Replacing UV Bulb in an AC Unit Yourself

SAVE HUNDREDS OF DOLLARS!!!!!!

Many homeowners have Ultraviolet light installed near their AC coil. These are supposed to destroy microbes like mold, bacteria, fungi, mildew, mold spores and viruses in the line-of-sight of the UV bulb. These bulbs can be purchased in 1 or 2 year models, their life expediency. When their life cycle expires they may continue to shine their blue light, but they quickly loose their effectiveness. 

I had 2 new complete zone AC systems installed 2 years ago. When they installed the air handling components I had them put in these UV lights.  It was now time to replace the bulbs. On my last service visit I had the company quote the price to replace these bulbs, they quoted $260/ea x 2 = $520!

I found that I could buy the 2 OEM brand bulbs on line, 2 year model, for $229 total.

My system used Fresh-Aire TUVL-215P.

Installing them was a breeze, easily something you can do.

MY SAVINGS – $291!!!!!!!

Here is the step by step process. 

Step #1. Identify your air handler unit and outside UV bulb connector. My unit has a top access panel with 5 screws. The UV bulb device has a low-voltage connection, see the black in-line connector. If you purchase the correct model number the replacement connection will match right up.

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Step #2: Turn off AC unit and unplug the VU bulb connection wire from the old bulb, then remove the front cover to the AC unit.

Step #3: Unpack and protect the replacement bulb. My replacement bulb came in bubble wrap, so I used the bubble wrap to protect the bulb from finger prints and any oil/grease/dirt. They say if you touch these bulbs it could lessen the life expectancy. 

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Step #4: Remove the old bulb by taking off the screws/nuts holding the bulb in place. My bulbs had larger rubber nuts that were easy to spin off. After removing the nuts, just pull the old bulb assembly out of the air handling unit. 

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Step #5: Install the new UV bulb, reconnect the outside wire, replace the front metal cover and turn the AC unit back on.

YOU ARE DONE – SAVED MONEY TOO!!!!!

Guess Who Isn’t Getting a $1,200 Check – Your College Students and Others!

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We all know that the Economic Impact Payments will be giving us $1,200 per adult and parents get $500 for each dependent under age 17. (subject to income limits)
That leaves out anyone 18 and older, who can still be claimed as dependents on another person’s tax return.

A taxpayer is allowed to claim a full-time student between the ages of 19 and 24 as a dependent, so the parent will not get $500 for a college student, nor can the college student generally claim $1,200. Also anyone supporting adults with disabilities and elderly dependents also will not qualify for the additional $500 check!

Furthermore, the you have to have filed a tax return to get your $1,200. Many low income and senior citizens currently don’t file, they are not required to do so. The IRS is saying that they now have to file basic information to get their checks.

While on the topic of college students, I hope parents know how to get the maximum American Opportunity Credit by claiming the right “Qualified Educational Expenses” on their returns and letting the student show the most “scholarship income” on their returns

Did you change bank accounts since your last tax filing? If so the Treasury will build a web site to allow you to make this adjustment.

The IRS has a new web site dedicated to the details of the Coronavirus Tax Relief, https://www.irs.gov/coronavirus

 

NO RMD in 2020 – Little Known Benefit

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Among the good and bad provisions of the massive Coronavirus Aid, Relief, and Economic Security Act or CARES Act, are waivers for your 2020 required minimum distributions (RMD). Many people don’t need this money for day to day expenses, but they have to take it anyhow. 

Who Does This Apply To?

If you have to take a RMD in 2020 from any plan. for example a 401(k) or your IRA the new law says you no longer have to take it in 2020. Also included are beneficiaries, and including those who turned age 70 1/2 in 2019 and had to take their first RMD by April 1, 2020.

