Tuesday, September 16, 2014

Algorithmic Repricing Platform Feedvisor Launches Revenue Intelligence Dashboard For Online Retailers

Feedvisor, the world’s first algorithmic pricing and business intelligence (BI) platform for online retailers, announced today the launch of its new Revenue Intelligence Dashboard designed for high volume Amazon merchants. The first of its kind for online marketplace sellers, the Dashboard utilizes self-learning algorithms to present the seller with in-depth business information and adaptive alerts, enabling smarter decision making and optimized business operations.
“Feedvisor’s self-learning algorithms collect and analyze a massive amount of information from thousands of data points, which have until now been used to drive our repricing platform,” said Eyal Lanxner, Feedvisor’s Vice President of R&D. “We have now opened up this rich data to our customers in a clean and intuitive way, providing them with a level of knowledge they simply did not have access to before. Our new Dashboard delivers critical business insights and adaptive alerts, which will play a key role in the day-to-day management of a retailer’s online business.”
Feedvisor’s award winning algorithms automatically analyze the competitive environment, product demand, and price elasticity of every single product in a seller’s portfolio, and further utilizes this information to identify issues that the seller could not have found otherwise. For example, the Dashboard will highlight items that are not selling or selling too fast, show the retailer exactly why this is happening, and enable them to immediately make any necessary changes. Stale inventory could mean that the seller needs to review the floor or ceiling price of the product, whereas inventory that is moving too fast could signify the need for the seller to alter their replenishment strategy.
The Revenue Intelligence Dashboard gives the seller both a high-level view of their key performance numbers such as sales and profitability, and enables them to drill down to find more specific information. For example, sellers can now identify which brands are making the most profit, which top selling items are incurring a loss, or which items are no longer competitive. With the ability to learn from a customer’s own business behavior and market experience, Feedvisor’s self-learning algorithms grant the seller an understanding of their business previously unobtainable in the industry.
The Revenue Intelligence Dashboard has been developed closely with Feedvisor’s customers, and has been tried and tested by select Amazon Marketplace sellers. As part of the launch, Feedvisor is offering high volume Amazon sellers the chance to try out its new Dashboard free for 14 days.
About Feedvisor 
Feedvisor is the world’s first fully algorithmic repricing and business intelligence platform, offering e-commerce marketplace sellers a best in class, cloud-based solution to keep their prices competitive and makes adjusts prices in real-time based on the retailers’ business goals.
Feedvisor’s technology has won several prestigious industry awards, including the Red Herring Top 100 in 2014, and has been recognized for its excellence by independent analysts, such as Frost and Sullivan’s Technology Leadership Award 2014. Feedvisor has been internationally praised by both major media outlets and respected industry opinion leaders.

Posted on 9:51 AM | Categories:

Leaving Assets to Your Heirs: Income Tax Considerations

Jessica Wanick for W Financial Services writes:  An inheritance is generally worth only what your heirs get to keep after taxes are paid. So when it comes to leaving a legacy, not all property is created equal--at least as far as federal income tax is concerned. When evaluating whom to leave property to and how much to leave to each person, you might want to consider how property will be taxed and the tax rates of your heirs.

Favorable tax treatment for heirs

Roth IRAs

Assets in a Roth IRA will accumulate income tax free and qualified distributions from a Roth IRA to your heirs after your death will be received income tax free. An heir will generally be required to take distributions from the Roth IRA over his or her remaining life expectancy. (Of course, your beneficiaries can always withdraw more than the required minimum amounts.) If your spouse is your beneficiary, your spouse can treat the Roth IRA as his or her own and delay distributions until after his or her death. So your heirs will be able to continue to grow the assets in the Roth IRA income tax free until after the assets are distributed; any growth occurring after funds are distributed may be taxed in the future.
Note:  The Supreme Court has ruled that inherited IRAs are not retirement funds and do not qualify for a federal exemption under bankruptcy. Some states may provide some protection for inherited IRAs under bankruptcy. You may be able to provide some bankruptcy protection to an inherited IRA by placing the IRA in a trust for your heirs. If this is a concern of yours, you may wish to consult a legal professional.

Appreciated capital assets

When you leave property to your heirs, they generally receive an initial income tax basis in the property equal to the property's fair market value (FMV) on the date of your death. This is often referred to as a "stepped-up basis," because basis is typically stepped up to FMV. However, basis can also be "stepped down" to FMV.
If your heirs sell the property with a stepped-up (or a stepped-down) basis immediately after your death for FMV, there should be no capital gain (or loss) to recognize since the sales price will equal the income tax basis. If they sell the property later for more than FMV, any appreciation after your death will generally be taxed at favorable long-term capital gain tax rates. If the appreciated assets are stocks, qualified dividends received by your heirs will also be taxed at favorable long-term capital gain tax rates.
Note:  If your heirs receive property from you that has depreciated in value, they will receive a basis stepped down to FMV and will not be able to claim any loss with respect to the depreciation before your death. You may want to consider selling depreciated property while you are alive so that you can claim the loss.

