Thursday, March 28, 2013

Xero's share price - one pundit's analysis (New Zealand)

For our American readers - be mindful this report is out of New Zealand and their stock market.  To call Xero's growth 'explosive' is an understatement.   Just a couple years ago in the U.S. no one ever heard of Xero - yet today many here in the U.S. believe it's just a matter of time before Xero topples QuickBooks dominance in the U.S. market.  It's not hard to find that sentiment - and many parallel the Xero story to the "dot.com" era of the 1990's.  Just wanted to frame this a little for our U.S. readers, as we meet  Ben Kepes for the National Business Review (NZ) who writes:  In recent weeks the share price for listed cloud accounting vendor Xero [NZX:XRO] has risen at an incredibly fast rate.
The company, which has around 140,000 paying customers globally and is yet to turn a profit, is now valued at close to $1.5 billion.
This is a staggering achievement and something I wanted to dive into a little.
But first a bit of a disclaimer, as a proud New Zealand, I’m happy for what Xero has achieved, it’s great for the investors but, more importantly, it’s great for New Zealand as a whole. With the market cap as it stands, CEO and founder Rod Drury looks likely to achieve his three stated aims; to build a billion dollar business from the beach, to achieve an exit at a higher price tag than that which TradeMe achieved and to personally achieve his aim of being able to afford a private jet. Personal ambitions aside, it’s time to noodle on the share price a little.
The other day I was talking to a friend who told me that his retired father has suddenly discovered Xero on the bourse, and is considering investing.
This is a reflection on the level of maturity of the New Zealand market and the investing public. It’s also, to be frank, a reflection on the fact that institutional investors and advisers have suddenly decided Xero is a sure bet, no doubt encouraged by the stellar share price growth. They’re buying the stock and advising their clients to do similarly.
The day Xero entered the ranks as one of the top 50 market cap companies on the NZX they also suddenly gained visibility within the advisory community – the combination of a stock that isn’t heavily traded with this increased demand leads to an artificially high impact from low volume trades – this is great on the upside but painful on the downside.
It’s actually very positive for the maturity of the company that they recently cross listed on the Australian exchange – it brings them a greater level of savvy investors that actually understand the dynamics of a potentially high-growth/high-risk investment. Drury has also signaled a possible future listing on the US exchange – this too would give both some stability and some liquidity to the share price – both positive things.
However this greater scrutiny will challenge the company to find analogues for its business.
Drury has regularly pointed out the fact that Microsoft acquired enterprise social networking company Yammer for $US1.2 billion as justification for the sort of valuation Xero is hitting.
That might work for new Zealand investors who don’t quite understand the nuances, but Yammer was a very different deal for a couple of reasons:
  • It had an exceptionally effective viral user growth pattern that Microsoft needed to learn about as they try and morph their business into the internet age
  • It was an answer to the growing attention that social networking within enterprise was garnering – Salesforce.com’s Chatter product and Tibco’s Tibbr were increasingly making Microsoft look late to the party
For these reasons, and given the massive war chest of cash that Microsoft holds, the Yammer deal made sense. it may end up being a failure as a business division of Microsoft, but as a learning, marketing and corporate culture tool it makes sense.
Others rightly suggest that Intuit, the US’s biggest vendor of SMB financial products, is a potential suitor for Xero (some even going on to suggest that it is Intuit behind the buying that is sending the share price upwards – a theory I discounted).
People point to the fact that Intuit acquired the personal financial management product Mint a few years ago (for $US170 million) and has an appetite for acquisitions that shoehorn itself into this new world. The Mint acquisition was, in my view, a very different deal, in a couple of important ways:
  • Mint had delivered an interesting mix of behind the scenes business intelligence. It was mining aggregate data to deliver insights to customers and hence had some very useful technology that could be back doored into other Intuit products
  • Mint, like Yammer, had worked out the viral uptake model and, at the time of acquisition, boasted over a million users
While Xero is doing very well from a user numbers perspective, for Intuit to acquire the company, it would have to be showing stellar growth in the only market that really matters – the US. Xero has really ramped up its US presence, the company has shifted into its own space and has ramped up the team significantly, but it’s coming from a relatively small customer base.
While I recently reflected on the 100,000 customer milestone and suggested that this indicated that Xero had reached escape velocity,  this statement becomes far more nuanced when we look at the joint factors of massive market capitalization and global market share dynamics.
I believe that Xero, at its current market capitalization, is yet to become a compelling proposition for a US acquisition. Rather, what a company like Intuit is likely to do is one of two scenarios:
Wait until someone enjoys meaningful customer success in the US and acquire them for a lofty sum, secure in the knowledge that they’ve gained a path to continuing market domination

