The ticking time bomb of tax liability for Americans in Canada

Max Reed for CanadianLawyerMag.com writes: This tax season the one million American citizens in Canada have to file an extra tax return. American citizens in Canada have always had to file a tax return, but recent legal developments make this more imperative. This article outlines some of the tax issues faced by U.S. citizens living in Canada.

Simply speaking, there are two parts to fulfilling your U.S. tax obligations. The first is the income tax return. This is where you list your income and various deductions. Generous tax credits and deductions are available to American citizens outside of the United States. As a result, most people will not owe tax. But U.S. citizens still need to file the relevant paperwork showing they owe no tax. Although there is no tax software for U.S. citizens in Canada, with some guidance most people can learn to file their own taxes.

The second step can be thought of as disclosure requirements. The Internal Revenue Service requires taxpayers to disclose various pieces of information about foreign financial holdings. For instance, if all of your Canadian bank accounts total more than $10,000, you will need to disclose them to the IRS.

U.S. tax law does not understand common Canadian financial products. Many Canadians have RRSPs and unless a special form is filed, U.S. citizens in Canada cannot defer U.S. tax owed on income that builds up inside their RRSP.

The tax-free savings account causes more problems. TFSAs shelter dividends and capital gains earned inside them from Canadian tax, but U.S. tax law does not recognize them. This means American citizens in Canada will have to pay U.S. tax on money that builds up inside a TFSA — defeating the central purpose of the account. More problematically, the IRS may consider the TFSA an offshore (think Cayman Islands) trust which would trigger an onerous filing requirement and have potentially punitive tax consequences.

Owning Canadian mutual funds may have severe U.S. tax consequences. An IRS directive may have the unintended consequence of treating Canadian mutual funds as equivalent to foreign investment companies that are often used for tax avoidance. Not surprisingly, the procedure for reporting mutual fund shares is very complicated and may require extra tax to be paid.

These disclosure requirements are the byproduct of translating financial regimes in one country to another country’s legal system. Failure to meet the disclosure requirements, or file an income tax return, could result in thousands of dollars in fines. These liabilities remain despite the relative lack of IRS enforcement actions against U.S. citizens in Canada.

But the recent Foreign Account Tax Compliance Act may change this. Simply put, it will require all Canadian financial institutions to disclose to the IRS information about accounts and assets held by U.S. citizens. Once the IRS has all of this information at its fingertips, it will be able to easily verify who has filed the required paperwork and who has not. For example, American citizens in Canada have to disclose their foreign bank accounts to the IRS. Failure to do so carries a $10,000 penalty. Since banks are now obliged to advise the IRS about these accounts, there is little chance of evading scrutiny.

There is no easy way out. Renouncing U.S. citizenship requires settling up with the IRS and paying any back taxes owed. One million Canadians are blissfully unaware of the ticking time bomb of U.S. tax liability. They, and their financial and legal advisers, would do well to be alive to these risks and take steps to mitigate them.

Why Is An Accountant So Important In Your Business?

Colon Bolden for eCompcon writes: It is so important to have an accountant in your business. But before hiring the services of an accountant it is important that you know the key accountant attributes that you should be emphasizing upon. The main works that an accountant is responsible for are auditing, and developing the financial information that is mandatory for the business plans that the company might be having.

Accountants are responsible for publishing all company financial information in compliance with accepted practices. The development of all company financial information must be adhere completely to the uniformly documented accounting formats. An accountant is careful to make sure that he or she prepares all company financial statements in accordance with the pertinent accounting rules and policies.

An accountant can take all of the frustration out of getting your books set up correctly right at the beginning of your business. He or she can guide you in choosing which program to purchase for your accounting. If accounting is an area that is foreign to you, you may not know how to set up the right categories or even what the categories are going to be that you will need for your particular business of interest. You will need to explain to your accountant about the business so that they will be able to get those particular categories set up for you correctly.

Hiring an accountant to organize your bookkeeping, payroll and tax preparation, among other accounting tasks ironically can be an expensive outgoing for any business. However, online accounting and bookkeeping services helps to cut down costs to make it more affordable for any large or small business. What’s more using computerized systems and the internet reduces the chances of human error and provides an accurate and reliable solution to your accounting needs.

