Seven Important Tax Facts about Medical and Dental Expenses

If you paid for medical or dental expenses in 2012, you may be able to get a tax deduction for costs not covered by insurance. The IRS wants you to know these seven facts about claiming the medical and dental expense deduction.

1. You must itemize.  You can only claim medical and dental expenses for costs not covered by insurance if you itemize deductions on your tax return. You cannot claim medical and dental expenses if you take the standard deduction.

2. Deduction is limited.  You can deduct medical and dental expenses that are more than 7.5 percent of your adjusted gross income.

3. Expenses paid in 2012.  You can include medical and dental costs that you paid in 2012, even if you received the services in a previous year. Keep good records to show the amount that you paid.

4. Qualifying expenses.  You may include most medical or dental costs that you paid for yourself, your spouse and your dependents. Some exceptions and special rules apply. Visit IRS.gov for more details.

5. Costs to include.  You can normally claim the costs of diagnosing, treating, easing or preventing disease. The costs of prescription drugs and insulin qualify. The cost of medical, dental and some long-term care insurance also qualify.

6. Travel is included.  You may be able to claim the cost of travel to obtain medical care. That includes the cost of public transportation or an ambulance as well as tolls and parking fees. If you use your car for medical travel, you can deduct the actual costs, including gas and oil. Instead of deducting the actual costs, you can deduct the standard mileage rate for medical travel, which is 23 cents per mile for 2012.

7. No double benefit.  Funds from Health Savings Accounts or Flexible Spending Arrangements used to pay for medical or dental costs are usually tax-free. Therefore, you cannot deduct expenses paid with funds from those plans.

Turn Your Hobby into a Business Tax Break & 10 Tips To Make Your Hobby Tax Deductible

Kay Bell for BankRate.com writes: Hobbies provide a great way to relax from the daily grind. For many people, they also offer a way to make extra spending money. Be aware, however, when your hobby produces income, you owe tax on it. You can reduce your taxable hobby income by deducting your hobby expenses, but this tax break is limited.

Allowable hobby deductions

You can only deduct expenses up to the amount of money you make on the hobby. Even then, hobby expenses, along with other miscellaneous expenses you itemize on Schedule A, must come to more than 2 percent of your adjusted gross income before you can deduct them.
If you find you are regularly making money from your hobby, it might be to your tax advantage to turn the sideline into a business.  It's not as difficult as you might think. If you operate as a sole proprietor, you report the income on your Form 1040 tax return and you have more options when it comes to deducting your expenses.

Hobby vs. business

The Internal Revenue Service defines a hobby as an activity you pursue without expecting to make a taxable profit. Basically, you do it because you like it, regardless of the cost.
But if you demonstrate that you are involved in an activity with the expectation of making money on it, the IRS will consider it a business. As such, you'll be able to deduct expenses directly from your income. You even can deduct overall business losses in the years you don't turn a profit. You must, however, make the right moves to convince the IRS that your sideline is a legitimate business.

What constitutes a business

The IRS uses two tests in determining whether your activity is a business or a hobby.
First, the profit test demands that you show you earned money on the activity in three out of five years.  If you can't meet the profit test, you get another chance to convince the IRS that you are running a business by passing the factors-and-circumstance test. Here, the tax agency takes a subjective, individualized look at your pursuit.

What the IRS examines

• Whether you carry on the activity in a businesslike manner. This includes, for example, keeping good books and records, promoting your business and holding down costs where possible.
• How much time and effort you devote to the enterprise.
• Whether you depend on income from the activity for your livelihood.
• If your losses are due to circumstances beyond your control or are normal for a business in its startup phase.
• Whether you change your methods of operation in an attempt to improve profitability.
• The knowledge and background you (or your advisers) have in running such a business.
• If you were successful in making a profit in similar activities in the past.
• Whether the activity makes a profit in some years and, if so, how much.
• Whether you can expect to make a future profit from the appreciation of the assets used in the activity.
• The element of personal pleasure involved in the activity. That doesn't mean you can't enjoy your new business, but you better be getting more out of it than just a good time.