Not as favorable tax treatment for heirs

Tax-deferred retirement accounts

Assets in a tax-deferred retirement account (including a traditional IRA or 401(k) plan) will accumulate income tax deferred within the account. However, distributions from the account will be subject to income tax at ordinary income tax rates when distributed to your heirs (if there were nondeductible contributions made to the account, the nondeductible contributions can be received income tax free). An heir will generally be required to take distributions from the tax-deferred retirement account over his or her remaining life expectancy. (Of course, your beneficiaries can always withdraw more than the required minimum amounts.) If your spouse is the beneficiary of the account, the rules may be more favorable. So your heirs will be able to defer taxation of the retirement account until distribution, but distributions will generally be fully subject to income tax at ordinary income tax rates.
Note:  Your heirs do not receive a stepped-up (or stepped-down) basis in your retirement accounts at your death.
Even though distributions are taxable, your heirs will nevertheless generally appreciate receiving tax-deferred retirement accounts from you. After all, they do get to keep the amounts remaining after taxes are paid.

Toxic or underwater assets

Your heirs might not appreciate receiving property that is subject to a mortgage, lien, or other liability that exceeds the value of the property. In fact, an heir receiving such property may want to consider disclaiming the property.

Always nice to receive

Life insurance and cash

Life insurance proceeds received by your heirs will generally be received income tax free. Your heirs can generally invest life insurance proceeds and cash they receive in any way that they wish. When doing so, yours heirs can factor in how the property will be taxed to them in the future.
Posted on 9:31 AM | Categories:

Receipt Bank now integrates with online accounting software QuickBooks Online in Canada

Intuit Canada writes: The QuickBooks family keeps growing!  We are excited to announce that Receipt Bank now integrates with accounting software QuickBooks Online in Canada.
Receipt Bank is a super easy way to convert those annoying bits of paper – receipts and invoices – into data you and your company can use.  
Submit by post, via their iPhone and Android apps, by email or by one of the many other submission methods.  Receipt Bank pulls in the key data including the name of the supplier, the date, the invoice number, the currency, tax, the total amount and even more.  Your data is safely stored in Receipt Bank but it can also be published right into QuickBooks Online!
If you already use QuickBooks Online and Receipt Bank and would like to integrate the two, navigate to the Integrations section of your Account Settings.
If you would like to learn more about Receipt Bank check out their website right here.
Posted on 9:28 AM | Categories:

Monday, September 15, 2014

U.K. : FreeAgent Hits New Heights After Passing 2000 - Customer Landmark with JSA Group in the UK

FreeAgent, the UK’s market-leader in cloud accounting for micro-businesses and freelancers, has cemented its credentials with the accountancy profession after adding its 2,000th client with accountancy practice JSA

JSA - one of the UK’s most successful providers of Limited Company and Umbrella Company services for contractors - now has more than 2,000 active licences for FreeAgent’s award-winning cloud accounting platform, which it is providing to customers to help them manage their business accounts more intuitively.

The landmark figure means JSA has become the single largest practice deal struck by any cloud accounting provider in the UK, and reinforces FreeAgent’s position as the best-loved cloud accounting system amongst UK contractors, micro-businesses and their accountants. 

Ed Molyneux, CEO and co-founder of FreeAgent, said: “JSA is one of the UK’s most highly-regarded practices providing accounting services to contractors, so passing this milestone with them is a fantastic achievement.

“Contractor accounting is a notoriously competitive market, and JSA had already built a formidable reputation on the quality and responsiveness of its service. From the first time we got together, we all believed migrating to the FreeAgent platform could put them even further ahead. I think we’ve proved that to be true beyond any doubt.

“By offering FreeAgent to its contractor and micro-business clients, JSA provides them with a uniquely effective way to stay on top of their accounts - enabling them to work more efficiently with these clients. As a consequence JSA is able to offer even more timely and relevant accounting advice.”

Kwasi Missah, Chief Operating Officer at JSA, said: “FreeAgent is a world-class system that provides contractors and small business owners with a great way to stay in control of their day-to-day accounts. This not only makes it easier for us to work more effectively with these clients, but it has also been instrumental in helping us to grow our own business as rapidly as we have. 

“We’re very happy to have introduced more than 2,000 of our customers to the easy and stress-free way that FreeAgent provides them with staying on top of their finances, and we hope to encourage even more to use the platform over the coming years.”
Posted on 7:23 PM | Categories:

3 Tax-Sensitive Investment Strategies to Implement Now

Steve Nicastro for Nerd Wallet / NASDAQ writes" Who doesn’t want to pay less money to the taxman? With some careful planning, you can legally reduce taxes owed to the IRS on investment gains — which means more dough in your pocket to invest or spend as you please.
While some investors wait until November or December to even think about tax-saving strategies, you can be the early bird that gets the worm — or in this case, the lower tax burden. Here are three tax-sensitive investment strategies that can minimize your taxes and maximize your returns.
Increase contributions to tax-advantaged accounts
Putting more money in tax-advantaged retirement accounts is like killing two birds with one stone. You’ll save more money for your retirement, while potentially lowering your tax bill.
For example, contributions to a 401(k) are taken directly out of your paycheck, before you even get paid or taxed on earnings. With a traditional IRA, your contributions may be tax deductible — which could further reduce your taxable income, potentially minimizing your tax bill when it comes time to write Uncle Sam a check.
Let’s say you’re 30 years old, single and earn $100,000 a year from your job — but contribute the maximum 401(k) limit of $17,500 a year. Since you’re contributing $17,500 in pre-tax dollars to the plan, your taxable income before deductions would actually be $82,500 instead of $100,000.
So instead of being in the 28% ordinary income tax bracket, you would be in the 25% bracket, which lowers the amount of tax you’ll pay on your earnings. At the same time, this also lowers the amount you have to pay on gains from the sale of assets held under one year (short-term capital gains), from 28% to 25%, since short-term capital gains are taxed at ordinary income rates.
But there’s another huge benefit: Dividends and interest earned in these accounts are subject to taxes only when you withdraw the money at retirement. As long as you keep the money in your plan and follow the rules, you likely won’t have to pay a dime in taxes on any returns until it comes time to withdraw.
Focus on asset location
Investors should keep in mind that certain types of investments are better suited for tax-deferred qualified retirement accounts — such as a 401(k) or a traditional IRA — rather than in taxable brokerage accounts, says Robert Reed, a financial advisor in Columbus, Ohio.
“Asset location is just as important as asset allocation,” Reed says. “The tax advantage of these accounts means that it’s a great place to keep bond funds and the like … all the income these investments throw off will be tax-free, until you pull money out of the account.”
What if you want to hold income-producing assets in a taxable brokerage account, for income to help pay for your living expenses? One idea is to focus on buying municipal bonds — debt issued by states or local governments to fund projects — since these bonds are usually exempt from federal taxes and from most state and local taxes, says Melissa Joy, a certified financial planner in Southfield, Michigan.
“You can get exposure to bonds without a big tax hit by putting municipal bonds in your taxable account,” Joy says.
Sell your losers — and delay selling your winners
Do you have that one stinker in your portfolio that’s down 25% on the year, while the rest of your portfolio is riding high? Instead of sulking over the losing investment, why not use this opportunity to both cut your losses and lower your tax burden?
Selling part or all of the losing investment will offset the gains you’ve realized from your winners, which means fewer gains to report to the IRS. For example, if you’ve already locked in $10,000 in gains on winning trades — but sell $5,000 worth of losses in the stinker — you now only have to report $5,000 worth of gains instead of $10,000. With a long-term capital gains tax-rate of 15%, this means a potential $750 tax savings.
What if you want to deduct the loss, but think your losing stock will turn things around? This is where the “wash-sale” rule comes into play. The IRS says you can sell a stock for a loss, buy it back 30 days after the sale and still be able to deduct the previous losses. However, buy it back anytime before the 30-day period, and the deduction of your loss isn’t allowed.
Keep in mind that if you have losses on your stocks, you may be able to take up to $3,000 in losses to deduct against your ordinary income, according to the IRS. This means if you made $39,000 from your job, but deduct $3,000 in losses from a brokerage account, your taxable income would be $36,000, which drops you into the 15% tax bracket instead of 25%, for single filers. You also may be able to carry forward any losses on investments incurred over $3,000 from earlier years.
Perhaps the easiest way to delay or lower your taxes is by simply not selling your winning positions — or at least waiting to sell until you’ve owned the shares for one year. The reason is simple: Long-term capital gains are taxed at significantly lower rates (0% to 20%, depending on your income level) than short-term capital gains (ordinary income rates).
So if you bought a stock 10 months ago that has appreciated in value, but you think it has even more upside ahead, it may be worth it to hold onto the stock at least two more months to lock in the long-term tax rate. But if you think the stock has gotten a bit too far ahead of itself — or feel the company has poor fundamentals and could fall in value — it might be best to lock in profits, regardless of the tax consequences.
For more guidance, it’s a good idea to seek help from an investment advisor, certified financial planner or tax professional.
By taking a proactive stance on your taxes, you can keep more money in your pocket and grow your wealth at a faster pace. So don’t be afraid to start a little early.
NerdWallet creates user-friendly tools that, crunch numbers and give you all the results, unfiltered. Across banking, credit cards, education, health care, insurance, investments, mortgages, shopping and travel, we offer data-driven tools and impartial information to help you make solid decisions about the money you work hard to earn. 
Posted on 2:04 PM | Categories:

Investors shave $252 million off Xero / Xero rollout to U.S. some years away / Xero dropped 5 percent to $20.04.

Radio New Zealand News reports: Investors shaved $251.9 million off Xero's value on Friday after the company revealed its North American head, Peter Karpas, has stepped down after just six months in the job.
The accounting software company's shares fell $1.97 to $20.99 before recovering slightly to close at $21.10.
Mr Karpas was appointed in February after having previously worked at PayPal, where he was general manager of small and medium-sized businesses in North America, exactly the target market Xero is chasing.
He was touted as a key person in Xero's drive to take on its major competitor in the United States, Intuit.
Xero's founder and chief executive, Rod Drury, said Mr Karpas had helped establish strong foundations for Xero in the United States market.