Accountants not only work in public practice but many of them are working within private corporations, in financial industry and in various government organizations. Accountancy or accounting is the measurement, disclosure or provision of assurance about financial information that helps business owners, managers, investors, tax authorities, lenders and other stakeholders and decision makers to make resource allocation and policy making decisions.

It is to your advantage if you are an accountant by profession. But if not, you can still do your own accounting if you are operating a small business. However, if you have a big company it is advisable to hire a professional accountant especially if you do not have the time and the skill for it. You must realize that there are various strategies in keeping various kinds of accounts in a business.

In summary, what ever you do, make sure you keep in regular contact with your accountant. Usually you can do this by sending a copy of your monthly reports so that they can see where you’re headed from month to month. Depending on the size of your business, you could then establish regular meetings whether it be monthly or quarterly to discuss those reports and your financial plans for the coming months ahead.

9 Reasons a Startup Should Start with Dynamics GP Instead of Quickbooks Enterprise

We always listen......even to those with an agenda....and in that spirit, George Mackiewicz, CAL Business Solutions wites:   When a company first starts up it seems the first inclination is to go with a starter accounting software like Quickbooks. But if your company plans to grow, and who doesn’t, does Quickbooks really make the most sense either now or for the future? Here are 8 points to consider:

1)       Software Cost – Typically in a startup you’re going to only need a small number of users in the beginning.  The cost of Microsoft Dynamics GP 2013 for 3 concurrent users is $5,000. The cost I found for Quickbooks Enterprise for 5 concurrent users is $3,000. But Microsoft is offering a 40% discount bringing the costing of Dynamics GP 2013 down to $3,000 until June 15^th. So in this comparison of Dynamics GP vs Quickbooks, the cost of the software is not a deciding factor.

2)       Training – A startup will generally begin by using the core financial functionality only. General Ledger (GL), Accounts Payable (AP), Accounts Receivable (AR), Bank Reconciliation (BR) for example. So training would include things such as setting up GL through journal entries,  entering AP vouchers, cutting checks etc.. If we are comparing the learning curve for someone who has never used either Quickbooks or Dynamics GP before, I do not believe that there would be a significant difference in training time. Quickbooks has a simple user interface and may appear less daunting. Dynamics GP is a powerful system but still has a user friendly interface.

3)       Buy Once – Startup companies plan to grow. This means eventually most startup companies will in fact move to a more advanced system like Microsoft Dynamics GP.   You will not recoup the cost you originally paid for Quickbooks, so you are paying to purchase two systems.

4)       Data Conversion – When you upgrade systems, you will incur the extra cost of converting the Quickbooks data to Dynamics GP. In most cases this data conversion will cost more than the initial software purchase.  If you start with Dynamics GP right away, there will be no data conversion costs as you grow.

 5)       Transaction History – When you do a data conversion from Quickbooks to Dynamics GP typically you will bring over summary detail and not detailed transaction history for the time that you were on Quick Books. In a typical conversion we will convert some GL history, but as far as AP check history and customer payment history, those are generally too costly to convert. This means that you then have to go back to Quickbooks to look at activity prior to the conversion. Again, if you start with Dynamics GP right away all of your information stays in one place.

 6)       Database – Quick Books runs on a proprietary database, but Dynamics GP runs on a Microsoft SQL database. If you have all of your company data in SQL as opposed to having it in two places, this gives you more control and flexibility in terms of reporting and integration.  Many companies like to standardize on Microsoft technology.

 7)       Integration- Because Dynamics GP is built on the open Microsoft SQL database platform it means it is much easier to integrate other systems to Dynamics GP than to Quickbooks. Integration cuts down on manual data entry and incomplete reporting.

 8)       GAAP Compliance – Dynamics GP is a GAAP compliant system. This means that transactions cannot simply be deleted without having any record of that deletion activity.  Quickbooks is not GAAP compliant. Many startup companies are working with banks or venture capital firms that want to know the data is secure and less prone to fraud. Any accounting entity that would be auditing your company will feel more comfortable if you are using Dynamics GP.  This should help you sleep better at night.

 9)       Extra functionality – Dynamics GP includes additional functionality and modules that a company can grow into, that Quick Books does not have. For example a robust fixed assets system, automatic allocations and consolidated reporting across multiple companies. And inventory and job costing are very different when you compare QuickBooks to Dynamics GP.

 So why start out with Quickbooks? Dynamics GP is less expensive, more secure and has more functionality now and in the future as you need it.

The Internet Sales Tax Rush / Harry Reid and Wal-Mart hope nobody will notice their online revenue raid.

The Wall St. Journal writes: Every time Congress has taken a serious look at proposals to boost Internet sales taxes, it has rejected them. That's probably why pro-tax Senators are trying to rush through an online tax hike with as little consideration as possible.

As early as Monday, the Senate will vote on a bill that was introduced only last Tuesday. The text of this legislation, which would fundamentally change interstate commerce, only became available on the Library of Congress website over the weekend. And you thought ObamaCare was jammed through Nancy Pelosi's Democratic House in a hurry.

For Senators curious about what they're voting on, it is the same flawed proposal that Mike Enzi (R., Wyo.) introduced in February. It has been repackaged to qualify for a Senate rule that allows Majority Leader Harry Reid to bypass committee debate and bring it straight to the floor.

Mr. Enzi's Marketplace Fairness Act discriminates against Internet-based businesses by imposing burdens that it does not apply to brick-and-mortar companies. For the first time, online merchants would be forced to collect sales taxes for all of America's estimated 9,600 state and local taxing authorities.

New Hampshire, for example, has no sales tax, but a Granite State Web merchant would be forced to collect and remit sales taxes to all the governments that do. Small online sellers will therefore have to comply with tax laws created by distant governments in which they have no representation, and in places where they consume no local services.

Meanwhile, New Hampshire's brick-and-mortar retailers will bear no such burden. They will not be required to collect taxes on the many customers who drive across the Maine and Massachusetts borders to shop in New Hampshire. Bill sponsors say it would be too big a hassle to force traditional retailers to ask every walk-in customer where they live, but these Senators are happy to impose new obligations online.

The Enzi plan would require a centralized tax collector for each state or for a group of states that would gather both state and local levies from the online merchants. His office concedes that could still mean 27 or more different auditors of a Web-based business—which is better than 9,600 but hardly qualifies as simplicity.

The drivers of this rush to tax are Wal-Mart WMT +1.44% and other big retailers that can more easily absorb the costs of collection than can smaller competitors. Also supporting the bill is Internet giant Amazon, which coincidentally now sells its own tax compliance service to other merchants. Adding to the lobbying muscle are state and local governments. The politicians believe they'll collect tens of billions of dollars in taxes that are already owed by shoppers on remote sales but rarely paid.

So big business and big government are uniting to pursue their mutual interest in sticking it to the little guy. Any Internet seller with more than $1 million in annual sales would be forced to serve all of the nation's tax collectors. It's true that many small brick-and-mortar retailers in states with sales taxes support the Enzi bill. They say they're at a disadvantage as customers examine products in their showrooms and then go home to buy them tax-free. On the other hand, some customers use retail websites for research before buying at a local store.

But even if the goal is to "level the playing field" in favor of Main Street, it won't happen. Mr. Enzi cannot possibly force all the world's Internet businesses to collect local U.S. taxes. So instead of shifting sales from online to bricks-and-mortar, he might succeed in shifting them from U.S. online merchants to foreign ones.

This rush to tax is an attempt to overturn the Supreme Court's 1992 decision in Quill v. North Dakota that forcing businesses to collect and remit taxes to jurisdictions where they have no physical presence was too big a burden. Though that ruling applied to catalogs in the pre-Internet age, it established an important principle of cross-state tax accountability.

Congress does have the power to write new rules for interstate commerce. But for years even politicians who wanted to force remote sellers to collect taxes conceded that it would only work if states and localities dramatically simplified their tax systems. That has never happened. So now the tax collectors promise that software will figure out how every item is taxed in every town in America.

Perhaps software will flawlessly determine, for example, what is classified as candy for tax purposes and what is considered food in each jurisdiction. But the legislation itself contemplates confusion, as it spells out when a merchant is liable for errors and when a software vendor takes the blame. The way governments work, they'll penalize both merchants and the software vendors for mistakes.

Some of our conservative friends are backing this Internet tax raid as a way to raise revenue to avoid more state income-tax increases. More likely the new revenues will merely fund larger government. Republicans who are realists about government would be wiser to join Senators Ron Wyden (D., Ore.) and Kelly Ayotte (R., N.H.), who are leading the opposition.

The Difference Between NumberCruncher and Fishbowl Inventory (inventory and order management software that integrates with QuickBooks)

Larry Johnson for Quickbookstrained.com writes: My good colleague at NumberCruncher, Ian Benoliel, CEO, gave me some information that I found interesting. In light of that I thought I would pass it on to you people that are having problems deciding on which Integrated QuickBooks Inventory package to use.

All Orders by NumberCruncher and Fishbowl Inventory are both inventory and order management software that integrates with QuickBooks. Both handle order entry, purchasing, warehouse management and manufacturing. If you would go down the list of features and benefits 90% of them  would be same in both. We have a few things that they don’t have and they have a few things we don’t have. The following is a high level discussion on fundamental differences between the 2 systems.

1    Synchronization with QuickBooks

Both All Orders and Fishbowl Inventory sync with QuickBooks with one major differences; Fishbowl Inventory cannot sync with the Items in QuickBooks. Once the initial sync is done, inventory in QuickBooks is turned off. When transactions are posted from Fishbowl Inventory to QuickBooks (e.g. an Invoice) you do not see the part numbers rather you see an ‘alias’ like FB Inventory; meaning that if you want to print the invoice or run any item specific reports you MUST do so from Fishbowl Inventory.

All Orders allows you to either sync the items in QuickBooks or use aliases. If  you sync the items you will see them on all transactions, you can still print invoices from QuickBooks, print sales reports and use other integrated applications that require items in QuickBooks. With All Orders you will see a detailed breakdown of inventory by item, location, bin and serial # whereas in QuickBooks you will see the total quantity only.

2.    Work Flow and Ease of Use

All Orders was designed for ease of use and is pliable to your particular work flow whereasFishbowl Inventory is more rigid requiring changing your work flow. All Orders looks and feels a lot like QuickBooks. This was done intentionally so that users that already know QuickBooks would find it easier to learn and use All Orders. The user interface in Fishbowl is nice but completely different than QuickBooks.

3.    Price

The initial purchase price for Fishbowl Inventory can be more than double than that of All Orders. True, we charge an annual maintenance fee, but for that you get technical support, all the new updates, and a specified number of re-training hours per year. It also makes us have better support and be more responsive because our relationship with our customers does not end at the sale it is just beginning.

Xero releases Workpapers software for accountants

Scoop Independent News writes: Xero, the emerging leader in online accounting solutions, today releases Workpapers for the Australian and New Zealand markets. This key product release is the culmination of the acquisition in July last year of online workpapers software company Spotlight Workpapers. The software has been in beta form since then and is used by over 100 accountants globally.

Accountants use Workpapers as a key tool in compiling annual and periodic accounts. Workpapers make these core compliance services much more efficient by seamlessly connecting with Xero to process client data and to provide clients with the ability to upload any additional information straight into the software.

Workpapers is part of Xero’s disruptive single ledger strategy of building core accountant features around the same data as client features. Within the next 18 months, Workpapers will be redesigned and merged with practice management, Tax and reporting software into a larger product suite called Practice Studio. As a further disruption to the accounting software market, Xero is giving these tools away as part of its successful Partner Program.

Xero CEO Rod Drury says “The launch of Workpapers is another step forward in providing a compelling set of tools for accountants, which is the major channel for Xero customers. Xero has disrupted the accounting software market by unifying both small business and accountant tools on the same cloud platform. This results in more efficiency for the accountant, saving them substantial time and money."

Xero Australia Managing Director Chris Ridd says “The practice of software companies charging both the client and the accountant to access the same set of books is coming to an end. Tools such as Workpapers, required for core compliance, are central to Xero’s Practice Studio strategy. This will deliver a comprehensive suite that ensures Xero is a powerful and complete solution for the accounting practice.”

Workpapers are now in development for the UK market, with the US to follow.