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The trouble with solar energy

Clean, renewable, sustainable: what’s not to love?

Solar power in the U.S. has grown primarily trough the use of tax subsidy programs. Yet even after decades of  these socially expensive tax credits solar power amounts to only about 1% of the energy we use today. Over the next ten years solar power is expected to grow by a factor of 10 but most of that growth will b outside of the U.S. in less developed countries not already served by an adequate power grid.

I became aware of the economic problem with solar industry a few years ago when I requested a quote on a system on behalf of a non-profit client. None of the local solar companies would even bid on the project. They knew that without the potential tax benefits, there was no way to justify the cost of the project based on the energy that would be produced. In other words, from an economic perspective, solar is an industry that exists only because of the artificial tax subsidy that we’ve created to help bolster it.

Since then, I’ve become aware of situations where the tax benefit was over-sold by solar sales representatives doubling as tax advisers. The fact is that many people do not fully benefit from the tax credit. Yet far to many gullible people have purchased solar power systems based on the sales presentation without a true understanding of the tax laws that govern energy credits.

Yesterday I read a social media post by another accountant that inspired this blog post: “Solar salesmen, in my opinion, are the new snake oil sellers of the 21st Century.” It’s bad enough that solar power is really expensive if you understand the economics. But having an industry committed to twisting the truth for its own gain puts a real blemish on solar energy.

Even as a business person with a deep commitment to environmental sustainability, I can not endorse the capital expenditures of most solar power proposals in light of so many alternative projects more worthy of funding.

More on disappearance of book-to-tax accounting feature

I’ve been involved in some online discussions as to why Intuit apparently introduced this book-to-tax feature after I completed my tax filing last year but then removed the feature when I needed it this year! Intuit gave no explanation either online or when I called except to sat that it will be re-introduced after the end of tax season this year. I am left baffled by what value a tax software has that is only available outside of tax filing season. It seems so crazy that perhaps I’m misunderstanding something?

Here is a copy of the original e-mail advertisement in 2014:

Memo Style book-to-tax_Page_1

How to fix your small business 401(k)

This week President Obama’s administration gave a strong endorsement of the Department of Labor’s plan to impose fiduciary obligations on investment brokers and advisors working with retirement plans. The controversial proposal is based on a belief that new rules are a needed consumer protection to prevent billions in costs due to bad advice. Most consumer advocates support the proposal. My firm Freedom Benefits opposes the action not because we disagree with the intent but rather because the side-effects of the “cure” are likely to be worse than the current symptoms. As a result of the media play, investors and employers who sponsor 401(k) plans are taking a second look at their plans to see if there is room for improvement.

Where does all of this leave you with your 401(k) plan? Employers and investors who followed the news might well be left with the impression that their 401(k) plan is a disaster that needs to be addressed immediately. If you want to consider the subject further, consider these three basic points:

1) Find disinterested advice. Use of the terms “conflicted advice” and “unconflicted advice” as used this week to describe advice  in this context and discussion might not actually be useful in helping you decide if you should take any action or make any change. If you are going to get advice it needs to be from someone who does not make a living in the retirement plan market. 401(k)s are complicated and the service contracts are often difficult to understand so third-party advice may be warranted. But make sure that advice comes from someone who does not have a role in the sales, investment management or administration of 401(k) plans.

2) Pay attention to bundling. A 401(k) plan is actually a collection of financial services that are bundled together. Legal services, enrollment, investment management, customer service, sales, electronic banking transactions and tax return preparation are just some of the components of a 401(k). It is possible, but not always practical, to un-bundle those services and reduce fees and/or increase performance. I prefer to use the term “re-bundling” as descriptive of the way to investigate ways to achieve these goals. It may or may not make sense to do so, depending on your own unique experience and requirements.

3) If it’s not broke, don’t fix it. Don’t be unduly influenced by the media coverage this week that implies something is wrong with your 401(k). If you like your plan service and investment choices then there is no reason to think that it is a rip-off just because of the wording of Treasury Department press releases. Your current plan’s cost structure may well turn out to be the lowest cost bid that provides an acceptable level of service and performance.

 

Why Freedom Benefits opposes Obama’s retail investing reform

Today’s Wall Street Journal carries a sharp criticism of President Obama’s plan to reform retail investing. The piece called “Obama vs. Savers” highlights the restrictions that the proposal will place on investors.  Since Freedom Benefits is focused on consumer education and charges neither commissions nor asset-based investment management fees, you would think that we support the proposed legislation. The bulk of social policy advisers we respect and follow on social media do support the President on this reform initiative. If the only intent of the reform is to take aim at broker’s commissions, then why would we be opposed? Certainly the President’s proposal has the potential to boost business for the relative handful of consumer financial advisory firms (like ours and other CPAs) that do not follow the two traditional compensation models that dominate retail financial services.

Freedom Benefits has always supported free market options that allow more consumer choice and promote higher level of consumer education. The Obama plan seems to concede that consumers can’t possibly match the wit and wiley of financial services firms to extort money so the government needs to protect them. It is a defeatist attitude.

There are two other more significant problems with Obama’s thinking:

1) everyone associated with investment service gets paid for their work in one form or another regardless of the rules or business model. There is no compelling case to show that one model is better than another. 

2) I can’t cite a single example of when increased government regulation has actually had a net benefit for consumers. The unintended side-effects of regulation would almost certainly outweigh the intended benefits.

