed that this issue needs to be addressed.  When asked how she felt about the personal finance education that our youth is receiving she responded, “Sure, let us lean on the high educational institutions to teach financial management, but let us not also forget high school. And even more importantly, let us remember parents who could teach financial management by giving younger children an allowance and then guiding the management of that allowance. Financial management begins long before college.”

 

Fox News (2009) reported 48% of high school seniors correctly answered finance and economics questions.

This is not to say that more colleges and universities aren’t realizing the importance of teaching personal finance.  In fact, universities such as Lynn University, University of Cincinnati, Kent State, Fairfield University, Scripps College and Texas State all are among the colleges offering courses in personal finance and money-management.  However, some universities have had some convenient relationships with credit card companies which seem at odds with teaching fiscal responsibility.

New York Times recently featured a story about how colleges profit from marketing credit cards to their students.  Michigan State University came under fire as it was noted that they allowed Bank of America to offer advertising items to their students to sign up for banking and credit services.  In fact, according that the New York Times (2008) “Bank America’s relationship with the university extends well beyond marketing at sports events.  The bank has $8.4 million, seven-year contract with Michigan State giving it access to the students’ names and addresses and use of the university’s logo.  The more students who take the banks’ credit cards, the more money the university gets.  Under certain circumstances, Michigan State even stands to receive more money if students carry a balance on these cards.”

If we step back to look at our children’s personal finance education even before college, it is interesting to check out the National Standards (2007) in K-12 personal finance education.  The standards define financial literacy as “the ability to use knowledge and skills to manage one’s financial resources effectively for life time financial security”.  The standards include areas such as financial responsibility, planning and money management, credit card and debt, as well as saving and investing.  Some of the 12th grade goals include having the ability to “analyze how economic, social-cultural, and political conditions can affect income and career potential” as well as “explain the effect on take-home pay of changing the allowances claimed on an employee’s withholding allowance certificate (IRS form W-4).  What they don’t really cover is how much time they are devoting to these topics.

 

The National Standards are created by the JumpStart Coalition for Personal Financial Literacy in Washington, DC.

There are educators and organizations set up that are trying to do something about educating our youth.  The DuPont Fund is one of these organizations. In 2008 this organization created a presentation to increase awareness of the lack of financial literacy.  In that program, the author addressed the areas that required attention.  “There are three parts to a successful financial literacy education program. (1) Quality Financial Education Products (2) Qualified and Trained Financial Educators (3) Evaluation Program in Place to Measure Results” (Lindfield, 2009).  If we do not have quality financial education products, then we are limiting the educators’ ability to reach this group of students.

FROM A YOUTH’S PERSPECTIVE

Having two grown daughters and after teaching for 6 different universities online, I personally have not found too many students who can meet many of the required standards.  If we have set guidelines for what seems to be admirable goals in educating our youth, why haven’t the graduating high school and college seniors learned these important lessons?  There are several reasons.  These schools may only be devoting a small amount of time to very important topics.  It is also quite possible that personal finance is the last thing on their minds while attending school.  They can’t even relate to it yet.  Lastly, when and if they actually do receive personal finance training, it is usually in a format that is hard for them to digest.

Many financial websites like Charles Schwab’s have some interesting statistics on how our youth view the importance of personal finance training. “Among the ideas tested, young people believe providing incentives for states to mandate financial education in schools is the most important step the Obama Administration can take to improve financial literacy.” (Schwab, 2009).  In fact, studies are showing that facing future demands without a financial education is a source of serious concern for young adults.  “Seven in 10 (71%) are “very concerned” about the country’s economic future. More than half (53%) are “very concerned” about their personal financial future” (Schwab, 2009).

The US Census Bureau (2009) predicts there will be 18.4 million college students this fall.

Part of the problem with educating our youth about personal finance is that books on the subject are written in an unfriendly or boring manner.  Even the books that are aimed at a young audience can be in question and answer format or simply read like text books.  When something is so far-removed from what they deal with on a daily basis as personal finance is in those early years, it must be taught in a way that allows young people to picture themselves in situations that they could relate to. It’s critical to sell them on the idea of the importance of understanding personal finance.

Having been in sales for over 25 years, I learned many tricks for things to do to “sell my point” so that customers would want my solution.  When I was in pharmaceutical sales, part of my sales training was to paint a picture in the doctor’s mind. If our youth is taught personal finance through picture painting or storytelling, perhaps they will learn more. Techniques like placing images in their heads are important for the person to get the point you are trying to get across.  If I told the doctor to prescribe my drugs because they were good, I got nowhere (this is what the traditional personal finance book does).  If I told them that their patient would be calling them at midnight complaining about migraines or inability to breathe if he didn’t prescribe my drugs, then he had a picture and more reason to do it because he didn’t want to be disturbed in the middle of the night. We need to paint the picture of why personal finance is important in students’ minds.