IRS looks at everything

In determining whether you are carrying on an activity for profit, the IRS says all the facts are taken into account. No one factor alone is decisive. So be prepared to come through in several areas to convince the IRS that you're making a good-faith attempt to run a business and not just looking to illegally claim the more-expansive business tax breaks. By successfully transforming your hobby into a business, you'll be able to deduct your associated expenses on Schedule C or C-EZ without worrying about a percentage limitation. You might even find a few more you can take, such as one for the home office you set up to take care of your new endeavor's administrative chores.  And if you have an occasional year where you lose money, the loss can help reduce your other income and lower your tax bill.
[END]

10 Tips To Make Your Hobby Tax Deductible

From Robert W. Wood a Contributor for Forbes writes Will the IRS pay for your hobby? The short answer is no. The more nuanced answer is sometimes, provided that you make it enough of a real business. If you want to avoid any IRS hassles my standard advice is to keep your business and personal pursuits separate. But most of us like two-fers, and current economics make multipurposing even more compelling.

Say you lose $20,000 a year in the “business” of breeding, training and caring for whippets. You can report the loss on Schedule C to your Form 1040 and write if off against your salary. Assuming your combined state and federal tax rate is 40%, your whippet breeding really only costs you $12,000. See  In Pictures: Convincing Uncle Sam To Subsidize Your Hobby.

If your whippets are a hobby, you can’t claim a loss. But before you decide to turn your nondeductible hobby into a deductible business, be careful. This is an area of intense IRS scrutiny. The IRS issued a new manual to help agents ferret out taxpayers improperly writing off hobbies. Here are five tips for getting business tax treatment for a pursuit you enjoy.

1. Match income and loss. The IRS is less likely to question whether you’re engaged in a businessif your income from the activity exceeds your expenses. See The ABCs of Hobby Losses and Profit Motive.

2. Keep good records. It matters whether you conduct yourself in a businesslike manner. If you keep good records and hold yourself out as running a business, it will help. See Tax Return Filed? Now Consider Your Records.

3. Show a profit three years in five. If you can manage to eke out a profit three years out of every five (or two years out of seven, if your activity is horse breeding), the IRS will presume you’re in business to make a profit. That presumption is worth a lot since you probably won’t have to mud wrestle with the IRS over a more amorphous facts and circumstances test.

4. Plan income and expenses. Our tax system is annual and so are profit-and-loss determinations. You may have more control than you think over when you receive income and especially when you incur expenses. That control can help you make a profit three years out of five. See When You Have Income But No Cash.

5. Delay a profits determination. You can elect to defer the determination of profit motive until the fourth year of your “business,” or your sixth year in the case of an activity involving horses. To make this election you file a Form 5213, postponing the determination of whether you’ve met the three-out-of-five-years profit presumption. The idea of the election is to give you time to ramp up and achieve a profit.

Warning: Most advisers don’t recommend this election since it could flag the profit-motive issue. Plus, it has the effect of extending the IRS statute of limitations beyond the normal three years. The IRS can examine all the years in question after the deferral period has passed. For more about the IRS statute of limitations, click here.

In Five (10 Total) Tips to Make Your Hobby Tax Deductible, I covered five tax tips for deducting your hobby. If you can do it legitimately, transitioning from hobby to business lets taxes subsidize it. Fair warning: it can be tough to convince the IRS and you may have to go to court.

But if you’re committed, here are five more tips to help smooth out that bumpy uphill road:

6. Do it full-time. The IRS is more likely to query writing off a “hobby” against income from your regular job. If you work 40 hours a week in an office and raise chinchillas on the side, does that mean the chinchillas are just a hobby? No, but the IRS is more likely to consider it a business if you do it full-time.

7. Write a business plan. The IRS looks for businesslike activity. One of the auditors’ checklist items is a business plan. Write one up and try to look businesslike in all things. See The ABCs of Hobby Losses and Profit Motive.

8. Hire experts and become one. The more expert you become and the more you engage others the more businesslike you’ll look. If you have advanced degrees or hire consultants to help you grow prize orchids, raise toucans, or race mopeds, it may be easier to  convince the IRS.

9. Don’t enjoy it too much. Do what you love? Maybe, but the IRS thinks personal pleasure is an indication your “business” is a hobby. Don’t enjoy it too much. See When Taxpayers Go Fishing For Deductions.