Acquire a company for a far more modest sum that has potential to become the breakout product in the space

The cloud accounting space isn’t a zero sum game however and this creates another difficulty for Xero, it is unlikely that we’ll see a repeat of the emergence of a small number of companies that dominate in the three big geographies (Intuit in the US, Sage in the UK and MYOB in Australasia). Xero is helped by the fact that in the US there is no vendor that has really captured market share – Outright (recently acquired by GoDaddy) and Wave (an interesting company with a free model) are the two best known domestic providers, but potentially more compelling is FreeAgent, a UK based vendor that has recently entered the US market and is a savvy operator.
Xero is executing well and their potential is massive.
However potential only explains part of a business’ valuation, does Xero’s potential justify a $1.5 billion valuation?
Not in my analysis – surely it may go higher as market frothiness and low liquidity combine to drive the economics.
But eventually an equilibrium needs to be found, one that is based on customer numbers, market growth and eventual profit – which we've yet to see Xero deliver on.
Christchurch entrepreneur and cloud computing commentator Ben Kepes blogs at Diversity.net.nz.
Comments
I've lived through 3 recessions. The cycles are always same, appearing around the 7 year mark.
The same variables always appear when the market heads towards a peak - house prices increasing ridiculously, unrealistic shareprice growth, and companies being valued at stupid multiples when they can't even turn a profit.
Greed also appears when a market peaks.... look at Solid Energy, Mainzeal - everyone starts to think they are bullet proof. (In Don Elders case, it would appear that he is.)
I like Xero and I like Rod Drury.... but I'm also at the point where I believe Xero is starting to show the signs of a market loosing its ability to invest sensibly.... when that happens we should all be afraid.
I like the analysts point above about Xero not being a potential target for anyone until they have meaningful number of US customers....
Just having a quick look at Freshbooks.com.... they have over 5 million users already, 50 times more than Xero. They call themselves the #1 cloud accounting platform in the world.


Ben- you've held a similarly cautious view on Xero's growth for years. You've previously picked that the incumbents pose a significant risk to Xero achieving their market share ambition. I recall you pointing to MYOB posing a bigger threat to their growth than has turned out (and i suspect will continue to turn out) to be the case. Whilst the incumbents are compotent, Xero have proven correct in their analysis that they can't cope with their legacy baggage. There is no reason that anyone has written or blogged that looks rationale to me, why Xero won't gain a respectable degree of market share in the US, given their pedigree / track record to date + being dismissive of the value Xero could gain in the rest of the world seems wrong. Xero appear to have a great chance in the long term of achieving a multi million user base outside the US. Why shouldn't Xero achieve a dominant market share in their primary markets ? 

Back to the US - supporting US growth, they have more capital, their product is richer and deeper, their talent pool stronger, their product moat is growing more rapidly, free access to further capital at minimal dilution rates to existing investors... but most important of all, businesses understanding and accountants understanding of a connected cloud environment (thanks to industry pundits like yourself) has significantly changed. They're pushing against an open door in the market. Much of Xero's new customer base doesn't come from a competitor. They're converting the spreadsheet / cashbook generation. We've all seen cycles and bubbles before, but occasionally a company achieves that potential. Xero seem to have a good chance of this. Will we see Xero billing annual equivalent revenue of $100m in circa 12 months and then $200m after that.. their track record does support this. If that plays out, it's clear that investor appetite will sustain a very high forward value and todays price will look like Xero's price 3 years ago (ie bloody cheap). They're only just on the start of a something massive, it's not going to slow down any time soon, at some stage it might accellerate beyond 100% CAGS compound annual growth rates. As has happened in Australia.
Mike - thanks for your well thought out response. You're right in terms of the incumbents, I have to hand this one to Rod, MYOB have gone off the rails post private equity deal. I'd be surprised to see them come back with anything compelling.

Intuit is another story, though - their QuickBooks Online product is pretty middling, but not completely terrible, and they've shown that they have an appetite for smart acquisitions (a la Mint) - if anyone can cope with their legacy baggage, it's likely them.

