Around June 2001, I had gotten an online tip from a hot deals forum that Office Depot was clearing out their HP ScanJet 5200 Cse scanners for $50. At the time, they were selling on eBay for $150. I drove to my local Office Depot and bought all eight on clearance. Even the Office Depot employee thought the price was fantastic. I ended up selling them on eBay for anywhere from $100 to $150 (auction) plus $10 shipping.
When mutual funds do not perform and are killed off, this is called survivorship bias. If active fund managers want my business, they also need to disclose how many killed funds they have been involved with along with the ones that have performed well for them. This way, we know what their track record is. Anyone can tout their successful 20% .
Over the weekend, I was how some Chinese are good savers. Today, I also an article that CitiBank will start issuing credit in China. This is a very interesting convergence of Chinese culture’s emphasis on savings while the newer ideas of utilizing credit. I am curious to see how this plays out. Certainly, there is an economic boom in China. Will the Chinese people become allured with the access to (easy?) credit or will they stick to tradition of savings as a population. I predict many uneducated Chinese will fall prey to unethical lending practices and even have many commit suicides like that of the FoxConn/Apple variety from being overwhelmed with finances. I also predict, others will be able to leverage their credit in ways to expand their business operations. I am worried though with the expansion of credit, this will create another financial crisis like that of a few years ago, but on a scale only China could be involved in. That really scares me.
There seems to be a lot of misunderstanding about CitiBank’s issuance of 1099-MISC. Many are confusing rebates with income. Many banks are offering sign-up bonuses for opening an account. CitiBank ran different promotions where they would give you 25,000 to 30,000 miles (AAMiles) or Points (CitiBank ThankYou program).
Income Vs Rebate
If you signed up for a bank account and parked your money in the account, you did not have to spend anything to earn the reward. This reward is then income.
If you had to meet a minimum spend to earn a reward, this is a rebate.
The important distinction is whether you have to spend money to earn the reward or not.
Issues to Clarify
Now, some bank sign-up bonuses require that you conduct some kind of spend such as making three debit transactions. This muddies the issue because there is a potential for the spend requirement to not exceed the bonus. When the spend exceeds the rebate (such as when you buy a refrigerator, washer, or dryer), it is very easy to see it as a rebate. What happens though, if your three debit transactions totaled only $10, but your sign-up bonus is $50. Then you have the issue where the bonus exceeded your total spend. It depends on how the IRS wants to handle it, but I would say if the customer spends beyond the bonus in debit transactions within the bonus eligibility period, then I would say there is no income. If the total spend does not exceed the bonus, then I would subtract total spend against the bonus to reach your income. For example, if the bonus is $50 but you spend only $10, then your income is $40. Since the IRS laws currently do not require reporting of anything below $600, it may be a moot point.
The IRS also needs to fix what they allow businesses to valuate their points at. Why does CitiBank get to valuate 25,000 points at 2.5 cents per point? For example, if we use the 25,000 ThankYou points program, one can only cash out 25,000 points as a $175 cash check. So, if redemption costs CitiBank $175, shouldn’t the 1099-MISC also be $175? I am not sure on this point, but CitiBank can declare a 1099-MISC even if the income is under $600, it is just not required.
Quicken 2012 Release 5 addresses some bugs that were prevalent in the first release. Primarily, One Step Update was causing forced quits which could lead to corrupt data. I use Quicken 2012 not because it is well written software by any means. It just happens to be one of the few available in the market.
Some posters on FlyerTalk and LA Times have said they are receiving 1099 (Misc Income) statements from CitiBank for receiving 25,000 ThankYou points as $625 income. This means that with each bonus they pay out, CitiBank gets to write it off at a $625 business expense. Why is CitiBank able to do this when I can’t even redeem these 25,000 ThankYou points for that value? I can only redeem 25,000 ThankYou points for $175.
If a $15 rewards check requires 2,500 points, then the valuation of 1 point is 0.6 cents. $250 for 35,000 points ends up being 0.71 cents per point. Why should CitiBank get 2.5 cents as a business expense per point, when I can’t even redeem at a 1 to 1 ratio?
I am going to make it a point of signing up for a CitiGold account, get my 40,000 points, receive my 1099, then write a letter to the IRS that CitiBank is cheating on their books. This is BS.
If Paypal decides that the FROM will permanently be email@example.com, then they could add an additional mail header called Reply-To: and put the buyer’s email in there. While whether a Reply-To is recognized depends on the web mail client, desktop e-mail client, or smartphone e-mail client used… most modern e-mail clients will know how to handle this.
PayPal made what at first glance appears to be a minor change in the way it sends payment notice emails to sellers, but it’s having a huge impact on some sellers’ operations, and merchants discussed the issue on various online discussion boards throughout the day on Wednesday.
Normally when PayPal sends merchants a “Notification of payment received” email, the “From” field is populated by the buyer’s email address. As of late Tuesday evening, PayPal switched the protocol to enter the static email address “firstname.lastname@example.org” in the “From” field rather than the buyer’s email address. - http://www.auctionbytes.com/cab/cab/abn/y12/m01/i26/s02
The Los Angeles Times wrote an article yesterday about CitiBank issuing 1099s to customers that parked their money in their checking or savings products.
If you receive a bonus by parking your money in a checking or savings account, I think it is perfectly reasonable to issue a 1099. You did not have to spend any money for this. The bonus is clearly income. If you earn points though, it seems silly to value 1 point at 2.5 cents. How did they arrive at that valuation? With cash back, the valuation is clear. When you use points to redeem for gift cards, travel, or hotel… I don’t think it is fair to value at those rates. At best, Citi should be valuing 1 point as 1 cent.
If you have to make purchases on your credit card for the reward, I would consider it a “rebate”. If it is a statement credit or cash back, if you have a business, the rebate would be a positive form of “purchases”. If you bought $100 worth of supplies and received a $2 rebate, your supply cost is $98.
My issue is that banks sometimes require high redemption tier to such as 25,000 points to redeem $250. If Citi would like to state 1 point is worth 2.5 cents, then shouldn’t I be able to redeem that as $625? That’s not the case today, so I don’t understand why they can even get away with this?
Are they trying to make their points liabilities look good on paper so they seem more profitable? Seems like sketchy accounting here possibly?
I think PayPal has most potential to eat the bank’s lunch. Their in-store POS means a buyer can pay via PayPal balance. They just need to offer a 2% discount on purchases and you will see adoption rates increase exponentially. Banks have not done enough to innovate and I think it is too late. PayPal will continue to grow and you will see banks relegated to being a funding source only.
The Dodd-Frank w/ Durbin Amendment did exactly what it was supposed to do. Big banks acted irresponsibly prior to the 2008 financial crisis. Power and money needed to be redirected away from the big banks. You saw that small banks and credit unions converted ex-big bank customers to their banks. Shift of power.
As for lower prices in retail, you have to give it time. Interchange is only between banks. Merchants must go through a payment processor that adds a profit layer on top of interchange. In order for merchants to potentially realize any financial benefit from the Durbin amendment, they need to negotiate new contracts. This will take time as well as necessitating training of employees and possibly the purchase of new POS system. Regardless of the Durbin amendment, merchants are tied to their contracts with payment processors. The payment processors are benefiting from the new laws whenever someone uses a Bank of America, Wells Fargo, or Chase debit card. Until merchants can negotiate new contracts, you will not see an opportunity for lower prices.
Consumers need to give merchants time to adjust to the new law. It is still up in the air whether consumers benefit from all this on the micro level (lower prices). On a macro level, consumers benefit because competition is spread among other banks which create additional perks and distribution in our financial system which creates reliability and safety.