10. Combine activities. A stand-alone activity with losses might be combined with a profitable activity. What you call a single activity should be accepted by the IRS unless it’s artificial. You can’t combine profits from working as a tech consultant with losses from breeding whippets as a single business activity. But a profitable sideline selling handcrafted dog collars and an unprofitable sideline boarding dogs might be combined on a singleSchedule C. It could make it easier to show a profit three years out of five.

Bottom line? It’s good to keep your business and personal life separate, but if you generate income from a pastime consider becoming more businesslike. Just don’t turn an activity you love into a daily grind!

MorningStar's Best Tax Tip? Readers Spill Maximizing tax-sheltered and taxable accounts and reducing tax bills during retirement receive repeat mentions.

Christine Benz for Morningstar writes: A winter storm tore across the country this past week, but the vernal equinox is close at hand. That means crocuses and hyacinths should begin popping up soon, Easter Peeps and chocolate bunnies will begin lining store shelves (if they're not there already), and baseball stats will begin crowding out basketball scores in the sports pages. The proximity to the spring season also means that tax day--April 15--will be here before you know it.  To kick things off, I asked Morningstar.com readers to share their best tax tips, and they were eager to comply, swapping tips on reducing taxes during retirement, managing tax-sheltered and taxable accounts, and good record-keeping. Poster ennnius wrote, "This is a great thread--I am learning much here."  'Essential to Our Long-Term Plans'Several posters touted the virtues of tax-sheltered accounts.

BMWLover wrote, "For our retirement accounts I do my best to max out our contributions to our 401(k)s and Roths. The tax benefits of both are essential to our long term plans."

Meanwhile, Dragonpat is partial to her traditional 401(k), with pretax dollar contributions. "Contribute the max to your 401(k)," she advised. "Until you max that out, I would not even bother with Roth contributions. It is the one big deduction I have that the alternative minimum tax allows me to have. The AMT has stripped me of my deductions for my children, state income tax (I live in a high tax state), and my property taxes."

On the flip side, Retiredgary, like others who fret that taxes could go up, is a true believer in Roth vehicles, to which you make aftertax contributions in exchange for tax-free withdrawals in retirement. "Get everything into a Roth that you can," this poster urged. "Things with regard to taxes are likely to get worse before they get better."

Lengrav also likes Roths, but for a different reason. "While funding IRAs favor a Roth simply because you will probably save more! Most people that put $5,000 into a traditional IRA fail to save the tax savings this generates. But if you save $5,000 into a Roth you must pay the taxes currently. Therefore as time passes most people would see the same balance in either IRA. But those with a Roth have already paid the tax."

For those inclined to convert traditional IRA balances to Roth, Dennis offered up the following nifty idea. "When you convert to a Roth IRA convert three to five times what you target as your conversion and put each multiple into a separate Roth account. When you file your income tax return in October under an extension, recharacterize back all but the best-performing Roth account. Two caveats: Make sure you are with an IRA sponsor that allows this. Recharacterize by mid-September. It can take the IRA sponsor a long time to process the recharacterization as this technique is popular." (This article includes more details on recharacterizations.)

'Tax-Efficient Funds That Can Be Held Forever'Posters also shared tips for limiting Uncle Sam's cut of taxable accounts.

The always sagacious Taylor Larimore advised, "In taxable accounts, except for short-term goals, hold only tax-efficient funds that can be held 'forever.'"

Tax-managed funds fit the bill for Chief K, who urged, "For investments outside of IRAs/401(k)s, hold tax-managed funds that are near-clones of index funds (for example, Vanguard Tax-Managed Small Cap (VTSIX) or Vanguard Tax-Managed International (VTMNX))."

Harvesting losses, which can be used to offset up to $3,000 in ordinary income or an unlimited amount of capital gains, is on Dragonpat's to-do list each year. "I harvest capital losses against gains in my taxable account in an effort to minimize my tax bill," this poster wrote.

Retiredgary noted that careful selling of long-term holdings can keep taxes down or limit them altogether. "If you are in the 15% bracket and in a state that does not tax capital gains," he advised, "consider taking gains up to the top of that bracket each year as they will be taxed at a rate of 0%."

