A Strategy for Business Owners to Avoid Investment Tax / Financial advisers have a simple question for their clients whose businesses are set up as S corporations: Are you an active or passive owner?

Arden Dale for the Wall St. Journal writes: Financial advisers have a simple question for some of their clients who own businesses: Are you an active or passive owner?

For the clients whose businesses are set up as S corporations, the answer is crucial if they want to avoid paying a new 3.8% tax on their income.

Under the Affordable Care Act, which established the tax, the Internal Revenue Service taxes owners it views as taking a more passive role–depending partly on how much time they spend on the job.

Active owners don’t have to pay the tax.

Doctors, lawyers and other professionals have made S corporations one of the most popular business structures, along with others who use them to run businesses of all sorts, from manufacturing to retail. S corporations provide liability protection while allowing profits to pass through to the owners’ personal tax returns.

Before the tax strategy can be employed, advisers need to examine their business-owning clients’ Forms K-1 to determine if they are actively involved or whether they only have a passive role like an investor.

The 3.8% tax applies to the net investment income of married joint filers who have more than $250,000 of income (or $200,000 for singles). That’s why passive S corporation owners are hit with tax because the IRS sees them as investors.

“I think it’s very significant–there are a lot of people out there who truly shouldn’t be paying this tax,” said John Evans, a principal at Truepoint Inc. in Cincinnati, which has about $1.2 billion under management.

One client, according to Mr. Evans, will save at least $4,000 in taxes a year by spending more time working in two of his S corporations that own hair salons. Now retired, the man will still have time to play golf and relax. But he will take on some jobs like negotiating leases and managing personnel that show the IRS he is truly an active owner.

Mr. Evans said his fellow advisers need to be mindful of the strategy. Business owners often simply rely on an accountant to file a tax return, and may miss big savings this way. Accountants, he said, need to communicate with advisers and clients so that everyone is on the same page.

John D. Smith, an adviser in Illinois, said anyone who plans to switch from being a passive to an active owner must understand the IRS rules.

The agency uses a series of tests to decide whether a business owner is active or passive. Among them: spending annually 500 hours or more in a trade or business activity, being its sole participant, or, in the words of the IRS, being involved on a “regular, continuous, and substantial basis.”

“You’ve got to be able to document your activity in the business,” said Mr. Smith, a wealth manager at Balasa Dinverno Foltz LLC, an advisory firm in Itasca, Ill., with about $2.1 billion under management.

He works in a group at the firm that focuses on business owners; of the 100 or so businesses it serves, most are S corporations.

Last year, his firm spent a lot of time helping clients think about the steps they could take to limit the effects of higher taxes on dividends, capital gains and income that kicked in this year.

Now that those changes are here, the firm’s advisers are doing even more talking about the new 3.8% tax that helps fund the nation’s Medicare program. The tax was enacted in 2010 but took effect this year.

Divorced Father Not Entitled to Dependency Exemptions, Child Tax Credit or Head-of-Household Status Absent Declaration by Custodial Parent

A divorced father was not entitled to dependency exemptions for his three children because they did not share the same place of abode with him for more than one half of the year in issue and did not fall within the exception in Code Sec. 152(e) because: (a) the custodial parent did not sign a written declaration (generally Form 8332) relinquishing any claim to the deduction for that calendar year and (b) the father as noncustodial parent did not attach any such declaration to his return. The father may have seemed to be entitled to the deduction under state law and the terms of the divorce decree, but the Internal Revenue Code controls the validity of a deduction for federal tax purposes. No retroactive declaration could be submitted because the period of limitations for assessment had expired.

In addition, because a taxpayer can only claim the child tax credit under Code Sec. 24(a) in relation to children for whom that taxpayer is allowed a dependency exemption, the father was not entitled to take the child tax credit in relation to any of his children for the year in issue.

The father was also not permitted to claim head-of-household status because qualifying for that status requires providing a principal place of abode for the children for more than one half of the year, which he did not do. Unlike the dependency exemption provision that provides an exception under Code Sec. 152(e) for divorced, noncustodial parents there is no exception to the more-than-six-months requirement of Code Sec. 2(b).

Don’t let taxes drive your investing decisions

Paul Sullivan for the Boston Globe writes: For years, many investors didn’t worry about the taxes they would pay on the gains in their investments until the bill arrived months later. But this year, with taxes higher, some investors have gone to the other extreme, choosing investments as much for their tax rates as for their risks and returns.