Xero rollout to US some years away

Xero's founder and chief executive Rod Drury says the roll-out to small and medium-sized United States-based accountants and bookkeepers is still four to five years away, given the culture and sophistication of that market.

Investors shaved $251.9 million off Xero's value last Friday after the company revealed its North American boss Peter Karpas has stepped down after six months in the job.
Xero's share price rose to a high of $45.99 following Mr Karpas' appointment on 12 February, which is more than twice the value of Friday's close at $21.10.
The shares continued to fall today, sinking as low as $20.57.
Mr Drury said Mr Karpas had helped establish strong foundations for Xero in the US market but he expected it will take more time before the company could crack the small and medium sized market. 
Posted on 6:17 AM | Categories:

Sunday, September 14, 2014

Rod Drury, Xero co-founder and CEO discusses the unexpected departure Xero North American Chief which led to a 8% fall in its share price on Friday and "We're [Xero] really focusing on the California Market"

RadioLive.co.nz presents: Rod Drury, Xero co-founder and CEO discusses the unexpected departure Peter Karpas, of the company’s North American chief which led to a 8% fall in its share price on Friday.  "We're [Xero] really focusing on the California Market" - Rod Drury @ 10:50 into the interview

Posted on 7:35 AM | Categories:

2014 Tax Brackets, Standard Deduction Amounts And More

IRS Announces 2014 Tax Brackets, Standard Deduction Amounts And More.
The Internal Revenue Service has announced the annual inflation adjustments for a number of provisions for the year 2014, including tax rate schedules, tax tables and cost-of-living adjustments for certain tax items.

These are the applicable numbers for the tax year 2014That means the year that we are in now. They are NOT the numbers and rates that you’ll use to prepare your 2013 tax returns in 2014 (the season is starting late this year). These numbers and rates are those you’ll use to prepare your 2014 tax returns in 2015. Got it? Good. Onto the highlights:
Tax Brackets. The big news is, of course, the new tax brackets. Here’s what’s on tap for 2014:
Single Taxpayers:
Married Filing Jointly and Surviving Spouses:
Head Of Household:
Married Filing Separately:Image
(See how they compare to the 2013 brackets here.)

Standard Deductions. The standard deduction rises to $6,200 for single taxpayers and married taxpayers filing separately. The standard deduction is $12,400 for married couples filing jointly and $9,100 for heads of household. Here’s how those rates compare to 2013:


Itemized Deductions. The limitation for itemized deductions – the Pease limitations, named after former Rep. Don Pease (D-OH) – claimed on individual returns for tax year 2014 will begin with incomes of $254,200 or more ($305,050 for married couples filing jointly). The Pease limitations were slated to be reduced beginning in 2006 and eliminated in 2010; as with the other tax cuts, the elimination was extended through the end of 2012. The limitations were brought back in 2013 at the original thresholds, indexed for inflation. The result of those changes is basically an increase in the top marginal tax rates.
Personal Exemptions. The personal exemption amount is $3,950 in 2014, up from $3,900 in 2013. Phase-outs for personal exemption amounts (sometimes called “PEP”) begin with adjusted gross incomes (AGI) of $254,200 for individuals and $305,050 for married couples filing jointly; the personal exemptions phase out completely at $376,700 for individual taxpayers ($427,550 for married couples filing jointly.)

Alternative Minimum Tax (AMT) Exemptions. The AMT exemption amount for tax year 2014 is $52,800 for individuals and $82,100 for married couples filing jointly. That compares to $51,900 and $80,800, respectively for 2013. In years past, the AMT was subject to a last minute scramble by Congress to “patch” the exemption but as part of the American Taxpayer Relief Act of 2012 (ATRA), the AMT is permanently adjusted for inflation – that’s why you see it in this list.

Earned Income Tax Credit (EITC). For 2014, the maximum EITC amount available is $3,304 for taxpayers filing jointly with one child; $5,460 for two children; $6,143 for three or more children and $496 for no children.

Child Tax Credit. For taxable years beginning in 2014, the value used to determine the amount of credit that may be refundable is $3,000 (the credit amount has not changed).
Kiddie Tax. For 2014, the threshold for the kiddie tax – meaning the amount a child can take home without paying any federal income tax – remains at $1,000.

Adoption Credit. For taxable years beginning in 2014, the credit allowed for an adoption of a child with special needs is $13,190; the maximum credit allowed for other adoptions is the amount of qualified adoption expenses up to $13,190. Phase outs do apply beginning with MAGI in excess of $197,880.

Hope Scholarship Credit. In 2014, the Hope Scholarship Credit cannot exceed $2,500. The amount you can claim is equal to 100% of qualified tuition and related expenses not in excess of $2,000 plus 25% of those expenses in excess of $2,000 but not to exceed $4,000.

Flexible Spending Accounts. The annual dollar limit on employee contributions to employer-sponsored healthcare flexible spending accounts (FSA) remains at $2,500 for 2014.