It is important to get the message of personal finance responsibility in front of the next generation so that they don’t end up the way previous generations are now, having to file bankruptcy or losing their homes.  By targeting our high school and college students with education that delivers the message in a picture-painted storytelling format to explain the importance of personal finance, perhaps the next generation will avoid the tragedies that we are all dealing with now.  To do this, we need to focus on creating educational materials that are delivering the message in a way that allows us to meet the standards that we have set for our youth.

FROM A POLITICAL PERSPECTIVE

Every day there is another article or news story about families facing foreclosures or bankruptcy.  According to Realty Trac there were more than 3.1 million foreclosures filed in 2008.   Even if people were able to keep their homes, suddenly they are upside down, owing more than it is worth.  We have over 3.5 million homeless people in the US.  If we are fortunate enough to still have a job . . . that may be all we have.  Those of us who had our retirement savings in a 401k are now wondering what we will do when we retire.  As we watch our life savings dwindle away with the falling stock market, shouldn’t we be thinking about how we got here and how we could have avoided this in the first place?

 

RealtyTrac (2009) data shows a steep include in foreclosure activity.

There are foundations and coalitions that focus their attention on such issues.  The New America Foundation addresses challenges facing future generations. Their site has had articles addressing the importance of utilizing what we have learned throughout this crisis to teach our youth.  “Such moments of financial trouble are teachable opportunities for children and youth to learn about personal finance, and to improve their own money management skills.  However, comprehensive strategies for educating children and youth about personal finance so that they can successfully navigate a complex financial market place have not yet emerged.” (Lopez-Fernandini & Murrell, 2008).

The problem is that changing the education system is no easy task.  Proposals must be made.  Money must be spent.  I recently sent a letter to Arne Duncan with the U. S. Department of Education, explaining my concern about the current lack of personal finance education for our youth. I explained I would like to propose a solution.  What did I get back?  I received a form letter commending my interest in education but politely stating that I should check out the Excellence in Economic Education (EEC, 2009) program already in place.  At the site, you can download current information about national programs currently in place.  According to the EEC, there was $1,447,267 worth of appropriations available for 2008 allotted to personal finance education.  Making grants available is a good start. But what about addressing the problems in the school’s curriculum?

Obviously the current programs are not working.  If we are not open to looking at alternative solutions to our current lack of education our children are receiving, aren’t we doomed to repeat our past mistakes?  I realize the government has its hands full with the current crisis.  However, our government may need to learn from its past mistakes.  Isn’t the definition of insanity doing the same thing over and over and expecting a different result?  By not addressing the problems within our educational system, we are doomed to repeat our past mistakes.

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Top 5 Things to Know to be a Successful Entrepreneur

The typical entrepreneurial personality has the drive and ambition for success.  Like anything in life, though, it is always harder to do something the very first time.  This can discourage many new entrepreneurs from taking that initial leap and to start their own business. 

I teach several entrepreneurial courses and have put together some important articles that I recommend to my students.  The following list contains many of these articles and some of the most important things that entrepreneurs should do in order to be successful:

  1. Read Success Stories and Attend Lectures:  An excellent way to be inspired and learn from other entrepreneurs is to read their success stories.  Onlineuniversities.com recently came up with a list of 20 Biographies Every Serious Entrepreneur Should Read.  These books include important success stories from Ben Franklin to Sam Walton.  Another very important article to read is:  50 Excellent Lectures for Small Business Owners.
  2. Learn the Truth About Failure:  Many entrepreneurs are stalled in their pursuit of success due to their fear of failure.  Even some of the most famous entrepreneurs met with failure before success.  To find out more about this, check out:  50 Famous People Who Failed Before Becoming Successful. Also see:  Famous Business Failures: Is it as Gloomy as it Sounds? Also see:  10 Famous Product Failures and the Advertisements That Did Not Sell Them.
  3. Learn the Truth About Finances Required:  Not all entrepreneurs come from wealthy families.  It can be challenging to come up with the funds required to begin a business.  Find out how some very famous entrepreneurs became successful in the article:  Famous Entrepreneurs Who Hit it Big With Humble Beginnings.
  4. Learn How Women Have Become Successful Entrepreneurs:  Some very successful entrepreneurs have been women.  Check out:  Most Inspiring Entrepreneurial Women.
  5. Learn How to Network:  One of the best ways to get a product or company known is through social media.  Part of an entrepreneur’s success is through finding their customers and their niche.  Check out:  5 Top Networking Tips for Small Businesses.

Once an entrepreneur has developed a strong idea of the direction they want to take, they need to work on their feasibility study.  Investors will want to see this to be sure that their idea is sound. Another important aspect of creating their new business is deciding on a vision and mission statement.  Check out The Top 10 Mission Statements in 2011. Once an entrepreneur has received enough funds to get their new business off the ground, they may want to consider whether or not to go IPO.  Many companies like Facebook have waited and not gone this traditional route.  Find out Why Companies Are Not Going IPO due to fear of the past dot com crash.

Famous Entrepreneurs Who Hit it Big With Humble Beginnings

 

The movie The Social Network showcased Mark Zuckerberg’s ability to create an enormous business from seemingly nothing.  Not all entrepreneurs have been accepted to Harvard like Mark Zuckerberg or Bill Gates to hit it big. However, having the intelligence to get there doesn’t hurt.