That may not be a good thing for their portfolios.

“Clients are definitely asking, because it’s a real issue in today’s environment,’’ said Michael N. Bapis, a managing director and partner with the Bapis Group at HighTower Advisors. ‘‘We try to keep them focused on the goals — preserving what they have, capturing some of the upside, limiting the downside. At the end of the day, we can’t change the tax laws.’’

When asked about how tax rates would affect an investment, he said his advice was almost always the same.

“If it doesn’t make sense for your portfolio, then it doesn’t make sense,’’ he said, even if there is tax savings. ‘‘If it does make sense, regardless of the tax consequences, we’re going to put it in your portfolio.’’

Tax rates on investments have increased significantly from last year. Depending on a person’s income, taxes on long-term capital gains and dividends are as high as 23.8 percent, an increase of 59 percent over last year’s rate.

Taxes on investments held for less than a year that incur short-term capital gains tax or investments subject to income tax rates have increased for top earners by 24 percent, to 43.4 percent (with the Medicare surtax included) from 35 percent.

Those are substantial increases, but focusing on them alone can obscure a fuller analysis of risk. Investors can end up paying no taxes on an investment, but that may be because they lost money on it, or they may pay lots of taxes on a large gain they might not have achieved otherwise.

This is why advisers stress that taxes should not be the first concern when deciding whether to buy — or not buy — an investment.

If there is one investment that has been promoted as great for minimizing taxes and achieving a large gain, it is master limited partnerships. Most are involved in the transportation or storage of oil and natural gas. What makes them appealing, from a tax perspective, is that a large portion of the dividend they pay is treated as a return of principal and is not taxed.

But in the rush for one type of tax savings, investors can end up paying other taxes. Master limited partnerships with pipelines that run through several states can incur state tax bills for investors, though usually only when the income goes above a certain threshold.

The bigger tax concern generally comes when investors sell their partnerships, since the part of the dividend that was not taxed for years reduces the original price of the investment.

Greg Reid, a managing director at Salient Partners and chief executive of the firm’s $18 billion master limited partnership business, said an investor who bought a partnership and sold it five to 10 years later could be faced with two types of taxes. The first is income tax, because the original purchase price would have been reduced by the amount of principal returned in the dividends. The second is capital gains tax on the increase in the value of the investment itself.

Another way to look at these partnerships is to consider the solid and increasing dividends they have paid over the last 25 years, often 6 to 7 percent.

“The baby boomers are going to need a lot of income to live,’’ Reid said. ‘‘MLPs are particularly great for older people who are retiring. They have a growing income stream.’’

As for avoiding high taxes, the solution is to give the partnership to charity or die with it in your estate. Both may be viable options for investors in their 70s and 80s but are probably less attractive to people in their 30s.

Municipal bonds, which have long been attractive to wealthier investors because the interest they pay is not taxed by the federal government, pose a different sort of risk.

Bapis said he was concerned that investors who were not paying attention to the broader economic news were not aware of the current risks of buying an existing municipal bond. With yields on many municipal bonds extremely low — around 0.75 percent for five-year bonds and 1.74 percent for 10-year bonds, according to Bloomberg — even a small increase in their price, which would cause the yield to go down, would cause a loss of principal.

Bapis calculated that if the yield on the 10-year bond went to 3 percent, that could translate into a loss of 6 to 10 percent. The exception is if someone were to hold the bond until maturity.

“But are you going to be able to stomach watching that bond go down 6 to 10 percent in the short term?’’ he asked.

For most investors, though, there are simple strategies that they can use to manage taxes on any investment, and they can do so without tearing up their existing investment plan.

One of them is putting investments that generate higher taxes in tax-deferred accounts and those that generate lower or no taxes in regular brokerage accounts.

“Asset allocation is even more important today,’’ said Eli Niepoky, chairwoman of the investment strategy group at Diversified Trust.

For example, she said, municipal bonds, stocks owned for a long time, and master limited partnerships should be held in taxable accounts, while investments that generate income or short-term capital gains should generally be put into tax-deferred accounts.

Another strategy that fell out of favor in the middle of the last decade but is returning is investing with an eye toward losses for tax purposes.

Instead of investing in the S&P 500-stock index, a manager employing this strategy would invest in a smaller number of stocks in the index in an attempt to replicate the returns of the index. When a stock fell, say Pepsi, the manager would sell it and replace it with a similar one, like Coca-Cola.

“It’s definitely not an exciting topic,’’ said David Lyon, investment specialist at J.P. Morgan Private Bank.

‘‘Index replication is the ultimate goal, but if you can do it in a more tax advantageous way for the first four to five years than being in a pure index fund, that gives you more tax flexibility going forward.’’

The downside, he said, was that your returns could reflect the index with little tax savings. But as long as the index went up, that’s not a bad trade-off.

A Medicare tax break / Some self-employed can deduct Medicare insurance premium

Bill Bischoff for MarketWatch.com writes: If you work for yourself, I hope you already know about the deduction for self-employed health insurance premiums. It is allowed for sole proprietors (including single-member LLC owners who are treated as sole proprietors for tax purposes), partners (including members of LLCs who are treated as partners for tax purposes), and S corporation shareholder-employees.

Self-Employed Health Insurance Deduction Basics

You can claim the self-employed health insurance deduction for qualified health premiums to cover you (the self-employed person), your spouse and dependents, and your under-age-27 children (whether they are dependents or not). The deduction is claimed on Page 1 of your Form 1040 (on Line 29 of the 2012 version of Form 1040).

Because the deduction is claimed on Page 1, it reduces your adjusted gross income (AGI), which in turn reduces the odds that you’ll be hit with various unfavorable AGI-based rules (like the one that causes more of your Social Security benefits to be taxable).

Because the deduction is claimed on Page 1, it is also exempt from the general rule that says only medical expenses in excess of 7.5% of your AGI can be deducted.

Premiums for Medicare Insurance Count

Last year, the IRS finally admitted that Medicare insurance premiums can be counted as qualified health insurance premiums for purposes of the self-employed health insurance deduction. Some tax pros, including yours truly, had long believed this to be true, but the Form 1040 instructions and IRS publications provided no support. The Chief Counsel Advice (CCA) cured that problem.

Even better, the CCA explicitly states that premiums for all four Medicare Parts (A, B, C, and D) can qualify for the self-employed health insurance deduction. This blanket statement applies to Medicare premiums to cover the self-employed individual, the spouse, dependents, and under-age-27 children—as long as the basic self-employed health insurance requirements are satisfied (see “Basic Requirements for Claiming the Self-Employed Health Insurance Deduction” on page 2 of this story).

Medicare Part A is commonly called hospital insurance coverage. Most eligible individuals are automatically covered for Part A without having to pay premiums because the Part A premiums are considered to be paid from Medicare taxes on wages while the individual (or spouse) is working. However, some individuals must pay premiums to get Part A coverage. If that is your situation, the Part A premiums for 2012 could have been as much as $451 per month per covered person. So they could have amounted to significant dollars (up to $5,412 per covered person for last year).

Medicare Part B is commonly called medical insurance coverage, and Part B together with Part A is often called “original” Medicare. Part B mainly covers doctors and outpatient services, and most people must pay monthly premiums for this Medicare cornerstone. For 2012, most folks paid the standard Part B premium of $99.90 per month ($1,199 for each covered person for the year). Higher-income individuals could have paid up to $319.70 per month for 2012 (up to $3,836 for each covered person). Once again, we can be talking about significant dollars here—especially if you’re married and both you and your spouse paid Part B premiums last year. (Your Part B premiums could have been subtracted from your Social Security benefits or paid in the same fashion as other health insurance bills.)

Medicare Part C is for private Medicare Advantage health plan coverage, which is supplemental to the government-provided Part A and Part B coverage. Medicare Advantage plans include HMO, PPO, and fee-for-service arrangements. Premiums vary depending on the plan. If you have Part C coverage, you don’t need Medigap coverage (described below).

Medicare Part D is for private prescription drug coverage. Premiums vary depending on the plan. Higher-income folks pay an “adjustment amount” in addition to their basic plan premiums. For 2012, the adjustment amount could have been up to $66.40 per month (up to $797 for each covered person for the year).

Medigap Insurance is private supplemental insurance similar to Part C coverage. If you have Medigap coverage, you don’t need Part C coverage and vice versa. Premiums for Medigap policies vary depending on the plan. While the CCA doesn't explicitly say that Medigap premiums qualify for the self-employed health insurance deduction, there is no reason to think it doesn’t.

The Bottom Line

The government’s recent admission that Medicare premiums can be counted for purposes of the self-employed health insurance deduction is great news for self-employed seniors, because Medicare premiums can amount to significant dollars. So being able to deduct those premiums can result in significant tax savings. Thank you IRS!

Basic Requirements for Claiming the Self-Employed Health Insurance Deduction

Eligibility Is Determined Month-by-Month: The deduction can only be claimed for premiums that are paid for months during which the individual wasn't eligible to participate in any subsidized health plan offered by the individual’s employer or the spouse’s employer.

Earned Income Limitation Applies: The deduction cannot exceed the earned income from the business activity for which the health insurance plan is established. For example, if your plan is established for a partnership activity from which you have net Schedule E income of only $10,000, your deduction cannot exceed $10,000.

12 Important Retirement Planning Deadlines / Missing these important dates could harm your retirement finances

Emily Brandon for US News & World Report writes: After years of saving and paying taxes, retirement is a time when you can collect Social Security and Medicare, and even qualify for a few extra tax perks. But to make the most of these valuable benefits, you need to meet deadlines. If you don't make the cutoffs, you could face higher taxes, penalties and fees. Make sure you factor these dates into your retirement planning:

Age 50. One benefit of growing older is that you can save extra money in 401(k)s and IRAs. Workers age 50 and older can defer taxes on as much as $23,000 in 401(k) plans, 403(b) plans and the federal government's Thrift Savings Plan and $6,500 in IRAs in 2013—$5,500 and $1,000 more, respectively, than younger employees.

Age 55. If you retire, quit or are laid off from your job in the calendar year you turn 55 or later, you can take 401(k), but not IRA, withdrawals from the retirement account associated with the job you most recently left without having to pay the 10 percent early withdrawal penalty. And public-safety retirees can avoid the early withdrawal penalty if they leave a job in the year they turn 50 or later.

Age 59 1/2. Once you turn age 59 1/2, you no longer have to pay the 10 percent early withdrawal penalty on retirement account distributions. However, income tax will still be due on traditional 401(k) and IRA withdrawals.

Age 62. Workers first become eligible for Social Security payments at age 62. However, your payments will be permanently reduced by as much as 30 percent if you sign up at this age. Also, if you work and collect Social Security benefits at the same time at this age, part or all of your payments could be temporarily withheld.

Age 65. Eligibility for Medicare begins at age 65. You can sign up as early as three months before your 65th birthday if you want coverage to begin the month you turn age 65. If you don't sign up right away, your Medicare Part B and D premiums could permanently increase, and you could even be denied supplemental coverage. "There's basically a seven-month window that you have to sign up for Medicare," says Juliette Cubanski, a Medicare policy analyst at the Kaiser Family Foundation. "After that, you can still sign up but you would face a late enrollment penalty for signing up for Part B later than when you are first eligible." Your monthly Part B premiums will increase by 10 percent for each 12-month period you don't sign up after becoming eligible for Medicare. (If you have a group health plan at work, sign up for Medicare within eight months of leaving the job or health plan to avoid the higher premiums.) There is also a six-month Medigap open-enrollment period that begins the month you turn 65 during which you have a guaranteed right to buy any Medigap policy sold in your state. Once this period ends, you could be denied coverage or face higher costs. New Medicare enrollees are eligible for a free preventative care doctor's visit during the first 12 months they have Medicare Part B.

Age 66. This is the age most baby boomers (those born between 1943 and 1954) become eligible to collect the full Social Security payments they have earned. For people born after that, the full retirement age gradually increases from 66 and two months for workers born in 1955 to 66 and 10 months for those born in 1959. Beginning at your full retirement age, there is also no longer a penalty for working and collecting Social Security benefits at the same time. People born in 1960 or later who sign up for Social Security at age 66 will get 6.7 percent smaller payments than if they wait until age 67.

Age 67. The Social Security full retirement age is 67 for everyone born in 1960 or later. Workers currently age 53 and younger must wait until 67 to collect the full payments they are due and avoid the earnings limit.

Age 70. If you further delay signing up for Social Security benefits, your payments will increase by 8 percent per year up until age 70. After age 70, there is no additional benefit to postponing Social Security payments.

Age 70 1/2. Distributions from traditional IRAs and 401(k)s become required after age 70 1/2, and you must pay income tax on each withdrawal. If you fail to withdraw the correct amount, the tax penalty is a steep 50 percent of the amount that should have been withdrawn. "You do not want to miss that or there's a 50 percent excise tax," says Kimberly Foss, a certified financial planner and founder of Empyrion Wealth Management in Roseville, Calif. "You have to take it and pay the taxes, and then you can reinvest it wherever you want to." Individuals who continue to be employed after age 70 1/2 can delay distributions from their current 401(k), but not IRA, until April 1 of the year after they retire (unless they own 5 percent or more of the company sponsoring the plan). People age 70 1/2 and older are also no longer eligible to get a tax deduction for traditional IRA contributions.

December 31. You generally need to make 401(k) contributions by December 31 each year. Most required minimum distributions from retirement accounts (except for the first one) must be taken by December 31 annually to avoid the 50 percent tax penalty.

April 1. You have until April 1 to take your first required minimum distribution from a 401(k) or IRA. But delaying your first distribution could result in a significantly higher tax bill. "If you wait until April 1, you will be taking two distributions in one year," says John Sestina, a certified financial planner and president of John E. Sestina and Company in Columbus, Ohio. "Then you get this big chunk of taxable income in one year and you will be paying higher income taxes."

April 15. The deadline for filing your taxes is also the last day you can make an IRA contribution that will apply to the previous year's tax return. For example, retirement savers had until April 15, 2013, to get a tax deduction on their 2012 tax return by depositing money in an IRA. Someone in the 25 percent tax bracket who put $5,000 in a traditional IRA in April could save $1,250 on his current tax bill. "It's a 25 percent savings in taxes right off the bat, plus you are saving for your retirement," Foss says. "You're helping yourself in the short term, and it's for your own benefit down the road."

Case study: Woocommerce + XERO + SwipeHQ = Accounting Bliss

Mark Forrester for Woothemes writes: Dave Roberts of Gurumedia shares his experience integrating his multiple WooCommerce powered eCommerce sites with Xero and SwipeHQ to ensure a streamlined accounting process.

We have several eCommerce sites and we’re looking for a way to automate things. My old system involved me re-typing each sale into my accounting software so when I saw that Woocommerce had a XERO extension I loaded up a test trial of Xero and grabbed the XERO extension from your site. I had looked at trying to integrate our old accounting package but quotes were coming in at well over $1000 to do this so the Xero extension at only $79 for a 5 site licence felt very reasonable and I am loving cloud based accounting!

I work with the Minimum viable product (MVP) principles in mind and like to try many small niche eCommerce websites, I don’t want to have to outlay full accounting setups for each niche website so I needed to be able to feed each site into the one XERO account initially. Once a business has proved it’s worth and is earning enough money to support itself it can then be upgraded to a Ltd Company and be given it’s own dedicated accounting setup To test a business/product idea I run them under my personal trading/as account package. Cheap, quick, easy!

I need to be able to see at a glance how much each website is earning so I assign each website an account number in XERO. For my example I have 2 websites Wishlantern and Modowest as shown below:

I then jump on over to my Niche Websites and setup XERO, I won’t go into the XERO setup as the existing tutorial on this site is easy to follow but note that the Sales Account field should reflect the sales account you setup in XERO above. (201 for Modowest, 200 for Wishlantern)

This will feed sales from each site into their respective XERO account allowing you to see at a glance each individual websites performance:

Another plugin I use is the Sequential Order Numbers Pro this extends the numbering system and allows me to add a letter/code to the beginning of each invoice. This stops the chance of their ever being invoice numbering conflicts from 2 sites sending the same invoice number to XERO. In my example I have added a M- to the Modowest sales and a W- to the Wishlantern sales:

Another benefit of using this plugin is that when reviewing paid & unpaid invoices in XERO I can at a glance see which site has made the most sales by looking at the letter prefixing the invoice number.

Conclusion

Having my orders fed into XERO automatically has been awesome, I can at a glance, in one centralised place, see how each of my niche websites are performing and get a total summary of total income being generated across all sites. It helps me control my finances and set business goals. I think this setup will suit people that have a range of small commerce websites. It really does minimise the boring stuff (data entry etc) and allows you to focus on growing your business, as well as working on your next business idea. If this tutorial helps you, or you do things a different way, i’d love to hear from you. I use the SwipeHQpayment gateway which is far cheaper than Paypal and doesn’t have a transaction fee per order.

Would you like to be featured on our blog? Share your experiences working with WordPress and our products and if we believe it will benefit our community we’ll publish it. Contact us.

CASE STUDYWOOCOMMERCE

Poll: Who is going to dominate Online accounting in the mid-market?

Centric Logic is having a poll, they write: We recently dipped our toe with polls and we’re going to try another one here.  Rather than favourites, we’re now asking about which ERP system you think will dominate the SaaS BPO space in Europe?  We’re probably looking over the next 12-24 months if you want to nail this down a bit more.

Which SaaS ERP system will dominate European mid-market?

Intuit QuickBooksMicrosoft Dynamics NAVTwinfieldxeroExactSAP Business Onee-conomicNetSuiteFortnoxSageOther:

VotePolldaddy.com

We’re going to publish the results later on – end of the month probably – but please vote early.  We’ll also try to do some analysis of the results too.

If you would like to know more or speak to us please contact Grant Sayer on M: 07588 444302 or John Stoddart on M: 07788 445903 or Email: info@centriclogic.com or see our website at www.centriclogic.com

PS One last thing – thank you to all our readers.  We’ve noticed a big increase in readership recently so thanks to everyone and we’ll try to keep up the good work.  Let us know if there are any particular topics you want us to cover.

We recognise the use the of the image to the Guardian and their digital blogs http://www.guardian.co.uk/media/pda/2011/aug/08/week

Cloud Computing - A matter of survival for the accounting industry? CCH Research Report April 2013

CCH writes: As a provider of cloud-based software to both small and medium-sized enterprises (SMEs) and accounting firms that advise SME owners and operators, CCH is keenly interested in the interplay between both groups.

In March 2013 CCH commissioned a major research project designed to illuminate the nature of the relationship between SMEs and their accountants. In separate surveys – one of small business owners and the other of accountants primarily servicing small business - we probed the attitudes of both groups to key aspects of business success, the role of accountants in the management of small businesses, and the attitudes of both toward cloud computing.

Motivating the study was a clear sense that momentum in the move toward cloud-based platforms has gained pace rapidly in recent years. This has coincided with a marked shift in the cost-benefit equation around cloud solutions in favour of the Cloud, as cloud systems become more common and their benefits apparent. But what does this shift mean for SMEs and accountants? How will it alter the traditional relationship between the two groups? And what threats and opportunities does it present?

Australia's SME sector comprises some two million enterprises contributing more than $310 billion to the economy and employing close to five million people. While it is often said small business is the engine room of the economy, it is more accurate to say successful small businesses makes up this engine room.

Against this backdrop any insight into how SMEs and the business advisers they trust most (accountants) are embracing Cloud technology, and how they see this technology improving business performance, is welcome.

CCH is pleased to present a summary of its research in this report.

Research methodology

The two online surveys were conducted in parallel. The first probed 1,018 business owners, or decision-makers, of organisations with 200 employees or fewer. The second gathered responses from 212 accountants, or principals of accounting firms, that service SMEs.

Fieldwork commenced on Friday, 8 March and was completed on Thursday, 21 March, 2013.

After interviewing, SME data was weighted to the latest business count estimates sourced from the Australian Bureau of Statistics.

The research was conducted by Lonergan Research.

Summary of Research Findings

1. Deployment of cloud-based software for accounting

2. Future intentions show shift to cloud-based accounting
    approaching critical mass

3. SME owners warn they might abandon accountants
    who do not embrace the Cloud

4. Attitudes toward the Cloud shows an emerging generation gap

5. Reasons why many accountants have been quick to make the change

6. Reasons why others are yet to make the change

7. Security and the cloud

Conclusion

CCH's research confirms the shift onto cloud-based software platforms for accounting services is well underway. Uptake has now reached significant levels among accountants and small business owners, and is particularly high among younger groups. Future intentions indicate that within two to three years, a majority of SMEs and their accountants will be performing accounting on the cloud.

For the accounting profession, the transition to cloud-based computing presents some immediate threats, and many more long-term opportunities.

The Cloud will automate much of the low-level, administrative services that accountants have provided to SME clients for so long. This is not lost on business owners, who indicate they will consider replacing much of the work their accountant currently performs with cloud software. A good number also say they will consider replacing their accountant if he or she does not embrace a cloud platform. And this preference for the Cloud rises sharply among younger groups of business owners.

In CCH's view, the path for the accounting profession is a natural one. By embracing a cloud-based system now and bringing their SME clients with them, they retain their central role in the business life of their clients.

But the benefits go further. The connected, transparent interface offered by a cloud system gives both far greater visibility into the business, not just retrospectively but also into the future. It represents a powerful tool allowing the business owner and their accountant to engage anew in strategic planning around the business and, in doing so, reset the professional relationship.