Benefits and An Interesting Strategy:

  1. As we all know our 2020 RMDs were sky high. Our 2020 RMDs were based on our retirement account values on December 31, 2019, when the Dow was over 28,000, now it is around 22,000. 
  2. When you take your RMD you pay income tax on it at the ordinary income rate and it increases the amount of your Social Security that is taxable and it can roll you into a higher tax bracket for dividends and capital gains. You get NO special tax treatment for RMD.
  3. STRATEGY – since you don’t have to take an RMD, you could decide to take advantage of this situation to do a ROTH conversion. First of all, any amount converted removes those funds from your IRA, lowering the balance that will be subject to your future RMD, therefore lowers your income and tax bill for future years. Secondly, once the funds are in your Roth IRA, they will become lifetime tax free. Your Roth will also pass income tax-free to your beneficiaries. Most importantly, converting now when market values have dropped will mean that any future rebound will now accumulate tax free to you in your Roth IRA. Which is better, price appreciation of a stock in an IRA or a ROTH? ROTH!!!!!!
  4. Yes, a ROTH conversion is taxable as ordinary income, just like a RMD! However, today we may be paying mush lower taxes that we will be in future years as we pay for all of this new government spending.

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Refinance Everything Immediately & a Fix for the China Problem

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Summary
Interest rates are so low that now is the time to refinance everything and deal with China! If you have any debt whatsoever refinance it now. This might be a once-in-a-lifetime opportunity.

–          Your home mortgage and all credit card debt

–          New methods for a mortgage/refinance – completely on-line

–          REFINANCE THE NATIONAL DEBT

–          Easy way to deal with China

Home mortgages with interest rates 4.5% or higher should be refinanced. The outright savings can be a few hundred dollars a month. Today in Florida you can get a 3.5% refinance rate.

Take a look at the following chart:
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This is why I say it is a life-time opportunity. I’m 71 years old and bought my 1st house in 1972 at the age of 24, I’ve never seen a 3.5% or lower interest rate. This is historic and won’t last forever.

Now, regarding credit cards and any type of loan, including student loan balances, pay them off.  These rates, in general, do not change. If you have equity built up in your home, refinance it and take out cash to pay off all higher interest rate loans/credit cards. Make sure you keep from ever running up expensive debt. Do not use the extra cash for vacations or just buying stuff. By doing this you will make a meaningful improvement to your cash flow and financial well-being.

New Mortgage Options. There are new companies that offer complete on-line low fee refinancing, the best known is Better.com. There are no commissions and have a very efficient process. When you apply online for the 3-minute basic pre-approval, they will ask for your social security number and do a secure “soft” credit check. This doesn’t affect your credit score in any way. They use your FICO Classic 04 credit score from Transunion. Knowing your credit score helps them make more accurate calculations about how much you can afford. If you have good credit and complete all of the requirements you can lock in your mortgage rate on the SAME DAY. It pays to check their site every day, the rates can change daily. Furthermore, with this new service you can close on a refinance easily within 30 days. They actually have a notary/real estate agent come to your house to sign all of the documents. No more meeting at some title company.

The Government should REFINANCE THE NATIONAL DEBT. The US currently has about $17 trillion in public debt. Doing this could save BILLIONS A MONTH. By “taking out new low interest loans” we can pay off our current liabilities. Right now the short-term bonds/notes are roughly the same as longer-term ones.

Here is the history of 10 year Treasury Notes:10 Year Yeild Chart.JPG

The US can issue very long dated bonds, like 50 or even 100 year bonds at low, locked in rates. Obviously, over the next 50+ years interest rates will rise again. The CBO estimates that for every percentage point reduction in interest rates the US would save about $1.7 trillion over a decade! This would be a huge debt reduction and pretty much painless to the economy.

Easy way to deal with China. There is a really easy way to deal with China, who holds the 2nd most US debt, just behind Japan. Many people are concerned because China owns over $1.11 trillion of US debt, 27% of the $4.1 trillion in Treasury bills, notes, and bonds held by foreign countries. I’m not worried at all. First of all, China cannot just demand payment, these notes/bonds have redemption terms, if it’s a 10 year note, you can have your money back in 10 years. Secondly, China can try and sell these notes/bonds on the open market, but they aren’t exactly fools. These older notes/bonds carry much higher interest rates vs today’s negative rates in most other parts of the world. Besides, China needs lots of US dollars in their foreign reserve account.