Individual Retirement Account Contributions. The $5,500 limit on IRA contributions remains the same in 2014.

Federal Estate Tax Exemption. The exclusion amount for estates of decedents who die in 2014 is $5,340,000, up from a total of $5,250,000 in 2013.
Federal Gift Tax Exclusion. The annual exclusion for gifts remains at $14,000 for 2014.

All together, the IRS posted more than 40 updates. You can read more about them at Revenue Procedure 2013-35 (downloads as a pdf).
Posted on 7:13 AM | Categories:

Saturday, September 13, 2014

7 reasons to file a separate tax return for an LLC

Michael Plaks, EA writes: Limited Liability Companies, better known as LLCs, are the most common business entity, especially in Real Estate. Many LLC are owned by a single person or by a married couple – which, in the community property states like Texas, are considered a single owner. Typically, such single-member LLCs are treated by the IRS as “disregarded entities.”Strangely, it means exactly what it sounds like: the IRS completely ignores such LLCs and does not want any tax returns from these disregarded entities. Instead, all income and expenses from single-member LLCs are reported on the owners’ personal tax returns, as if there was no LLC at all.

Yet, some LLCs do file a separate tax return. We will discuss the 7 reasons why you may decide to do so.

1. Professional appearance

Just that: appearance. Ironically, this is the most common reason to file a separate tax return for an LLC. Somehow, to some people it just feels more serious and proper to isolate all LLC numbers on a different tax return. However, there is no substance here, just a prettier packaging. You can sense that I’m not a big fan of this superficial thinking.

2. Multiple owners

Now, this one is a completely valid reason. The only type of LLCs that can be disregarded by the IRS are single-member LLCs, including husband-and-wife LLCs. If you own LLC together with somebody other than your spouse, then it is a multi-member LLC, and it must file a separate tax return. Usually, it should file a partnership tax return, unless you specifically elected to be treated as a corporation.

3.  Financing considerations

Your lender may request that you file a separate tax return for your business, on order to qualify for a loan. This is fine, just keep in mind that you’re doing this strictly to please your lender and for no other reason. There are no rules here, and whatever rules exist – they change all the time. A different lender (or even the same lender at a later time) may have different requirements. This is how lending works.

4. Financial aid eligibility

When you or your kids apply for financial aid, reporting your business separately can sometimes make a difference in your eligibility. Especially when we’re talking about rental properties. Financial aid is not my area of expertise, so make sure to consult a specialist. Just remember that it may matter.

5. Asset protection

Liability protection is the most common reason to create an LLC, in the first place. Some attorneys believe that filing a separate tax return is essential to ensure you do have proper legal protection. Maddeningly, there is never a consensus when it comes to attorneys. They never agree of anything, and I’m in no position to decided which one of them is correct. If your attorney tells you that your LLC needs a separate tax return, so be it.

6. IRS audit risk

I hear this argument very often: partnerships and corporations have lower risk of an IRS audit, compared to personal tax return, percentage-wise. Yes, it is true. The question is: is it an important enough concern to justify the extra hassle and cost of filing a separate tax return? I am not sure that it is. No matter what you do, you always have some chance of getting audited by the IRS. Unless your numbers are out of the ordinary in some way, the odds of being audited are pretty low. Reducing an already low risk to an even lower risk would be a good idea – if it did not involve more work and more cost. You decide.

7. Tax savings

Finally! Who does not want to pay less taxes! For some reason, it is widely assumed that LLCs provide more tax deductions and more loopholes than a personal tax return. Wrong! There’re no new deductions just because you organized your business as an  LLC. Whatever you can deduct with an LLC you could also deduct without LLC.
Am I saying that real estate investors cannot save on taxes with LLCs? I am not saying that. LLCs can provide tax savings under some specific situations, and these situations should be evaluated case-by-case by a competent tax professional. As a rule, LLCs cannot save money to landlords. Savings are possible for highly profitable builders, rehabbers, flippers and wholesalers. What do I call highly profitable? Let’s say those who make at least $50k net profit, after deducting all business expenses. If you reached this level of profitability, we need to talk, because the tax savings do not happen automatically. We will need to do some paperwork and establish new processes.
Posted on 12:16 PM | Categories:

Keeping Your Balance: The fundamentals of tax-efficient investing

Anthony G. Sandonato for the NYDailyRecord.com writes: As prudent investors know, it is not what your investments earn, but what they earn after taxes that counts. After factoring in federal income and capital gains taxes, the alternative minimum tax, and any applicable state and local taxes, your investments’ returns in any given year may be reduced by forty percent or more. Adding to this tax bite is the relatively new 3.8 percent Medicare Tax on net investment income that impacts high-income individuals, trusts and estates.

To see the impact of taxes on investing, consider that if you earned an average seven percent rate of return annually on an investment taxed at 28 percent, your after-tax rate of return would be 5.04 percent. A $50,000 investment earning 7 percent annually would be worth $98,358 after 10 years; at 5.04 percent, it would be worth only $81,756. Reducing your tax liability is essential to building the value of your assets, especially if you are in a higher income-tax bracket. Here are several ways to potentially help lower your tax bill and grow your investments.

