Tax software recommendations

I’m filing my taxes this year through a little-known company called FreeTaxUSA that I found out about through Bogleheads. It’s free to do federal filing (including itemized transactions, investments, and self employed income). Their business model is to give free federal returns and charge $13 for state. FreeTaxUSA properly handles backdoor Roth contributions (remember to enter IRA contributions first, then enter conversion info). I filled out my info at both FreeTaxUSA and TurboTax and got identical results.

My state offers a free e-file option if you fill it out directly on their website. It took me about 5-10 minutes to do so by extracting info directly from the 1040 produced by FreeTaxUSA. It probably wasn’t worth my time, but I like learning about the tax code so I actually enjoyed doing it. I got identical results at my state’s efile site as I did at FreeTaxUSA and TurboTax.

The above combination was easy enough that I see no reason to change it going forward in future years.

Had I not done backdoor Roth IRA Contributions this year, I probably would have simply filed my taxes at Credit Karma Tax, which does free federal + state in exchange for using your information to make targeted ads to you. Some people might be paranoid about the privacy here. Others may be skeptical of their ability to correctly calculate your tax liability. I think both fears are largely unjustified. The reason I avoided them is because I’ve read that they do not properly handle the backdoor roth transaction (at least in years past).

If you trust none of the above, I’d recommend purchasing a TurboTax CD at Costco or Amazon, which allows you to file up to 5 federal returns (the first state efile is free, though additional state efiles are separate). Then split the cost with friends/family.

If you happen to have moderate income or have a simple tax return, these two online versions of TurboTax are great:
https://turbotax.intuit.com/taxfreedom/ (must have < $33k AGI OR qualify for EITC)
https://turbotax.intuit.com/personal-taxes/online/free-edition.jsp (must make < $100k and have no investment income)

 

After all was said and done, my 2017 tax calculator ended up being $21 off from my final tax liability (in percentage terms, this is less than 0.1% off). Not too shabby for a spreadsheet monkey (who hates accounting) that reversed engineered the tax code for fun! As a reminder, the spreadsheet handles:
* AMT
* EITC
* CTC
* ACTC
* Investment income (dividends + cap gains)
* Mortgage interest
* Property tax
* Student loan interest
* Charitable contributions
* Medical expenses
* Standard vs itemized deductions

The spreadsheet does not handle:
* Saver’s credit
* Trad IRA deductibility phase out

Financial Update Jan 2018

Another month, another update. A few random comments.

Good Reads/Listens/Watches

  • PBS Frontline Report on the impending retirement crisis (link).
    • 55 minutes long, but this video should be required viewing for every American. I showed it to one of my classes this month which led to some great discussion.
    • It’s comical to see how incoherently financial services companies justify their fees. Their arguments are incredibly self serving and nonsensical relative to the cold hard logic presented by Bogle. To paraphrase the Bogle quote from memory “profits are great in most industries, but in this industry [financial services] it’s different.” It is Bogle’s belief (and mine) that investing returns belong to the investors, not the financial services industry. As Bogle explains, it is investors who bear the risk of their investments, so they should reap the rewards.
    • I am forever grateful to have invested dozens of hours in my early-mid 20s reading books from Bogle, Bogleheads, Richest Man in Babylon, Random Walk Down Wall Street. Given how compound interest works, these dozens of hours will have profited me hundreds of thousands of dollars over my lifetime.
      • I honestly have no idea how I found these books other than Google. I remember mymoneyblog.com being a great mentor in the early days.
  • Hour long interview with Charlie Munger, Warren Buffet’s closest business partner (link).
  • Some great one-paragraph biographies from Humans of New York. I love the succinct and varied cross section of humans that the blog captures (link1link2link3).
  • Anna White is best known for her DIY furniture YouTube videos (beds, shelving, etc). However, over the past year they’ve built their dream home in Fairbanks, Alaska from the ground up. It’s about done. Pretty incredible to see them throw that thing up (link).
  • Parents of 4 kids take their kids on 52-week road trip to visit 50 states (link). Rather that pure sightseeing, they usually connect with an interesting family in each state. They shadowed one family who foster parented 17 special needs kids (link), hung out with the Amish (link), etc. Pretty incredible experience.
  • Inspiring minimalist couple who lives almost full time out of a van highlights their past year (link). They did more last year than I’ve done my whole life. They are a fun couple to follow on Instagram.
    • I find it refreshing to learn from contrarians. So many of us plod through 70 years of life as mindless drones without thought as to how to live. Most of us will find the lives of contrarians to be nonsensical, but there are nuggets of wisdom to be learned from breaking out of the status quo.
    • Speaking of contrarian lifestyles, I find this tiny home YouTube channel on tiny homes to be interesting (link).
  • WSJ article on MoviePass (link).
    • Their business model appears to be the following: 1.) Charge users $10/month. 2.) Reimburse theaters full price for every movie their customers see. 3.) Hope that people won’t see more than 1 movie per month or the company goes bankrupt.
    • It seems to me that this is a deplorable business model. The only people who would sign up for the service are those that plan on going to a movie more than once per month.
    • If MoviePass goes belly up midway through our membership I’ll ask Costco for a refund.
    • It will be interesting to see how this thing unwinds. If I were a betting man, I would bet that it goes belly up in < 2Y.
  • Fascinating interview with Michael Dell, founder of Dell Computers:
  • TED radio hour: Can we trust the numbers (link)