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HERE IS A SUGGESTION TO CHINA: Hi China, we’ll be calling all of our US debt that you hold, ever bit of it. No more 2 –  5% interest payments on that $1.1 trillion dollars. In addition, since you have been such a good trading partner with the US all of these years we’ll have our Treasury Dept print up a whole new batch of bills, just for you. We will save billions in interest payments, and it won’t cost us a single penny! You can take this $1.1 trillion and go buy negative yielding German Bunds!

 

To Stretch or Not To Stretch – A Real Problem

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Maybe you have worked all of your life to build a nice IRA to help fund your retirement. In addition, you have set-up an estate plan and trust to make sure your non-spouse loved ones are not just well taken care of, but enjoy the most tax-efficient flexibility possible.

Watch out, congress is trying to tax your IRA sooner vs. later. They are trying to change the rules for “stretch IRA’s”. On May 23, 2019, the US House passed legislation called Setting Every Community Up for Retirement Enhancement Act of 2019, or the SECURE Act.

Example of a Stretch IRA – Current Policy
A person is 70 years old, have a Traditional IRA valued at say $700,000, currently take a RMD (Required Minimum Distribution) and name a 30 year old relative as the beneficiary on their IRA. The RMD and subsequent income for tax purposes is based on their expected remaining life.

Under current tax provisions, if the person passed away today, the 30 year old relative would set-up a new “Inherited IRA” and begin taking RMD based on a life expectancy of 53.3 years (IRS tables). The 1st years distribution will be $13,133 ($700,000/53.3), the relative only pays income on the $13,133!! The Inherited IRA benefits from investments being tax deferred for 53 years, or the RMD is “stretched” over a much longer life span while taking out a much smaller RMD.

Proposed SECURE Act – Changing the RMD to 10 Years
Under the SECURE act Uncle Sam wants to collect their taxes sooner vs later and therefore will require the Inherited IRA to be liquidated in 10 years. Therefore, the annual RMD payment would be $70,000. Now, the relative may like the idea of receiving $70,000 a year, but this will probably toss them into a much higher tax bracket and could cause other unanticipated consequences. The elimination of a “stretch” is a huge disadvantage. Keep in mind that the deceased person probably has an entire estate of other assets that will get transferred to the relative beyond just an IRA. Could your 30-something relative hand this money? 

Eliminating the stretch IRA provisions will have a significant impact on many existing trusts that have been set-up to accommodate IRA retirement plans. Many such trusts allow the trustee to control distributions to the beneficiary based on the timing of RMDs, typically for the life expectancy of the beneficiary. If the SECURE Act is passed, the trustee could be required to distribute the account during the 10-years following the IRA owner’s death, or 10 years following a minor child beneficiary reaching the age of majority, losing the benefit of holding the funds in trust.

Don’t Worry About Your Spouse
The SECURE Act really doesn’t affect your spouse provided your spouse does some pretty simple things. For spouses, not only can they receive distributions based on their life expectancy, they may also “rollover” the inherited IRA into their own IRA, possibly delaying RMDs until the spouse reaches age 70½.

Let’s make sure our law makers don’t get greedy and try to raise our taxes by removing the “stretch IRA” provision!

Caveat: I am not a financial planner and there are many other details to consider in all of these decisions. Please seek help for a tax expert, attorney or certified tax planner before making decisions.

News I Just Love – Dividend Increases

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For those of us near or in retirement consistent, reliable cash flow is one of the very important components of our overall financial plan.

Our overall financial plan consists of 3 categories:

  • Emergency cash reserve (2 year)
  • Consistent and reliable income to “fill the gap”, the gap between our expenses and Social Security/Pensions – Your Cash Machine
  • Wealth building for future generations & charitable contributions

I am just delighted to see that some of my stocks are consistent payers and INCREASER’S of their dividends. Here are just 2 examples.

Realty Income Corporation (ticker symbol O)
I have held this REIT for many years. It pays a monthly dividend and the dividend increase announced this month is the 99th increase since the company went public 1994. Talking about consistency and reliability, they have made 582 consecutive monthly dividend payments, never missed a payment in over 48 years!

Dominion Energy (ticker symbol D)
This is a major public utility that is also active in renewable energy and LNG exporting. They just raised their dividend by 10%, this was already a 4% dividend before the increase. The “talking heads” say that utilities would get crushed by all of the “high interest rates”, but we know that as a long term income investor our utility picks will continue to pay us a healthy dividend.  So, how do we know this, well Dominion has increased it’s annual dividend for 16 consecutive years. Yes, that was even during the 2007-2009 financial crisis. 