It seems to me that the days of one major vendor in any one market are gone - the future will be made up of a number of competing solutions. If that's the case, then what is the realistic level of customers that Xero can achieve, what revenue does that equate to and what market cap does that support?

Re your comments about Xero having more capital and a richer and deeper product - no argument on the capital part (although if, for example, intuit acquired FreeAgent, that would certainly change). In terms fo the product, however, I disagree that Xero stands a million miles ahead of the competition in terms of functional breadth - that's simply not the case. Xero is beautiful and does what it does very well, but other products do the same or more, albeit to an arguably lesser level of beauty.

I speak to accountants in the US a lot - and I'm not convinced that they're yet pushing against an open door. Yes, the door is starting to open to them but it's not a done deal yet.
Anyway - here's hoping. I'm not an investor, but all of us here in NZ want Xero to pull this one off.

Posted on 7:11 PM | Categories:

xTuple for Accountants Webinar (FREE) / Commercial open source ERP - CRM and xTuple in 2013


xTuple makes next generation business management software that grows and matures with your company.  Accounting, Enterprise Resource Planning (ERP) and Corporate Relationship Management (CRM) software provides one platform that efficiently and effectively weaves together all facets of an organization and all people who play a role within, it is also open source software, which means you – or anyone you choose – can modify it to meet your business needs.
Marc O'brien for NextBusiness writes: The xTuple community and company are booming, announcing 66% growth in the second quarter of this year and 74% growth in the third quarter. I was fortunate to join xTuple during the recent annual partner conference. What a great experience to meet partners from around the world. Consistent with other thriving open source companies, highly motivated and successful subject matter experts are building their businesses around xTuple. This means great worldwide support but also rapid innovation, with partners and customers alike creating modules and additional functionality as well as integrations with other software. The source code is available for the community to extend, which adds to the velocity of innovation.

2013 will be a big year for commercial open source vendors, including xTuple. Companies such asSugarCRM and Acquia may be preparing for initial public offerings (IPOs) based upon their business models. We will continue to see more large companies and governments worldwide adopt open source as their standards or as an “Open Source First” policy, whereby open source solutions are preferred and must be precluded prior to adopting a commercial alternative. This trend will continue as well as become pervasive within the corporate world. “Open Source First” will continue to spread due to its success stories, enabling xTuple and other open source solutions to be universally evaluated. When xTuple is evaluated as an ERP solution, it has an amazing success rate, including such recognized companies as U-Haul and Nordic Naturals, the international leader in delivery of the safest, most effective omega oils.
xTuple is looking forward to even more success in 2013 and beyond, riding the same wave of innovation that other solutions are seeing in commercial open source growth. Building on success to-date , the xTuple team has added depth and continues to invest in improving both the classic Desktop offering and the recently launched Mobile Web application. xTuple, recognized as the world’s leading open source ERP, also has many companies interested in Partner opportunities – all at the same time the vast list of companies relegated to the ERP Graveyard is growing.


Wednesday, April 17, 2013 1:15 PM - 2:15 PM EDT
Click Above to Register

Posted on 2:59 PM | Categories:

Don’t Miss the Health Insurance Deduction if You’re Self-Employed

If you are self-employed, the IRS wants you to know about a tax deduction generally available to people who are self-employed. The deduction is for medical, dental or long-term care insurance premiums that self-employed people often pay for themselves, their spouse and their dependents. The insurance can also cover your child who was under age 27 at the end of 2012, even if the child was not your dependent.  You may be able to take this deduction if one of the following applies to you:
  • You had a net profit from self-employment. You would report this on a Schedule C, Profit or Loss From Business, Schedule C-EZ, Net Profit From Business, or Schedule F, Profit or Loss From Farming.
  • You had self-employment earnings as a partner reported to you on Schedule K-1 (Form 1065), Partner's Share of Income, Deductions, Credits, etc.
  • You used an optional method to figure your net earnings from self-employment on Schedule SE, Self-Employment Tax.
  • You were paid wages reported on Form W-2, Wage and Tax Statement, as a shareholder who owns more than two percent of the outstanding stock of an S corporation.
  • There are also some rules that apply to how the insurance plan is established. Follow these guidelines to make sure the plan qualifies:
  • If you’re self-employed and file Schedule C, C-EZ, or F, the policy can be in your name or in your business’ name.
  • If you’re a partner, the policy can be in your name or the partnership’s name and either of you can pay the premiums. If the policy is in your name and you pay the premiums, the partnership must reimburse you and include the premiums as income on your Schedule K-1.
  • If you’re an S corporation shareholder, the policy can be in your name or the S corporation’s name and either of you can pay the premiums. If the policy is in your name and you pay the premiums, the S corporation must reimburse you and include the premiums as wage income on your Form W-2.
For more information, see Publication 535, Business Expenses. It’s available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).
Additional IRS Resources:


Posted on 12:50 PM | Categories:

Taxes: How to Deduct Business Meals and Entertainment

Amber White for Henry & Horne writes: Meal and entertainment expenses incurred for business purposes are very common, and necessary.   Unfortunately, many businesses do not include the proper documentation for these expenses, and leave themselves open to IRS disallowance upon audit.  These expenses require you to jump through several extra hoops to qualify as deductible and are subject to limitations. Nevertheless, if you pay careful attention to the rules outlined below, the expenses should qualify as deductible.


(1) Ordinary and necessary business expenses. All business expenses must meet the general deductibility requirement of being “ordinary and necessary” in carrying on the business. These terms have been fairly broadly defined to mean customary or usual, and appropriate or helpful. Thus, if it is reasonable in your business to entertain clients or other business people you should be able to pass this general test.
(2) “Directly related” or “associated with.” A second level of tests especially applicable to meals and entertainment expenses must also be satisfied. Under them, the business meal or entertainment must be either “directly related to” or “associated with” the business.
“Directly related” means involving an “active” discussion aimed at getting “immediate” revenue. Thus, a specific, concrete business benefit is expected to be derived, not just general goodwill from making a client view you favorably. And the principal purpose for the event must be business. Also, you must have engaged actively during the event, via a meeting, discussion, etc.
If the “directly related” test cannot be met, the expense may qualify as “associated with” the active conduct of business if the meal or entertainment event proceeds or follows (i.e., takes place on the same day as) a substantial and bona fide business discussion.
This test is easier to satisfy. “Goodwill” type of entertainment at shows, sporting events, night clubs, etc. can qualify. The event will be considered associated with the active conduct of the business if its purpose is to get new business or encourage the continuation of a business relationship. For meals, you (or an employee of yours) must be present. That is, for example, if you simply cover the cost of a client’s meal after a business meeting but don’t join him at it, the expense does not qualify.
(3) Deduction limitations. Several additional limitations apply. First expenses that are “lavish or extravagant” are not deductible. This is generally a “reasonableness” test and does not impose any fixed limits on the cost of meals or entertainment events. Expenses incurred at first class restaurants or clubs can qualify as deductible.
More importantly, however, once the expenditure qualifies, it is only 50% deductible. Obviously, this rule severely reduces the tax benefit of business meals and entertainment. If you spend about $50 a week on qualifying business meals, or $2,500 for the year, your deduction will only be $1,250, for tax savings of around $300 to $400.
Posted on 9:01 AM | Categories:

7 Health Insurance Tax Tips

Keith Mendonsa  for ehealthinsurance.com writes When tax season comes around many of us overlook credits and deductions built into the tax code that are designed to make medical care and health insurance more affordable.  Consumers who had high medical expenditures in 2012, who were self-employed or owners of small businesses, or who cared for aging parents should educate themselves on the opportunities to deduct a portion of their expenses from their federal income tax.
This year’s tax season is also a good time for consumers to familiarize themselves with the possible tax consequences of health reform provisions scheduled to come into effect in January of 2014.
While we’re not tax experts, and we still recommend you explore your options with a professional tax advisor, we’ve compiled the following tips to get you started:
 Health and Insurance Related Tax Tips for Tax Year 2012
Itemize medical expenses while you can – Not everyone has medical expenses high enough to deduct them on their federal tax returns, but even fewer will be able to do so next year. 2012 is the last year you’ll be able to itemize and deduct medical expenses in excess of 7.5% of your adjusted gross income. As a result of health reform, that threshold is being raised to 10% for the 2013 tax year. So, if you itemize on your federal tax return, do the math. Qualifying medical expenses in excess of 7.5% of your adjusted gross income for 2012 may be itemized. You can refer to IRS Publication 502 for more information about qualifying medical expenses, but these may include monthly premiums you pay for coverage (including some Medicare premiums), copayments, deductibles, dental expenses, and costs for some services not covered by your insurance plan. You may even deduct mileage accrued while driving to and from regular appointments. This deduction isn’t for everyone, but if you (or one of your dependents) were seriously ill or hospitalized last year, you may qualify.
Expenses for the care for an aging parent – If your elderly parent earned less than $3,800 in 2012 (excluding Social Security in most cases) and you provided more than half of his or her financial support, you may be able to claim your parent as a dependent. This earns you an additional dependent exemption, even if your parent doesn’t live with you. And if you’ve paid for the medical or nursing care of a dependent parent, you may also be able to itemize your costs as qualified medical expenses
Medicare premiums and medical home improvements – If you’re a retired senior, you may have an easier time meeting the 7.5% adjusted gross income threshold to deduct itemized medical expenses on your federal return. In addition to your out-of-pocket expenses for medical, dental or vision care, you may also be able to include capital expenses for the installation of home medical equipment or improvements of your property for wheel-chair access. In addition, premiums taken from your Social Security check to pay for Medicare Part B may qualify as deductible, as well as premiums you paid for Medicare Part D (Prescription Drug) coverage or a Medicare Supplemental plan.
Deducting health insurance premiums as a business expense – If you had self-employment income in 2012, you may be able to deduct health insurance premiums you paid for yourself and your dependents as an ‘above the line’ business expense (that is, without itemizing) on your federal tax return. Be aware, however, that you may not deduct premiums (including Medicare premiums) paid for any month in which you were eligible to participate in an employer-sponsored health insurance plan, and the amount you deduct cannot be greater than your net self-employment income for the year. Also, keep in mind that you cannot include what you paid toward your monthly premiums as an ‘above the line’ expense and also itemize it. Talk to a tax professional to learn more about the different types of self-employment status and the tax implications of each in your state.
Fund your Health Savings Account (HSA) for 2012 – An HSA is a tax-advantaged savings account used in conjunction with an HSA-eligible health insurance plan. Account contributions, qualified distributions and earnings are all tax-exempt. An HSA allows you to deposit a portion of your pre-tax income into a savings account and use those funds to pay for qualified medical expenses. Unused money can be invested and accrue from year to year. If you have an HSA, be sure to deduct your contributions up to federally prescribed limits. Contributions to your HSA designated for 2012 and made before April 15, 2013 can be counted toward your 2012 federal taxes. According to IRS Publication 969, HSA contributions for the 2012 tax year are capped at $3,100 for individuals and $6,250 for families. If you’re over age 55, you may qualify to make an additional $1,000 contribution for the year.
Get tax credits for providing employees with coverage. If you’re a small business owner providing group health insurance coverage for your workers, don’t forget that there may be special tax credits available to you. If you have 25 or fewer employees with average annual wages of less than $50,000, you may be eligible for a special tax credit of up to 35% of the amount you contribute toward employee insurance premiums. Starting in 2014, that credit will increase to 50%. Keep in mind that in order to qualify for the credit you must have paid at least fifty percent of your employees’ total monthly premiums.
Start thinking about tax changes for 2014. Once you’ve completed your taxes this year, take a look at your income and see if you’ll qualify for a federal health insurance subsidy in 2014. If your adjusted gross income was less than 400% of the federal poverty level (that’s about $45,000 for a single person or $92,000 for a family of four, in 2012 dollars), you may qualify for a government subsidy in 2014. Failure to obtain health insurance in 2014 could result in a tax penalty. Another change: starting this year, you may notice a new dollar figure in Box 12 of your W-2. If you have employer-based health insurance, the cost of your coverage is reported to the IRS here. You are not taxed on this amount, but so-called “Cadillac” plans (with aggregate values of over $10,200 for individual coverage or $27,500 for families) may be subject to an excise tax starting in 2018.
The tips above do not constitute personal tax advice and eHealth recommends that consumers explore these issues with a certified public accountant or tax professional when completing their federal income taxes.

Posted on 9:00 AM | Categories:

A Financial Blogger Breaks It Down / "A Review of My 2012 Income Tax Results and 2013 Tax Planning"

Jacob for mypersonalfinancejourney.com writes: This past week, I finally received my completed 2012 federal and state income tax return documents from the accountant.

