Sunday, March 18, 2012

Practice Makes Perfect...Hopefully...

After eight weeks of doing other people's tax returns, today was the day that I finally got to finish off my own return.  In a typical year the IRS receives my return by mid-February, but I can thank Zecco for a very late refund this year. What is Zecco and how did it throw off my well-established tax filing timeline in 2012?

Zecco is an online brokerage company that opened it's metaphorical doors in 2006. One year later I opened an account, lured in by the promise of unlimited free trades, which was unheard of in the online trading world.  In fact, Zecco's weird company name is a quasi-acronym for ZEro Commission COst.  Unfortunately, Zecco's founders quickly realized that they weren't making any money in the free stock trading business, which kicked off a sad process of devolution for the site.

It didn't take long before unlimited free trades became ten free trades per month. Next, the ten free trades disappeared, replaced by a policy of free trades for anyone with a $25,000 account balance.  Then, in March, 2011, Zecco drove a final stake through the heart of its founding principles, removing all free trades, regardless of account balance.  So that quasi-acronym is now pretty much a complete lie...

I'm not a huge fan of paying commissions, so I've had a tiny portfolio of stocks sitting in my Zecco account, trapped by the threat of commission fees.  In past years, Zecco sent out form 1099-DIV for dividend income by mid-February, always the last document I needed to file my taxes.  This year, for reasons unknown, Zecco delayed mailing the form by a full month, leaving that single tardy tax form sitting between me and my tax refund.

I can be a pretty patient guy, but the frustrating part was the embarrassingly paltry amount of dividend income that made me wait that form in the first place.  I barely cleared the $10 threshold where brokerages don't bother reporting the income to the IRS at all.

Clearly, I'm no Warren Buffet--no one has ever mistaken me for the Oracle of Omaha, and not just because I don't live anywhere near Nebraska.  If someone had to pick an investing-related nickname for me, the Pauper of Plymouth might be the leading choice.  Warren could buy a tropical island with his investment income; my investments generate slightly more income than my blog--and it's a tight race.  Delaying my tax refund for such nonsense was driving me crazy.

For anyone receiving a refund, tax season is an exciting time--and that's no exception for me.  For some, it's a time to plan a vacation, put a down payment on a new car, or splurge on a new big screen TV.  I take a slightly different, but equally exciting approach to the tax refund: direct deposit into savings.  That's right, in my years-long quest to become the Most Uninteresting Man in the World, my tax refund strategy has always revolved around getting every last dollar into savings as quickly as possible.  The world already has a Most Interesting man; it doesn't need another:

With the great Zecco delay of 2012, the situation was out of my hands and all I could do was wait for that form to show up in the mail.  And with all the extra time to think about my refund, I considered ratcheting the tax return excitement up a notch this year...with savings bonds!  During the training for tax volunteering back in January, I learned that I could cash in my tax refund for U.S. Series I savings bonds, currently offering a hefty 3.06% interest rate.  You can't beat that--what's more exciting than a ridiciously-low-but-still-better-than-market-average yield?

When I finished up my tax return earlier today, I did a quick Google search to learn more about these magical savings bonds that I was about to purchase.  I had wrongly assumed that the only way to get my hands on these high-yield instruments was through my tax return.  It turns out that you can get the electronic version at any bank or online at TreasuryDirect; you can only get the paper version of the bonds via Form 8888 on the federal tax return.

So apparently this whole tax refund/savings bond setup was designed for old people who fear banks, refuse to acknowledge the existence of the FDIC, and demand paper bonds for safekeeping under their mattresses.  I, on the other hand, would prefer not to store physical, paper copies of my savings bonds and will likely choose to pursue my savings excitement via the internet.

The wait is over, my tax return has been filed, and I can start doing some online shopping for Series I U.S. savings bonds--perhaps the only kind of shopping I'll ever enjoy.  Then I can sit back and bask in the excitement of low-risk, low-yield investing.  Stay thirsty my friends!

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