In this case, Obama would be best advised to follow the decisively non-executive Buddhist mantra “Don’t do something, just sit there“. 

No tax penalties for Healthcare.gov customers given wrong information

Yesterday the Department of Treasury issued a press release saying that the IRS announced that it will not penalize taxpayers who filed taxes based on incorrect reporting information from the federal health insurance exchange. That’s mighty kind of them. Read more…

Insight into Facebook as a small business social media tool

Here is an insight I picked up this weekend about Facebook’s small business media distribution policy:

One of my Facebook friends Laura Jane Hawley recently posted two announcements a few days apart about her business’ participation in a local home show. Both post included interesting photos and a brief one line mention about the show. One post was made just before the show and the other during the show. I might have attended as a local homeowner if I had known of the show (the presumed reason for the social media post!). But both posts were ignored by Facebook and did not make it to my news feed. I noticed them while doing some digging afterward. In contrast, a post she made in between the two dates about the Contractor of The Year award did make it to my news feed – along with dozens of other people’s pet videos over the weekend. This message that made it through Facebook filters might have included a phrase “…while I’m at the home show this weekend…” but it did not.

The point of this, I think, is that we all have a lot more to learn and consider about Facebook as a small business social media tool. We could continue to draw out some inferences about what works, what doesn’t work but that would really be speculation. The important point is that we need to give more consideration to the issue.

Looking at these posts in retrospect, I suspect that they might have received wider distribution if not linked to the URL to the home show web site. Trade shows like this are an obvious potential source of advertising revenue for Facebook and I can understand their policy deliberately depreciated posts linking to it. If you think about it, there were likely hundreds or thousands of posts promoting the same URL on the same days so Facebook did not need any of its genius to design the logarithm for that filter.

Beyond that specific observation, I think that we just need to pay attention to the distribution statistics about what’s working / what’s not working with our small business social media posts.

The lesson to be learned here is that we should experiment, mix it up, pay attention to distribution stats in real time, and don’t be afraid to try something different, unconventional, and contrary to what seems to be the “normal” way of handling social media posts.

Five Things I’ve Learned From Tax Preparers

Last month I joined an online discussion group of tax preparers. My past experience is that every online discussion group has its own personality and you don’t know the tone of the group until you really get involved. This is my first year preparing tax returns after being completely out of the field for 9 years. The online group has turned out to be great for me and I’ve already learned far more than I had ever hoped. Yet in these areas listed below I’ve learned surprising things that are quite different than what I expected.

 1) Preparers share a huge amount of practical how-to information packaged in short online tidbits. The volume of useful information is tremendous. My background is mostly in tax planning and much has changed since I last prepared tax returns nine years ago. So this is an invaluable wealth of information that I need to fill in all the little holes in my understanding of tax practice. At the same time, there are also errors visible and shared online. We all make them.

2) Professional competence is a fluid concept. Obviously, like in any profession, the group encompasses individuals representing a wide range in competence, experience, education and professionalism. Yet I’m surprised to learn that a preparer can easily be an expert in one topic on one day and incompetent on another topic on a different day. The complexity of the subject matter is usually blamed. Yet I suspect that the distorting impact of human pressures, stress and pressures also plays a huge role in the variance.

3) Tax preparers are stingy with their free time offered to the public. I presume that most earn more than I do and I suppose that is one of the reasons why. I tend to offer anyone a free online support and offer CPAs and attorneys free telephone consults. I do this on a daily basis. In fact, I estimate that I’ve given 30,000+ bits of free advice since the early 1980s. Maybe it is time to reconsider.

4) Many tax preparers consider themselves to be finders of fact. When I do tax work, my auditor hat is hung at the door. I’m quite familiar with the professional standards of the AICPA and the IRS with regard to diligence as to accuracy and it is quite clear that many preparers have a very different interpretation than mine. I wonder if it is the background and education. My law school education in taxation often makes me the odd duck in a group discussion. The main point is that if a preparer believes that he/she needs more information then it would be improper to not seek it, so they are exactly correct in their position. But if I am satisfied that the information or estimate presented by the client is reasonable then there is no obligation to do more fact-finding. So I’m likewise exactly correct in my position. It’s been quite a surprising experience reading how differently they approach the work.

5) Tax preparers deal with the general public. I tend to think that I do, but I really do not. They made me realize this. Their stories about clients coming into the office yelling, smelling of pot or shopping for a larger refund are all things that I’ve never experienced.  Dealing with these wild and unpredictable issues on a daily basis is an impressive professional skill all by itself. While I like to think of my clients as “ordinary folks” I now realize that I’m only dealing with a narrow segment of a quite filtered population. I suppose that I should just acknowledge that Philadelphia’s Main Line is demographically distinct from many other parts of the U.S. and that I’m secretly grateful for this.

Surveys conducted more than a decade ago showed that it you go to the offices of six different tax preparers you will leave with six different tax returns and six different tax totals due. A 2008 study by the Department of the Treasury of simple tax returns found that only 39 percent of professionally prepared tax returns showed the correct tax calculation. The variance in tax results between preparers in the test was almost $6,000. In 2014 a similar “mystery shopper” type study by the Consumer Federation found that only 11% of simple tax returns were prepared correctly and showed the correct tax due and the rest had some type of preparer error or misinterpretation of the facts. Most of the difference is attributed to our ridiculously complex tax laws. My recent experience makes me realize that the difference in individual tax preparers plays a larger role than I had formerly recognized.

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