When we follow our financial plan we just don’t need to worry about the short-term ups and downs in the stock market …. we are sleeping pretty well at night!

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Bitcoin, Uber & Your Taxes

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Many people flock to the ALT economy to get away from “big brother”, including the Tax Man. Where as some income in the “gig” economy may not be easily tracked for tax purposes, I can assure you that  Bitcoin and Uber are highly visible to the IRS.

Uber – Tax Reporting

Let’s deal with the easy one first, Uber (similar with Lyft), you need to pay taxes on a income generated being an Uber driver. You however can deduct your business expenses against that income.

The IRS requires that Uber provide a 1099-K for all drivers that meet BOTH of these criteria:
For settlement of third-party payment network transactions above the minimum reporting thresholds of, gross payments that exceed $20,000, AND more than 200 such transactions (rides) per year.

On the 1099-K, box 1a is the only number you need, it is your gross income and will need to be reported as business income on Schedule C. Please also note that any cash tips and “free lance” driving for a fee must also be reported as income. 
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What if you are an Uber driver but didn’t make 200 trips AND $20,000, they Uber will send you a 1099-Misc “box 7” form. The dreaded box 7 is called Non-Employee Compensation. All to gets reported on Schedule C, all under Part 1, Line 1 Gross Income.

The good news is that being an Uber driver is a business and as such you can deduct business expenses from you business income to determine a profit or loss. Uber provides their drives with a Tax Summary report each year that shows all the fees paid to Uber and the “on-trip” mileage. This however is just the mileage while you had a rider in your car. A smart Uber driver will track daily all mileage to pick up the first driver, mileage to get the next rider and mileage to get home after the last ride. The easiest way to handle Uber (business mileage) is to use the IRS standard mileage deduction of $0.545 per mile. If you take the standard mileage deduction you can’t also deduct gasoline, insurance or repairs. But you can add in tolls and parking. 

The net Profit or Loss on a business Schedule C goes directly to to your personal income tax form 1040. Keep in mind that Uber income is also subject to “self employment tax” of 15.3%. There is a 50% credit of this amount against your adjusted gross income, but you are still paying for social Security and Medicare. 

Bitcoin and Taxes

Tax on Bitcoin transactions is no different than the sale of any asset like stocks or property, you don’t have to report anything unless you SELL. Bitcoin record keeping is YOUR responsibility. It can be challenging , however if you use an exchange like Coinbase and stay within that exchange they will send you a “cost basis for taxes” report. 

Here is why it can get challenging. Let’s say, in January back you bought 10 bitcoins at the rate of $3,000 each, or may have received them as a payment for work you did for a client. Say, in May those bitcoins may have be worth $15,000 each, putting your potential profit at $12,000 per coin in May. 

It is your responsibility to have the necessary records showing that you received them at the time when they were worth $3,000, and your net income is $12,000 per coin. Failing to maintain such transaction information and documents may lead to your holdings being assessed at an even higher , significantly increasing your taxes. 

Here are some general rules for Bitcoins:

  • If bitcoins are received as payment for  goods or services, the holding period does not matter. They are taxed, and should be reported, as ordinary income. 
  • If bitcoins are received from mining, it is treated as ordinary income in the year earned. Additionally, there could be a self-employment tax to be paid on such earnings.
  • If Bitcoins or any cryptocoins are received from a “hard fork” it too is treated as ordinary income.
  • However, if bitcoins are bought as an investment and sold at a profit, the treatment of such income depends on the holding period. If held for less than a year, it is treated as ordinary income. If held for more than a year, it is treated as capital gains or loss, like any other stock.

Bitcoin tip, if you have substantial losses in Bitcoins now might might be a good time to cut your losses and sell some. These losses can help offset other capital gains. Also remember that the maximum loss reported in one year is limited to $3,000 (net), but you can carry-forward capital losses for many years to come. 

Duke Power “FixedBill” – Deal or No Deal?