Although most of the comments focused on limiting one's federal tax burden,artsdoc noted that it's worth plugging into state tax laws, too, especially if you live in a high-tax state. "One tax tip that I would give everyone living in a high personal income tax state is to familiarize yourself with state tax laws. I had always paid attention to federal tax laws and planned accordingly. Only within the past couple of years have I paid more attention to the California tax laws and it was pretty eye-opening. And now that our state personal income tax increased an amazing 30% for top earners, it does make an even bigger difference in tax planning. It truly does change your fixed income calculation comparisons (tax-equivalent yield becomes an even more important tool) and even those qualified dividends from (federally) tax-efficient mutual funds can become more expensive than you once thought."

On the importance of tax management in taxable accounts, BMWLover was a rare contrarian, writing, "I don't worry much about the tax consequences of my investment decisions in my taxable accounts. The way I look at it, if I have to pay more in taxes it just means that I've made more money. The only times I will look at tax consequences are when I am selling a stock and I'm just about to hit the demarcation point between short term gain and long term. The other is if I am deciding between two investments and one has qualifying dividends and the other does not."

'You Can Be Free of the Feds'Posters also shared valuable advice about carefully managing income sources in an effort to limit their tax bills in retirement; that type of tax management simply isn't available to those who are earning a paycheck.

Dennis' post illustrates why tax diversification--a topic I discussed in this article--can be so valuable in retirement. "If you leave work well before 65, try to have significant retirement account balances and substantial taxable accounts. Living off the taxable accounts may result in low taxes if you have high basis in the securities. Create income to offset your deductions and to bring you up to your projected post 65 marginal tax rate by converting your retirement accounts to Roth accounts while you are in your first years of retirement living off the taxable accounts. Try to maximize your tax savings over your entire retirement period and not just for the current year. That maximization effort should take into account higher Medicare premiums based upon adjusted gross income and, if you are well off, Medicare taxes on your investment income."

Frrries is also a believer in diversifying across multiple vehicles and carefully managing income sources on a year-by-year basis. "Set yourself up for an income tax free retirement," this poster advised. "First, keep modified adjusted gross income below $25,000 and Social Security is tax free. Then build a taxable IRA account, a Roth IRA and a Health Savings Account. For example, a married couple might get about $30,000 in social security. Add $18,000 out of the taxable IRA, $18,000 out of the Roth and $12,000 out of the HSA. Total income is $78,000 per year 100% tax free in any state in the union (taking the standard deduction and two exemptions)."

Trial-running your planned income stream can help you manage your tax burden or even avoid taxes altogether, according to Darwinian. He walked readers through the process in this detailed post. "Take a blank 1040 form and work from the bottom up, on the second page. Enter any tax credits, and scan down your column in the tax table to find how much taxable income you can have that will be completely offset by this credit. Then, move up to the deductions and personal exemptions, and add these in. You will end up at the top of the page, with a zero-tax adjusted gross income. Next, turn back to the first page and fill in any taxable pensions and other income. If these are less than your zero-tax adjusted gross income, and if you have enough Roth/unsheltered assets to provide the remaining income you need, you can be free of the Feds, and will probably have only minimal state income tax. You only need to limit your IRA withdrawals for the coming year to the difference you just calculated. Be careful if you are taking Social Security income; the tax rate depends on how much other taxable income you decide to have, which makes it hard to figure. Do successive approximations on the SS worksheet, or call in a tax professional. And make sure you add any capital gains resulting from sales of assets for income."

Chief K, meanwhile, noted that delaying Social Security has a tax silver lining, in addition to helping boost benefit size. "Deferring collecting Social Security means spending down 'other cash' instead of spending the benefits. In the meantime those benefits increase at 8% per year--without any taxes being due on the increase (plus inflation adjustments)."

TraderBob's strategy won't be for everyone, but could appeal to those with mobility in mind. "Buy an RV and set your residence in a state that does not tax Social Security or pension income and has otherwise low taxes (for example, South Dakota maybe)." 

'Behold With Amazement the Long List of Tax Benefits'In addition to sharing tips for managing their income streams, posters also discussed how to make the most out of credits and deductions.

"Bunching" deductions--itemizing in some years and not others--has worked well forTexasboy, who wrote, "In entering retirement I had the pleasure of making my last mortgage payment. That basically left me with itemized deductions of property taxes and contributions. So we've begun alternating years of bunching the payments for two years allowing us to take the standard deduction the off year, thereby reducing taxable income for combined period. It may not be significant but [is] worth the effort, which is minimal."