Invest in tax-deferred and tax-free accounts
Tax-deferred accounts include company-sponsored retirement savings accounts such as traditional 401(k) and 403(b) plans, traditional individual retirement accounts (IRAs), and annuities. Contributions to these accounts may be made on a pre-tax basis (i.e., the contributions may be tax-deductible) or on an after-tax basis (i.e., the contributions are not tax deductible.) More important, investment earnings compound tax deferred until withdrawal, typically in retirement, when you may be in a lower tax bracket. Contributions to nonqualified annuities, Roth IRAs, and Roth-style employer-sponsored savings plans are not tax deductible. Earnings that accumulate in Roth accounts can be withdrawn tax-free if you have held the account for at least five years and meet the requirements for a qualified distribution.

Withdrawals prior to age 59½ from a qualified retirement plan, IRA, Roth IRA or annuity may be subject not only to ordinary income tax, but also to an additional 10 percent federal tax penalty. In addition, early withdrawals from annuities may be subject to additional penalties charged by the issuing insurance company. Also, if you have significant investments, in addition to money you contribute to your retirement plans, consider your overall portfolio when deciding which investments to select for your tax-deferred accounts. If your effective tax rate — that is, the average percentage of income taxes you pay for the year — is higher than 15 percent, you will want to evaluate whether investments that earn most of their returns in the form of long-term capital gains might be better held outside of a tax-deferred account. That is because withdrawals from tax-deferred accounts generally will be taxed at your ordinary income tax rate, which may be higher than your long-term capital gains tax rate.

Look for tax-efficient investments
Tax-managed or tax-efficient investment accounts and mutual funds are managed in ways that can help reduce their taxable distributions. Investment managers can employ a combination of tactics, such as minimizing portfolio turnover, investing in stocks that do not pay dividends and selectively selling stocks that have become less attractive at a loss to counterbalance taxable gains elsewhere in the portfolio. In years when returns on the broader market are flat or negative, investors tend to become more aware of capital gains generated by portfolio turnover, since the resulting tax liability can offset any gain or exacerbate a negative return on the investment.

Taxes are an important consideration in selecting investments but should not be the primary concern. A portfolio manager must balance the tax consequences of selling a position that will generate a capital gain versus the relative market opportunity lost by holding a less-than-attractive investment. Some mutual funds that have low turnover also inherently carry an above-average level of undistributed capital gains. When you buy these shares, you effectively buy this undistributed tax liability.

Use tax loss harvesting to your advantage
At times, you may be able to use losses in your investment portfolio to help offset realized gains. It is a good idea to evaluate your holdings periodically to assess whether an investment still offers the long-term potential you anticipated when you purchased it.
Your realized capital losses in a given tax year must first be used to offset realized capital gains. If you have “leftover” capital losses, you can offset up to $3,000 against ordinary income. Any remainder can be carried forward to offset gains or income in future years, subject to certain limitations.

A few down periods do not mean you should sell simply to realize a loss. Stocks in particular are long-term investments subject to fluctuations. However, if your outlook on an investment has changed, you can use a loss to your advantage.

Keep good records
Keep records of purchases, sales, distributions, and dividend reinvestments so that you can properly calculate the basis of shares you own and choose the shares you sell in order to minimize your taxable gain or maximize your deductible loss.
If you overlook mutual fund dividends and capital gains distributions that you have reinvested, you may accidentally pay the tax twice — once on the distribution and again on any capital gains (or underreported loss) — when you eventually sell the shares.

When considering investment decisions, tax implications play an important role. While they should not be the only factor to consider, investing in a tax-efficient manner can significantly increase you returns and net worth over the course of your lifespan. 
Posted on 12:11 PM | Categories:

10 Basic Tax To-Dos for the Rest of 2014

 Evan R. Guido for the Bradenton Times writes:  Here are 10 things to consider as you weigh potential tax moves between now and the end of the year.

1. Make time to plan

Effective planning requires that you have a good understanding of your current tax situation, as well as a reasonable estimate of how your circumstances might change next year. There's a real opportunity for tax savings when you can assess whether you'll be paying taxes at a lower rate in one year than in the other. So, carve out some time.

2. Defer income

Consider any opportunities you have to defer income to 2015, particularly if you think you may be in a lower tax bracket then. For example, you may be able to defer a year-end bonus or delay the collection of business debts, rents, and payments for services. Doing so may enable you to postpone payment of tax on the income until next year.

3. Accelerate deductions

You might also look for opportunities to accelerate deductions into the 2014 tax year. If you itemize deductions, making payments for deductible expenses such as medical expenses, qualifying interest, and state taxes before the end of the year, instead of paying them in early 2015, could make a difference on your 2014 return.
Note:  If you think you'll be paying taxes at a higher rate next year, consider the benefits of taking the opposite tack--looking for ways to accelerate income into 2014, and possibly postponing deductions.

4. Know your limits

If your adjusted gross income (AGI) is more than $254,200 ($305,050 if married filing jointly, $152,525 if married filing separately, $279,650 if filing as head of household), your personal and dependent exemptions may be phased out, and your itemized deductions may be limited. If your 2014 AGI puts you in this range, consider any potential limitation on itemized deductions as you weigh any moves relating to timing deductions.

5. Factor in the AMT

If you're subject to the alternative minimum tax (AMT), traditional year-end maneuvers such as deferring income and accelerating deductions can have a negative effect. Essentially a separate federal income tax system with its own rates and rules, the AMT effectively disallows a number of itemized deductions, making it a significant consideration when it comes to year-end tax planning. For example, if you're subject to the AMT in 2014, prepaying 2015 state and local taxes probably won't help your 2014 tax situation, but could hurt your 2015 bottom line. Taking the time to determine whether you may be subject to AMT before you make any year-end moves can save you from making a costly mistake.

6. Maximize retirement savings

Deductible contributions to a traditional IRA and pretax contributions to an employer-sponsored retirement plan such as a 401(k) could reduce your 2014 taxable income. Contributions to a Roth IRA (assuming you meet the income requirements) or a Roth 401(k) plan are made with after-tax dollars, so there's no immediate tax savings. But qualified distributions are completely free from federal income tax, making Roth retirement savings vehicles appealing for many.

7. Take required distributions

Once you reach age 70½, you generally must start taking required minimum distributions (RMDs) from traditional IRAs and employer-sponsored retirement plans (an exception may apply if you're still working and participating in an employer-sponsored plan). Take any distributions by the date required--the end of the year for most individuals. The penalty for failing to do so is substantial: 50% of the amount that should have been distributed.

8. Know what's changed

A host of popular tax provisions, commonly referred to as "tax extenders," expired at the end of 2013. Among the provisions that are no longer available: deducting state and local sales taxes in lieu of state and local income taxes; the above-the-line deduction for qualified higher-education expenses; qualified charitable distributions (QCDs) from IRAs; and increased business expense and "bonus" depreciation rules.

9. Stay up-to-date

It's always possible that legislation late in the year could retroactively extend some of the provisions above, or add new wrinkles--so stay informed.

10. Get help if you need it

There's a lot to think about when it comes to tax planning. That's why it often makes sense to talk to a tax professional who is able to evaluate your situation, keep you apprised of legislative changes, and help you determine if any year-end moves make sense for you.
Evan R. Guido 
Posted on 8:12 AM | Categories:

Friday, September 12, 2014

Weighing tax benefits of S corporations

William H Wiersema for Proquest/Insurancenewsnet.com writes: Factors to consider in deciding which type of incorporation is best for you.
AS TAX LAWS continue to evolve, so do choices of entity. Being mindful of the alternatives is critical to achieving tax benefits. Both S corporations and Limited Liability Companies (LLC's) are flow-throughs, which have long been a desirable alternative to regular C corporations.
Unlike in C corporations, the incomes of flow-throughs are taxed directly to their individual owners, largely independent of distributions. C corporations, on the other hand, are double-taxed, incurring their own tax first, without any long-term capital gains break. Then, as money is distributed to owners, it is taxed again at the individual level, without a deduction to the corporation. The law enforces the double tax by limiting owner salaries to reasonable levels, and by preventing corporations from accumulating excess earnings.
However, S corporations have a newly enhanced tax advantage over LLC's. Only active shareholders of S corporations are exempt from the Affordable Care Act's new 3.8% tax on unearned investment income of joint filers making over $250,000. While inactive owners of both entities incur the new tax, highincome active members in LLC's do also, in that a 3.8% Medicare tax applies to their flow-through income.
There are several benefits and risks of becoming and operating as an S corporation. LLC's, on the other hand, feature absence of corporate formalities, unrestricted owner types, flexibility of income allocation and distributions, ability to distribute appreciated assets, and more immediate tax benefits of losses if incurred.
Ultimately, the choice of entity depends heavily on the direction of future tax legislation. The year 2013 saw increases in maximum tax rates for individuals to 43.4% for ordinary income and 23.8% for long-term capital gains and qualifying dividends. Meanwhile, maximum rates for C corporations held firm at 35% on all income. If C corporation rates decline to be more competitive globally, as many in the federal government advocate, flowthrough entities may lose their current appeal. Companies must work with their tax advisors to assure adequate consideration of the unique facts of their situations.
Election and ownership
Switching from a regular C corporation to an S involves a special election, which may have tax costs. Electing S status causes the loss of any credits or carryovers from previous years, and subjects the corporation to "built-in gains" tax at the time of the election, which includes adjustments of property to market value. If sold within a period of ten years after the election, S corporations may be open to double taxation.
The advantages of S corporations in taxes come with many restrictions, violation of which can result in termination of S status and loss of its tax benefits. The number of shareholders is limited to 100. Ownership is restricted to individuals, estates, certain trusts, and certain exempt organizations.
Corporations, partnerships, and nonresident aliens are ineligible. An S corporation cannot be an owned subsidiary of a C corporation or a multiple member LLC, but can be a 100%-owned subsidiary of another S corporation.
Transfer or sale of stock can have severe consequences. If a shareholder is an LLC with more than a single member, the S election terminates. It is advisable to have a shareholder agreement in place to provide a right of first refusal, in the event that stock is offered for sale to nonqualifying shareholders.
Moreover, only a single class of stock is allowed. For example, preferred shares may not be issued. A potential problem arises with undocumented shareholder debt. If upon audit, the Internal Revenue Service interprets the debt as a second class of stock, the S election terminates. On another note, voting right differences do not constitute separate classes of stock.
Choice of tax year-end is restricted. The concern is that shareholders could otherwise benefit from cash-basis timing differences. Selecting a year-end other than Dec. 31 requires that sufficient funds be kept on deposit with the U.S. Treasury to offset any timing benefit.
Taxation and compliance
Once operating as an S corporation, taxation takes place at the owner level from amounts reported on the schedule K-l from the form 1120-S. Unlike C corporations, dividend distributions are not taxed unless they exceed the shareholder's cumulative basis. The basis is the amount paid for the stock plus amounts lent to the company plus the pro rata share of the accumulated adjustments account, which is basically the equivalent of retained earnings while the entity is an S corporation. A shareholder's guarantee of debt does not constitute basis.
Additionally, unlike C corporations, losses may provide tax benefits for owners. The deductibility of losses for active shareholders, however, is limited to the basis in the stock. Losses in excess of basis must be carried forward.
Compensation of stockholders who are active in the business must not be unreasonably low or distributions unreasonably high. The reason is that these shareholders might evade payroll taxes by making non-taxable distributions instead. Some tax practitioners advise clients to apply a minimum benchmark of the FICA base, which is $117,000 in 2014.
Distributions are heavily restricted. In accordance with the formalities of having a single class of stock, distributions must be paid in proportion to ownership. Also, distributions must be made to the actual shareholders. For example, if a trust owns the stock and distributions are paid directly to beneficiaries, it might cause the Internal Revenue Service not to respect the existence of the trusts.
Moreover, distributions in excess of basis are taxed as capital gains. S corporations having C corporation earnings and profits face additional potential taxes. If paid out of C corporation earnings and profits, excess distributions are taxed at ordinary dividend rates. Passive investment income in excess of 25% of gross receipts is taxed at the highest C corporation tax rate. Continuing the excess for three years can cause the S election to terminate.
Fringe benefits
While shareholders of regular C corporations participate in tax-favored fringe benefits alongside their employees, their counterparts in S corporations are limited. Shareholders owning more than two percent of an S corporation are considered to be self-employed for purposes of many of the rules. They may not participate in certain programs, including cafeteria plans and flexible spending accounts. Other financial benefits, such as medical or education, are deducted by the company and taxed to the shareholder in year-end payroll reporting. The medical insurance portion of compensation is exempt from social security, Medicare, or unemployment taxes. Medical insurance premiums are deductible by shareholders as selfemployed medical expense on their personal income tax returns.
On the other hand, life insurance premiums are fully taxable to shareholders, without a personal tax deduction. There may be good reasons to carry life insurance outside of the business. If it is used to fund corporate buy-sell agreements among shareholders, proceeds from policies that are normally exempt from taxes for beneficiaries may be taxed at maximum rates under transfer of value rules. A separate partnership might be preferred to avoid the issue, while also retaining the benefit of increased equity interest basis brought about by individual surviving owners doing a cross-purchase.
S corporation considerations
Summarized here are the critical aspects of S corporations. Failure to comply with restrictions on ownership, distributions, or passive investment income could result in termination of S status. This means the S corporation reverts to a C corporation, and the benefits, including the single level of taxation, are immediately lost.
Election and ownership
* Electing S status may cause loss of certain tax benefits, including credits and carryovers from previous years.
* A sale may be double-taxed within ten years of making the S election.
* Number of shareholders may not exceed 100.
* Shareholders must be individuals, estates, certain trusts, or certain exempt organizations.
* Shareholders may not be corporations, partnerships, or non-resident aliens. The only exception is 100% ownership by another S corporation.
* Only a single class of stock is allowed, although voting right differences do not constitute separate classes of stock.
Taxation and compliance
* S corporation income flows through to its shareholders, who report their share on their individual income tax returns.
* S corporation losses are deductible only up to the basis in the stock.
* Distributions up to basis are not taxed.
* Shareholder compensation must not be unreasonably low, or distributions unreasonably high.
* Distributions must be proportioned to ownership.
* If entities are shareholders, distributions must be to those entities, not direct to beneficiaries.
* Distributions become taxable if paid in excess of cumulative undistributed income or out of prior C corporation accumulated earnings.
* Passive income must be within limits or risk termination.
2% shareholder fringe benefits
* Shareholders may not participate in certain programs, such as cafeteria plans and flexible spending accounts.
* Medical insurance and most other benefits are deducted by the S corporation as compensation and taxed to shareholders.
* Life insurance premiums are taxed to shareholders without an S corporation deduction.
* Life insurance proceeds from policies held within the S corporation risk taxation at maximum rates under transfer of value rules.
Posted on 11:09 AM | Categories:

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