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This month I received a flyer from Duke Power offering a FixedBill program, get a fixed billing amount for the next 12 months. Sounds good right?

Maybe not!

Here is what I’ve determined:

  1. I have to give up my current Budget Billing plan costing $235/mo.
  2. The new FixedBill costs $277/mo + state and local taxes and “other service charges”.
  3. The state and local taxes and “other service charges” I currently pay in my $235/mo amount is $14.26
  4. I calculated my additional charges under FixedBill at about $15/mo.
  5. This brings my FixedBill total to $292/mo.
  6. I can opt-out of the program before the 12 months are up but I would have to pay them back any overage, BUT I would NOT get any credit for under usage.
  7. After 12 months I’m automatically renewed for another 12 months unless I contact them and opt-out.
  8. The FixedBill amount includes a “Risk Adder not to exceed 6% and a Usage Adder will be between 4 – 6%.
  9. There is no incentive during the year to conserve energy! We are already paying about $0.13 per KWH (net)!
  10. My monthly electric bill will go up $57. Next year rate would be based on this year PLUS Risk Adder and Usage Adder

Overall, I don’t see anything but a benefit to Duke Power who will get an additional $57/mo. from me (as I calculated it).

Current Bill   $277/mo

FlexBill Bill   $292/mo

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I don’t think I’ll be signing up for this program!

The Stock Price Never Moved & I Doubled My Investment

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Would you buy a stock and keep it for 10 years if its price was flat as a pancake? I did and I doubled my investment! How is that possible? It’s the power of compounding dividends.

First look at this chart, this stock hasn’t moved more than $1.00 in the last 6 years, and it is almost the same price today as what I bought it for mid-2008. I bought it at $24.85 and sold it this week at $25.40. I only sold it because Barclay’s “called” the stock, requiring all the shareholders to turn in their shares for $25/share.

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This is an excellent example of a “preferred stock” that is in my IRA “Cash Flow Machine”. It pays a 8.13% dividend at $2.03/year. It trades under the symbol BCSPRD (Fidelity) you can look it up on Yahoo Finance under BCS-PD.  Barclays Bank is a UK based and worldwide financial powerhouse. It carries a S&P BB rating (not bad at all). Typically preferred stocks are priced at $25/share.

At 8.13% dividend rate, you will double your investment every 9 years by just re-investing your dividends each quarter.  This is without the stock changing price. The chart above shows the benefits of compounding, reinvested dividends for a $50,000 investment over 10 years.

For those of us who need a well balanced portfolio and are always looking for non-volatile stocks preferred stocks are a great choice.

Here are my current Preferred Stock holdings, they make up about 16% of my IRA “Cash Flow Machine”.

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Hurry Up Get That Divorce & Other Year End Tax Tips

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There are major changes coming to tax payers both this year and beginning in 2019. Here are a few things you need to know.

Divorce – Alimony Rules Have a Big Change:
It’s bad enough suffering through a divorce (I have no personal experience) but beginning with divorce settlements finalized January 1, 2019 or later there are major changes to the tax law. The alimony payer (mostly men), can no longer deduct alimony paid on their taxes. AND, recipients (mostly women) of alimony payments will no longer have to declare the payments as income.  This is a huge tax differential that never existed before.

So if you are a man, you want to get the divorce finalized now and if you are a woman, probably not!

Self-Employed – Nice Boost:
Starting in 2018 if you are a small business owner, self-employed, independent contractor or “gig” employee you will get a new 20% federal tax deduction on your income. In other words if you were paying taxes on say $10,000 of income, or in the case of a LLC business Net Profit, under the new tax rules you will only pay tax on $8,000 of it! This falls under the new “pass-through” allowances that also apply to business such as a REIT, BDC or MLP. This is a pleasant surprise!

Stop Collecting Those Receipts:
For most people who collect and document all of their medical expenses for you year, you can probably stop now. The standard deduction is so high now, $24,000 (married filing jointly) and for us senior citizens it jumps to $26,600, we will most likely not be itemizing deductions ever again. Besides currently unreimbursed medical deductions must exceed 7.5% of your adjusted gross income to be counted, this jumps to 10% starting in 2019.

There are more year-end tax tips and I’ll cover them in a future article.