More deductions are available to small-business owners, notedDennygal. "Start a small or very small business and put it in a limited liability corporation. Fill out your own Form 1065 and behold with amazement the long list of tax benefits available to small business owners--for example, deducting your Medicare insurance premiums as a business expense."

Making charitable contributions carries multiple benefits in FidlStix's book. "Channel as much into eligible nonprofits as you can afford," he advised. "You'll not only gain the satisfaction of helping out the causes you like, but you'll enjoy a substantial tax deduction (assuming you're not squirming under the alternative minimum tax burden)."

Dennis advised the following strategy for charitably minded seniors. "If you want to support charities while in retirement and have substantial taxable accounts, contribute as much as you can to a charitable gift fund before you retire, when your marginal tax rate may be at its highest. Then make your future gifts from the fund. This will keep your adjusted gross income under control and help avoid the higher Medicare premiums. The reduction of your income in retirement by pre-giving through the charitable gift fund and by converting to a Roth account may save your Social Security and Medicare if those benefits are ever means-tested."

Posters also shared some intriguing outside-the-box ideas for limiting tax bills.

"Carry adequate insurance," Chief K sensibly advised. "An accident or illness that requires you to raise large amounts of cash quickly can play havoc with any tax planning you've done."

Meanwhile, Retiredgary urged other retirees to "go off the grid," figuratively speaking. "Do things that increase your wealth but do not show up in the money economy such as growing a garden, painting your house yourself, working with friends to do repair and remodeling work on each other's property, growing fruit trees, doing sewing or woodwork, and so on. The government has not yet figured out how to tax a freezer full of fruit and vegetables you grew or a deck chair you built. As a side benefit, many of these things are good hobbies and offer particularly retired people opportunities to get outside and stay physically active. It also makes a person fell a bit more competent and secure to have some of those basic skills."

'Don't, I Repeat, Don't Wait Until April to Start'Posters differed in their attitudes toward doing their own returns or hiring a certified public accountant or other tax professional to handle their taxes.

In the "hire out" camp was EasyAsItGoes, who urged, "Hire a first-rate accountant to do your taxes. This is no time to go to the guy in the mall if your return is anything more than 'simple.' The really good CPAs know the tax code inside and out and they'll play out a half dozen scenarios to find you the best return and give you advice about the coming year. See them midyear for a tune-up. My accountant says it every year, 'Your job is to pay taxes . . . our job is to make sure you pay only what you should pay and not a penny more. '"

But Rule72 disagreed. "Learn how to do your own taxes!!! This is not rocket science," this poster noted. "I agree it takes extra time and effort to do this yourself, but it really makes investing and estate-planning decisions a lot easier. You will know for yourself exactly the effects of various choices with traditional IRAs, Roth IRAs, 401(k)s, and so on. Each subsequent year gets easier.

Within the do-it-yourself contingent, posters shared valuable tips for getting it done.

Bnorthrop wrote, "My top tip for self-preparers is to use tax software. It allows one to run different scenarios to minimize tax obligation. I do this throughout the year, not just at tax time. Trying this with paper forms would be an insane amount of work. I've also used the software to do 'what-ifs' to calculate state taxes in those states I may wish to relocate to in the future. And for those who avoid direct ownership of MLPs due to their K-1 instead of 1099, tax software allows importing K-1 data. Even manually entering the data is basically a paint-by-numbers exercise."  Others emphasized the importance of starting your tax preparation season early--ideally before the tax year is through. The benefit? Having time to actually affect your return.

MBAFBA wrote, "In early December calculate an estimate of year-end income and an estimate of next year's taxes. Then review investments to see if there are capital losses to be captured, capital gains to be considered, and any other opportunities to reduce taxes. In some years, like 2012, this will put you in a knowledgeable position to take advantage of new opportunities like the (late) extension of the charitable IRA rollover."

Rule72 was emphatic about not procrastinating. "Don't, I repeat, don't wait until April to start!" This poster went on to make working on taxes sound downright appealing. "Start in January. Get a favorite beverage, some soothing music and spend two to three hours about once a week. You'll be less stressed, smarter and richer for it. [I spent] my time during [last week's] snowstorm with a glass of wine, jazz, and double-checking my tax forms that I completed a week ago. Bottom line--put yourself in a position to take advantage of opportunities before it is too late."