 

Life

  • Started weight training with friend.
  • Met goal of climbing regularly.
    • Cleanly climbed first 5.11a in gym. Woot.
    • Need to start lead climbing soon.
  • Took a brief hiatus from bike commuting while temps dropped below 0°F. Resumed when temps rose to a balmy 25°F. I love my bike commute, which is some of my best multitasking (commuting + exercise + listening to podcasts). I love the dedicated bike trails in my city; one of my favorite parts about it.


Pedestrian underpass & drainage under major intersection. Drainage overflows some times and freezes over in winter. Nothing like biking through a foot of water, snow, or ice to get to work. $10 safety vest on Amazon to improve visability.


During the phd, I had a mountain bike with studded snow tires for snow riding (my little bro’s old high school bike). It rusted out after years of winter use so I dumped it during the move across the country. I’m now left with the single-speed fixed gear Craigslist special with 100psi road tires. It did okay on the bike trails, but was slower than I would have liked. $35 Bluetooth speaker is probably my favorite feature of the bike. $100 headlight is pretty useful in winter months.

Beautiful views of sunset along the bike trail.


View of traffic from pedestrian overpass. A daily reminder to me of how great bike commuting is and how miserable driving is. I love going safely over or under major intersections on the bike trail.

This month’s finances

  • The good:
    • Cashed out $500 credit card sign up bonus for BOA premium rewards.
      • BOA’s website sucks. Least friendly CC bill pay interface I’ve ever used. Still need to get autopay set up properly so I never have to visit the site again.
      • Successfully transferred $50k of VTSAX to Merrill Edge.
        • It turns out that you can hold (but not purchase) VTSAX outside of Vanguard, which is great (pic below). The caveat is that you can’t purchase VTSAX at Merrill Edge.
        • This gets me to “Platinum” status and halfway to “Platinum Honors” status at BOA.
          • This gets you juiced CC rewards + free trades if you’re into that sort of thing.
    • No mortgage payment this month since I prepaid in Dec 2017 due to tax hacking!!!!!
      • This was of the most liberating feelings I’ve ever experienced. We spent close to nothing this month as a result.
      • I can definitely see the merits to prepaying a mortgage. It is a huge stress relief to not have to worry about that.
        • Going forward, I still believe I’m going to prioritize taxable brokerage above mortgage repayment. Why? I think I can beat 2.875% in the market.
        • Further, keeping mortgage on the books and spreading equity purchases more smoothly over time is a way of mitigating “sequence of returns risk”.
    • Total spending of $2.8k was the lowest monthly spending in the past 1.5Y.
    • Successfully contested the $300 additional rental driver charge during car repair fiasco (hence negative net car expenditures this month).

  • The bad:
    • $150 asthma medication
    • Not much else.

Full version is downloadable here (link).

Footnotes:

  1. Don’t lend money to friends/family.
  2. I lazily approximate home value as my historical purchase price.
  3. I have a 15Y mortgage; which results in a faster rate of repayment. The true cost of the mortgage should exclude repayment of principal, which I show above.
  4. $20 internet and $0 cell phones as described here.
  5. All expenditures at Costco & Walmart are classified as “Food at home” for simplicity (even if it’s laundry detergent, clothing, etc).
  6. I prefer Vanguard funds but my employer offers Fidelity instead.
  7. Nobody knows the perfect asset allocation. Just pick one and run with it. Use a target date retirement fund as a benchmark if you want some guidance (link).
  8. My low portfolio expense ratio is the primary reason why I don’t hold target-date funds, which have expense ratios anywhere from 0.16% to 1%. I can achieve a much lower expense ratio on my own due to Admiral shares, etc. And it’s not hard. Plus, a DIY portfolio allows one to tax-loss-harvest more easily.
  9. ETF’s are a pain to own relative to holding index funds directly. You have to deal with bid-ask spreads as well as the inability to buy partial shares. With a simple index fund, you don’t have to deal with either of these issues. I am currently invested in VTI b/c it’s $10/year cheaper than VTSAX in my Saturna HSA.
  10. The one blight in my expense ratio analysis is my 529 plan. The underlying Vanguard fund is almost free to hold (0.02%), but the high administrative fees bring the total cost of holding the fund to 0.30%. I abhor fees and would likely avoid 529 plans if I didn’t get to deduct up to $10k of contributions per year on my state return, saving myself $700/year in state income taxes.
  11. The only other administrative cost not captured by my expense ratios is a $19/year administrative fee for my HSA at Saturna Capital ($15 per transaction + 4*$1/dividend reinvestment).

Disclaimer:
This site is for entertainment purposes only, as disclosed here: https://www.frugalprofessor.com/disclaimers/

Aldi vs Costco vs Walmart

Some of my favorite bloggers have written about groceries in the past:

  • Mr Money Mustache (link)
  • Justin at Root of Good (link)

Mr Money Mustache concludes that Costco is great. Justin at Root of Good concludes Costco is for chumps and that WalMart prevails as low cost leader (with Aldi to supplement).

Justin is as smart of an individual as I’ve seen on the internet and one of my favorite bloggers. When he comes to a conclusion that contradicts my priors, I step back and wonder where I’ve gone wrong. Ever since reading that article of his a couple months ago I’ve been dying to know whether my intuition was correct (that Costco was a good deal) or whether Justin was correct.

What further sparked my curiosity is that I’ve heard many people rave about Aldi recently, the peculiar German grocer known for charging its customers for bags and requiring a 25 cent deposit in order to use a grocery cart. In particular, my brother told me a few days ago that he and is wife are dropping Costco in favor of Aldi because they didn’t find Costco to be a particularly good deal (and it’s located 8 miles from their house while Aldi is much closer). Further, the folks at ChooseFI have raved about Aldi. They’re smart dudes, so I used this activity as an excuse to take my first trip to Aldi.

My wife was kind enough to accompany me on this experiment. It was a fun date.

I forgot to take a picture at Aldi, but here is a picture of their shopping carts. You push your cart through the store with the chain dangling like that, as if you have just broken out of prison.

 

Distance from home:

Costco: 0.3 miles (though in four previous states we’d drive up to 15 miles)
Walmart: 1.6 miles
Aldi: 2.2 miles

 

First impressions:

Costco: Home, sweet home. Love the organized chaos, the samples, the cleanliness, and the friendly employees. Shoppers appear high income. Store definitely caters to the wealthy with high end furniture, electronics, clothing, etc. Gotta love the juxtaposition of the luxury ($150k diamond ring) alongside the $1.50 hot dog & soda.

Walmart: Put a bullet in my head this place is depressing. A low frequency humming in the HVAC system almost drove me insane. The act of pulling into the parking lot made my soul hurt. Shoppers appeared incredibly downtrodden and unhappy. The cashier was friendly, the saving grace of our trip.

Aldi: At first, I saw the carts outside and thought I could take one for free. There wasn’t a security guard watching them and they appeared to be free to take despite the rumors of the 25 cent deposit. Then I saw the comical red chain on the handle. The store is TINY, which is good and bad. Good in that you can get in and out easily. Bad because their isn’t much variety, and bottlenecks caused by other shoppers are really common due to the tiny aisles. The clientele appeared really happy. What in the world is with their random retail aisle? I have never seen a more random assortment of products in my life.

 

Methodology:

We chose generics when available (sometimes not available at Costco). We chose products we buy often (we’re mostly vegetarian so few meat prices). We chose non-organic when possible, though Costco is making this increasingly hard to do. We chose largest quantity at each store to minimize the price per unit. This was a non-issue at Aldi and Costco whose sizes are small and gigantic, respectively. With Walmart it mattered, and unsurprisingly the unit price was always considerably lower for the larger size. I marvel that people ever choose the smaller size with the significantly higher unit price. Brings back memories to when I was a young kid and would calculate the unit price of grocery items while my mother grocery shopped back before it was formally calculated for you.

 

Calculations:

Price per unit is shown in first three columns. Yellow highlighting indicates organic (non-organic option not available). Next three columns calculate the % over the lowest price. Green cells are those within 7.5% of the minimum. Red cells are those more than 20% of the minimum.

 

Results:

Excel file downloadable here (link):

 

Conclusion:

To me, the math says that Costco reigns supreme victor for the type of shopping we do (healthy-ish + bulk). Costco primarily lost to the other two primarily when it only offered organic while its competitors didn’t. However, I was pretty impressed by Aldi. It was a formidable opponent to Costco in produce & canned products. But Costco dominates Aldi in the nut department, grains, and cheese. Produce & dairy (milk/butter) wise they were pretty comparable. I will probably buy salmon from them from now on, which is probably the only actionable change resulting from today.

Walmart is hell on earth. But we brave the inferno a few times per year to stock up on unsweetened applesauce, whole wheat pasta, and non-organic tomato stuff. We usually buy the entirety of their inventory in these items every time we go to minimize our time in that store. I chuckled at the signage in the grocery section indicating that they were perceived to be the low cost leader in groceries by residents of our state. Apparently residents of our state have a bad perception of reality.

Costco + a quarterly Walmart trip is what we’ve been doing since we first started dating, and today’s experiment reinforces that we’ll keep doing what we’ve been doing.

 

Caveats:

Costco requires membership, though if you spend at least $5,550/year (110/0.02), you make up the entirety of the fee. We in fact surpass this spending amount easily and get a refund check of about $200 each year.

It’s hard to compare the quality of Aldi’s vs Costco’s vs Walmart’s house brands. To be candid, I haven’t tried Aldi’s house brand, but I’m positive Costco’s brand is higher quality than Walmart’s.

Costco sells cage-free eggs which drives up the price. Knowing the disparity in prices between Costco’s eggs and Walmart’s, I have the moral dilemma if I should save a few pennies at the expense of chicken suffering. In many instances, Costco makes that moral decision on behalf of its consumers. I’m not sure where I stand on the issue. My father in law raises chickens. They appear to be of the dumbest creatures I’ve ever seen. But the thought of having to spend the majority of one’s life in a cage is depressing. I can’t say that I feel particularly bad about overpaying for eggs at Costco, especially when doing so saves me an extra trip to another store.

Costco requires purchasing in bulk. With our family size (5 kids), this is a non-issue, and in fact preferred. Even when my wife and I were dating we would shop at Costco and freeze stuff (bread, cheese, etc), so Costco can definitely work with smaller families if you’re smart. But if you don’t want to go through the nonsense, Aldi isn’t too bad.

 

Funny story:

At Aldi, we were cartless and bought salmon. The cashier put it in the cart adjacent to her (which we had NOT paid the deposit for) after checking us out. I assumed she intended for us to use the cart to take our order out of the store, and that I had just scored a free quarter in the process! I was elated! My elation only lasted 3 seconds until she chastised me for taking her cart. I guess she put our order in the cart for us to then pick up by hand. Lesson learned. The checkout process at Aldi was hilarious. A bunch of people either buying a hodge podge of bags or using old ones from Walmart or elsewhere. It seemed very inefficient from a time standpoint (but I get that reusing bags is good for the environment).

Not-so-funny story:

We started off in Walmart by price checking their produce, in which they were annihilated by Costco (who we had visited first). I almost quit the experiment at Walmart thinking it was futile, yet we persisted. I spent the rest of my Walmart trip wondering if the clientele were mindless drones who were bad at math.