In general, the results were very good. However, I feel that by analyzing some of the finer details/numbers, I can better plan for how to approach my tax planning for the 2013 year.

Specifically, the questions I am interesting in answering are as follows:

  • How much of my un-taxed income should I be saving each month in order to pay taxes when the time comes?
  • Should I use an accountant for filing my 2013 taxes next year?

Let's get started! 

2012 INCOME BREAKDOWN

My 2012 gross income can be broken down in to the following components:
  • 2.3% from dividends and interest from investments (meaning that I can likely ignore this contribution for planning purposes since it is so small).
  • 68% from untaxed fellowship income for my work as a graduate student. 
  • 29.7% from Schedule C self-employed business income.

After subtracting out the deductible part of self-employment taxes and my contributions to my Individual/Self-Employed 401k account, I arrived at an Adjusted Gross Income (AGI) that was 20% lower than my overall gross income, so that was nice! 

2012 DEDUCTIONS

Since the standard deduction was greater than my itemized deductions, I took the standard deduction of $5,950 for 2012. After subtracting the 1 personal exemption I get for myself (with no kids, filing as a single person), I arrived at a taxable income that was only 57.4% of my original gross income that I started with (so a ~23% reduction from the AGI above).



2012 FEDERAL TAXES

Having established my taxable income, my total personal federal taxes were computed. Next, self-employment taxes were added on top of the personal taxes. 

This resulted in my total taxes owed for 2012 being ~11% of my overall gross income. Nice! I am surprised this percentage is so low! 

If we calculate this based on my AGI or taxable income, the percentages become 13.9% and 19.2%, respectively.



2012 STATE TAXES

For my Virginia State Income Taxes, the form starts out with my federal AGI mentioned above. From there, the VA standard deduction and my personal exemption reduces my taxable income to 71% of my overall gross income.

Having obtained my VA taxable income, my 2012 total state taxes owed was calculated to be 3.5% of my overall gross income. If we calculate this based on my federal AGI or federal taxable income, the percentages become 4.4% and 6.1%, respectively.


2012 TOTAL (STATE + FEDERAL) TAXES

If we put everything together from both state and federal taxes, we can find something useful for planning purposes going forward:
  • I paid a total tax amount for 2012 equal to 14.6% of my overall gross income.
  • For 2011, I calculated this number to be 17.8%.

2013 ESTIMATED TAX PAYMENT SCHEDULE

One of the nice things that my accountant does do for me each year is to calculate/prepare my estimated taxes for the following tax year (so 2013 was prepared during the 2012 tax preparation round).

For both the Virginia and federal estimated taxes for 2013, the accountant scheduled my payments to be ~$20 more than the total tax I owed for the 2012 (I'm not sure why they made it be $20 more and not just 100% of the tax amount from the previous year).

TARGET QUESTION # 1 - HOW MUCH OF MY UN-TAXED INCOME SHOULD I BE SAVING EACH MONTH IN ORDER TO PAY TAXES WHEN THE TIME COMES?

For 2013 tax planning purposes, the important question I have at this point is what percentage of my un-taxed fellowship and un-taxed self-employment income should I be saving to pay the tax man this next year? 

On one hand, I do have the requirement that I need to pay the scheduled estimated taxes set forth by the accountant, primarily based on my 2012 tax amounts. This part I really can't change. 

At first glance, I was guessing that since I am paying $700-$800 per month for staff writers to help build some awesome content for the site, my overall 2013 gross income will be lower than in 2012. By the same token, I have something else counter-acting this decrease in income by the fact that I won't be contributing pre-tax dollars to my self-employed 401k this year since I set up a Roth 401k option (since my current tax level is so low, it makes more sense to pay the taxes now instead of on the withdrawal side). This could cause my taxes owed for 2013 to be about the same as 2012.

One problem that occurred with my saving method for 2012 taxes was that I was saving 33% of my total un-taxed. As we discussed below, in reality, it ended up that I only paid ~15% of my gross income in taxes.In other words, I had saved about 2x the amount of cash that I needed to save in 2012 for my taxes! 

Now, I'll admit that having saved some extra cash throughout the year isn't the most terrible thing to have happened to me ever. In fact, I am glad now to have it since 1) I used some of it to pay my 1Q and 2Q 2013 estimated taxes, 2) I used it to purchase my fiance's engagement ring, and  3) I set aside another portion of it to help pay for things for our wedding coming up in 2014. 