Several posters noted that, whether you're doing your taxes yourself or outsourcing to an accountant, keeping good records is essential to a smooth tax season.

EasyAsItGoes wrote, "Your accountant (or tax software) is only as good as the information you give him/her/it. Start the year by keeping good records."

Good record-keeping is also a must for Rule72, who shared, "The most difficult part of doing your taxes is finding and sorting all the necessary documents. Do this year-round; simply throw receipts into a folder or box as you get them."

Comments

1-5 of 5 Comments

povdds

Feb 24 2013, 5:42 PM

• Flag

Please remember that maximizing deductions can help minimize your taxes. Here's a way that can lower your tax rates, further a good cause, and help make you a better person.

Charitable contributions can increase your deductions, and help an organization that will likely spend the money more efficiently and more caringly than the US federal government will. They can also give you confidence that you can be generous even during difficult financial times, and they can show your children the value of generosity itself. Giving is not only a way to help you feel good and confident, it helps organizations that are making a real difference in the way we live our lives.

dragonpat

Feb 24 2013, 5:41 PM

• Flag

""Then build a taxable IRA account, a Roth IRA and a Health Savings Account. For example, a married couple might get about $30,000 in social security. Add $18,000 out of the taxable IRA, $18,000 out of the Roth and $12,000 out of the HSA. Total income is $78,000 per year 100% tax free in any state in the union (taking the standard deduction and two exemptions).""

Wrong.. the 18K out of the taxable IRA will cause tax at 3.4% on that in Indiana, less your exemptions of maybe 4k if your over 65. Not tax free in "any state". Beware of taking tax advice from posts."

Yes that $18,000 would be subject a 5.35% tax in MN

NormanR

Feb 24 2013, 4:03 PM

• Flag

I am a "live below your means advocate." I save a bit each year and I consider my Roth IRA contribution as part of my annual savings. Even if things are tight, I still fund the Roth. It's took a few years, but I succeeded in convincing the spouse and continue to work on the children.

gehcpa

Feb 24 2013, 2:11 PM

• Flag

"Then build a taxable IRA account, a Roth IRA and a Health Savings Account. For example, a married couple might get about $30,000 in social security. Add $18,000 out of the taxable IRA, $18,000 out of the Roth and $12,000 out of the HSA. Total income is $78,000 per year 100% tax free in any state in the union (taking the standard deduction and two exemptions).""

Wrong.. the 18K out of the taxable IRA will cause tax at 3.4% on that in Indiana, less your exemptions of maybe 4k if your over 65. Not tax free in "any state". Beware of taking tax advice from posts.

ccmikeyb

Feb 24 2013, 1:15 PM

• Flag

Be careful about converting to ROTH ira's when the market is up. A recession is a good time to make that move so that you'll be taxed on a deflated basis

QuickBooks Alternatives: On-Premise and Cloud Accounting Solutions

Michael Tauscher for Business-Software.com writes: One of the most common questions we see on our community forum is, “What options do I have for accounting beyond QuickBooks?” While Intuit has certainly come to dominate both the personal and business accounting market, there has nonetheless been a simultaneous explosion in the number of online and offline alternatives to the monolithic bully that is their flagship product. Of course, the difficulty in answering such a question is determining who the asker is and for what purpose they are seeking another accounting system. For those who prefer an on-premise (i.e. offline-accessible) accounting solution, the competition’s numbers are dwindling but a few steadfast companies along with some open source developers are refusing to crack under QuickBooks’ pressure, and are delivering powerful products as a result.  As for the rest of us, the market for online accounting systems is a wide world of idiosyncratic features, integrated services, and personal preference. In fact, we already covered some of our favorite online accounting solutions for SMBs and have still just begun to scratch the surface. Thus, with brevity in mind, here is a selection of the best alternatives to QuickBooks available in today’s marketplace.

Online Alternatives

FreshBooks

The appeal of FreshBooks is its compatibility across all devices and platforms so your accounts will never be further than a tap away. Its suite of features includes invoicing, expense and time tracking, report generation, and automatic summaries for tax purposes. For more information on FreshBooks, check out our FreshBooks Review here, or our interview with Chief Marketing Officer Stuart MacDonald.

inDinero

Y Combinator and 500 Startups-backed inDinero offers a standalone solution to bookkeeping, tax preparation, payroll and benefits management. While it seems liketheir customer service may leave something to be desired, if you can pony up the $349 monthly fee inDinero offers a compliant and optimized accounting system for any business.

Intacct

Intacct touts itself as the solution for businesses that require more than what QuickBooks provides. Their pay-as-you-go model means that if you’re looking for a tool to remedy a specific pain point you won’t end up paying for a suite of accompanying features that you don’t need.

LessAccounting

As the only system specifically designed for accountant/customer collaboration, LessAccounting makes it easy for a CPA to view all of their clients’ books using a single login and dashboard. On the client side, small business owners can manage their bookkeeping and invoices, set up recurring transfers and reminders, and file taxes. Learn more about LessAccounting in our interview with co-founder Allan Branch.

Outright

Outright is the solution for small business owners who are simply in over their heads. If you have multiple accounts spread across banks and businesses, Outright will consolidate all of your bookkeeping to give you unparalleled oversight of your cash flow. Their base service is free, and for an additional $9.95/month you can add automatic quarterly and annual reports plus sales tax tracking.

Wave Accounting

If Wave had to be described in one phrase it would probably be: “All automated everything”. Wave automatically imports your data, updates it, generates reports based on it, and then pays your bills and your employees without needing to be told. If control is your thing, Wave might not be for you; but if you’re looking to manage a relatively simple business ledger with minimal time expenditure, meet the perfect free-for-life solution.

Xero

One of the most popular online QuickBooks alternatives, Xero offers a rock-solid platform presented in an intuitive interface. All of the necessary accounting functions are addressed including general ledger management, import and export of financial data, invoicing, reporting, bill pay, and tax filing. Xero’s greatest strength, however, is its extensive add-on library which allows for easy integration with payment gateways like PayPal, CRMs like Salesforce, and time management software like Harvest. Read our interview with President of US Operations Jamie Sutherland to learn what Xero sees as its greatest strength compared to QuickBooks.

Yendo

Yendo is an excellent choice for small businesses that need a functional accounting solution at a reasonable monthly price. For $9/month Yendo will handle all of your basic accounting needs and can be upgraded to accommodate five users for only $26/month.

On-Premise Alternatives

AccountEdge Pro

If you were wondering where MYOB went, look no further than AccountEdge Pro. Offering many of the same services as QuickBooks at a significantly lower price point, AccountEdge Pro gives you invoice templates, account import and management, customer and time tracking, multi user access, inventory management, and payroll processing starting at $299 for a single user.

GnuCash

If you’re a fan of open source software or are looking for no-frills accounting software that’s cheap as free, GnuCash is right up your alley. GnuCash provides true double entry accounting with no limit to the number of accounts managed and an array of useful features like transaction scheduling, report generation, customer and vendor tracking, invoicing and bill pay, and tax preparation all on the operating system of your choice.

Manager

Manager, another free alternative to costly desktop options, is aimed at the SMB owner who wants to manage his/her own accounting but doesn’t have much experience with the more technical aspects of bookkeeping. By exchanging accounting terms for plain language, anyone can easily manage their own money in, money out, sales and purchase invoices, chart of accounts, and journal entries. Manager also automatically generates balance sheets, profit and loss statements, tax summaries, and general ledger summaries.

Sage 50

Formerly Peachtree, Sage 50 is essentially the same product with a new label to bolster Sage’s brand recognition. Sage 50 is a one-to-one replacement for QuickBooks when it comes to managing accounts, payments, collections, and customized reporting with added features for tracking inventory, planning purchases, and expanding service offerings. If the $369 price scares you, Sage also offers a cloud version of its software called Sage One for $39/month.

xTuple PostBooks

Much more than just an accounting system, xTuple’s PostBooks is an all-in-one solution to every organizational need your business might have. The accounting portion of the program includes general ledger, accounts receivable and payable, bank reconciliation, and financial reporting all backed by fully integrated CRM and inventory management tools. As with the other open source solutions, PostBooks is available for all operating systems.