I grew up next door to a very smart man who worked his way through a state college and started a little company with $5000.  That man was Leonard (Sam) Shoen who created U-Haul by asking gas station owners to let him rent trucks from their lots.  Amerco is now the parent of U-Haul and is a far cry from the corner gas station beginnings.

There are plenty of Leonard Shoen and Sam Walton stories out there.  Accountingdegree.com recently published a list of 10 big businesses that got started in a garage including: 

  1. Apple
  2. Google
  3. Mattel
  4. HP
  5. Amazon
  6. Disney
  7. Microsoft
  8. MagLite
  9. Yankee Candle Company
  10. Harley Davidson

For more detail regarding how each of these companies got started, you can click on each individual company or read the article by clicking here.

To see Steve Jobs’ Commencement Speech at Stanford explaining how he started Apple watch the following video:

 

Is Your Target Date 401k Fund Not As Safe As You Thought?

TARGET

Target date funds have become a very popular way for people to invest in their 401k. Target-dated funds are mutual funds that automatically adjust the asset mix of stocks, bonds and cash usually based on the investor’s future retirement date.  There are a lot of people out there that don’t want to take time to think about if they are invested in the right balance of stocks and bonds.  Target date funds take care of this balancing act for them.  As people get closer to retirement age, they have less time to weather the ups and downs of the stock market.  Because of this, as retirement draws near, these funds have traditionally been adjusted to be in less risky investments.  Bonds have often been considered less risky at times than stocks and therefore the closer the target date, the more these funds may tend to be heavily bond-loaded than stock-loaded. 

Recently there has been some debate as to whether these target date funds have a hidden risk.  As the market has become more volatile, some fund managers have been moving toward more bond funds. According to WSJOnline.com “Of the 45 funds with a target date of 2016 to 2020 tracked by investment-research firm Morningstar Inc., the average has about 32% in bonds and about 58% in stocks—up from 25% in bonds and 67% in equities three years ago.”

The concern is that there is debate as to the safety of these bond funds and that this move could actually cause more risk.  Some experts believe that the bond market may be headed for trouble.

For an interesting discussion of how the different fund managers perceive this to be a possibility, check out the Wall Street Journal article:  Hidden Risks in Target Funds

Retired for Hire: More Seniors Working, Shopping, Donating and Spending

 

A report released last week from Scarborough.com showed in 2010 that 6.2 million people over 65 are working. This group has been referred to as the Retired for Hire. Many of these workers are not in dire financial straits either. In fact this report showed, “Adults over the age of 65 who are still working full-time or part-time are slightly more likely than the average adult to have an annual household income of $150K or more.”

This report has some interesting profile information about this group including:

  • They were financially in good shape with an average income over $150K
  • Of those working, 57% worked part time and 43% worked full time
  • 22% of them shopped at Wal-Mart in past 3 months
  • They were 30% more likely to donate to green causes
  • They were avid patrons of the arts
  • They were 92% more likely to have donated to political organizations
  • They were just as likely as the normal population to go to the gym
  • 48% of them were into gardening
  • Their use of HDTV’s is up 150%
  • 80% had desktop computers
  • They were more likely to spend money on home improvements
  • 41% made a purchase at Home Depot in the last year

Scarborough concluded, “The 6.2 million adults working past retirement age in America tend to be financially sound, with robust investment portfolios and higher than average incomes. This suggests that financial service providers such as banks, investment firms and personal services such as accounting firms and financial planners have a robust marketing target in Retired for Hire.”

401K Reinrollment: Why Your Money May Be Put Into Target-Dated Funds

Target-dated funds are mutual funds that automatically adjust the asset mix of stocks, bonds and cash usually based on the investor’s future retirement date.  Companies have been offering these options for their employees for many years.  Some companies are now even having employees have to acknowledge if they don’t want to have their money put into target-dated funds.

In the hope of helping employees keep their money safe, companies are stepping in and trying to control where they hold their retirement funds.  Employees can continue to choose from their company’s listed fund choices, but if they don’t opt out of the target-dated funds, their money may just be moved for them.

For those people who don’t want to hassle with choices and watching their funds, this may be a good choice.  For those who are more financially savvy, the target-dated funds may not appeal to them; they may prefer to have control over their investments.

There are pros and cons to using target-dated funds based on gender, age and risk tolerance.  For more information about target-dated funds and employers utilizing them, check out a recent article by the Wall Street Journal by clicking here.

LinkedIn IPO May Be Sooner Than You Think

LinkedIn has already completed the first step in the IPO process.  With over 90 million members in over 200 countries and an estimated worth of $2 billion, its growth is undeniable. All Things Digital reported, “LinkedIn, the online business networking site, is likely to file regulatory documents for an initial public offering as early as today, according to sources close to the situation.”

Linkedin may not be the only big name going IPO soon.  According to All Things Digital, “LinkedIn’s entry into the public market is one that many expect will be followed by other Internet firms in the coming year, including Zynga, Chegg and, most anticipated of all, Facebook.”