However, it is likely that if I had known that I only needed 1/2 of the cash that I was stashing away, I could have put that money to better use by investing it at a higher rate than the 0.55-0.75% it was earning in my online savings accounts.

In order to optimize this for 2013, I think that I will approach the tax savings process as follows:
  • To be conservative, I will save 20% (so slightly higher than the 15% and 18% taxes I paid in 2012 and 2011, respectively but lower than the 33% I was saving for last year) of my un-taxed gross income each month in order to pay taxes/estimated taxes for 2013.



TARGET QUESTION # 2 - SHOULD I USE AN ACCOUNTANT FOR FILING MY 2013 TAXES NEXT YEAR?

With my first 2013 tax planning question answered in the previous section, my attention now turns to whether or not I should use an accountant to help with preparing my tax return this coming year. 

As I mentioned in my post several days ago discussing my experiences doing my 2012 taxes 4 times using Tax Act, TurboTax, H&R Block, and through an accountant, I calculated that I would have made/saved $151 after fees and tax refunds by using Tax Act for my tax return instead of an accountant.


This got me thinking - does an accountant provide me with enough value to keep using the same one (or different) going forward?

Well, let's start by first addressing the easy question of using the same accountant going forward. For the past few years, I have been using an accountant 1300 miles away back home in Arkansas because they were tying the payment for my taxes in with my Dad's business tax return (essentially doing my tax return without much additional compensation). Since my Dad is no longer having business taxes done since he has switched to regular employee income, I have to now pay to use that accountant. Obviously, there is no reason for me to stay with that same accountant since they are 1) charging me and 2) so far away.

So, the question now becomes - do I find a local accountant here in Virginia or just do my taxes myself using Tax Act?

Since I have self-employed income/a home business, my taxes tend to be rather complicated. In addition to standard estimated taxes that I pay periodically, I seem to often have tax-related questions that come up throughout the year as I am reading about various issues related to personal finances. In my mind, it is rather valuable to have a certified tax professional that I can openly ask about these issues. In addition, using an accountant to do my taxes provides me with a certain amount of peace of mind that is hard to put an exact price on. However, the number is definitely higher than the cost of the $151 from the 2012 tax return.

Because of the two considerations discussed in the paragraph above, I will likely start seeking out a local accountant here in Virginia to help with my 2013 taxes based on recommendations of several people I know here in the community. I'll be sure to share my experiences of screening CPA's as I go through the process, but I will need to do this sooner rather than later since I will likely need to mail 1099-MISC's to my staff writers from this site prior to January 31st, 2014 so that they can file their 2013 tax returns on time and I can avoid penalties.

How about you all? What lessons did you learn from your 2012 taxes that you will carry forward in the next year? 

Have you ever calculated what % of your gross income you pay in state + federal taxes (this is the first time I have ever calculated a percentage)?
Posted on 9:00 AM | Categories:

Staging Costs are Tax Deductible when Selling A Home

YourMortgageTeamonline.com writes: While your clients should contact their CPA on this topic, this is pretty interesting angle and argument for having a professional stager come in and make your listings shine!  Tax tip to your clients: Home staging fees are deductible expenses.
Tip to realtors: read this entire article to understand how…
In today’s market, real estate professionals will be even more competitive in their approaches to attracting buyers. The home staging business is quickly becoming a popular tool used for making one’s home more appealing.
Part of the real estate professional’s job is to suggest ways to improve the likelihood of quicker turnover of their inventory. A professional home stager provides a service designed to sell a home.

From this perspective, if the client hires the stager directly, then they are performing a service with the specific purpose of selling that home. Therefore, yes, the cost and expenses incurred for hiring this professional would be considered deductible when selling their home and may be netted against any gain on the sale, along with commissions paid to the Realtor and legal fees.
Specifically, home staging would be considered “advertising fees” and would fall under the allowable selling expenses. 
That said, if the home stager recommends the entire interior needs a fresh coat of paint, these selling expenses are not allowable deductions.    Bottom line: Paying for the home stager’s services is deductible, while expenses for repairs, maintenance or permanent redecorating of the house are not.
Realtor insight: Allow your stager to bill the client directly, not you, at closing so they can take advantage of this tax deduction.  The client can arrange for funds to be paid out of proceeds at the closing, so no cash up front is needed for them to pay the stager. You as their realtor, agree to lessen your commission by the amount you would have paid your stager, creating the same end numbers for everyone.
What a great way to differentiate your services from an agent who doesn’t understand how to give this great tax benefit to their clients.
Posted on 8:59 AM | Categories:

20 Best Free & Paid Accounting Software

Ionut Nedelcu for Technology Personalized writes: If you want to start a business, one important part is to take care of accounting, which, as many know, can give you some headaches. Also, thanks to the development of software solutions, accountants and business owners now have the possibility to move from the old physical registry books into the electronic era, with the help of accounting software.
These solutions are great for both small businesses that want to get rid of all those stacks of papers, and for large businesses where there is no alternative than to implement a software solution to keep track of their records. However, there are lots of accounting programs out there that begs the question: which are the best?

How to tell which Accounting Software is good

Today we’ll be looking at some of these accounting programs and we’ll try to find which of them are the best. There are some key aspects of an accounting software that you have took for granted when choosing which of them is best for you, and we’re going to give our best to explain them, in order for you to get a better understanding.
First of all, a good accounting software has to be able to keep track of most, if not all the money that is coming and going through your firm, as well as other information like orders or inventory. Also, apart from keeping track of all this information, a good accounting program also has a simple user interface that allows the user to quickly find any information he needs and probably, above all else, to keep that information safe.
Accounting software has come a long a way in the last few years, encompassing more and more features that were previously a part of other fields. ERP (enterprise resource planning) is now a feature of some accounting programs, and what this does is to help the user see where business is going well, and where it needs to be improved. This benefits the entire business and ensures that resources are not lost needlessly.
One other feature that some accounting programs have implemented is CRM (customer relations management) and in a nutshell, this allows the company to see which are the best customers for them, as well as keep track of old customers and find new ones. This is a crucial part of the development of any business and if your accounting software provides this feature, then you should definitely use it.
Also, if you are looking for a good accounting software, it would be a benefit if the program you end up choosing offers double-entry bookkeeping, which allows the user to automatically track how money flows through their company, both incoming money and expenses. And if you provide your services online too, then using a POS (point of sale) will allow you to keep track of all payments, be it in physical form or in electronic format.

Types of Accounting Software

There are two types of accounting software available: paid programs and open source programs. Both of them have their pros and cons, but at the end of the day, they get the job done. While open source software is free, it does require customization (tweaks and add-ons) in order to make it better suit the profile of your business, as opposed, paid software comes almost pre-configured and you also have at your disposal technical support and regular updates, but this can cost quite a pretty buck.
Also, some businesses take care of their accounting needs with Microsoft’s Excel solution, which is a great software and with some work will get the job done, but, basically, it’s better to use a specialized accounting program.

List of the best accounting software

We will list both open source accounting software, as well as paid programs, so you can choose the one that best suits your needs. However, we recommend that you analyze them carefully before committing to one, as it might prove not suitable to your company in the long run. Make sure that it provides all the features you need now, and as a measure of future-proofing, all the features that you will need later on.
Also, for open source accounting software, make sure that you can optimize it as you think its best, and also, look for add-ons or patches that will help you further down the road.

BEST OPEN SOURCE/FREE ACCOUNTING SOFTWARE

BEST PAID ACCOUNTING SOFTWARE

With these programs at your disposal, you will be able to keep the books of your business with ease. Also, by using this type of accounting, you ensure that the data is in one location and easily accessible when needed. Keep in mind to make regular back-ups of all your data. This is of the utmost importance, as computers sometimes fail, and if you don’t have another copy of your accounting history, it might be a loss from which you might not be able to recover.
Comments were:
1) xTuple ERP has commercial editions with far greater functionality than other entries in the paid listing. And PostBooks can also be upgraded to a commercial edition. The best of both worlds.  
2) Are these 20 "best" accounting software, or the all 20 you know of? Many of your articles are trying to replace Google or Wikipedia by listing what is readily found via them. Could you point to two three in each category (free/paid) and explain why so? Else, you are not adding much value. (Response to 2) 3) Alok, that's a little bit harsh. We start off by telling what makes an accounting software good or bad and then the types of accounting software you can choose as per your needs. Do you find that on Google or Wiki? But I get your point. Let us see how we can rate them better.
Posted on 6:47 AM | Categories: