Looking for bargains at IRS tax seizure auctions

Kay Bell for Don't Mess with Taxes writes: Our neighborhood just finished up its spring community garage sale. Twice a year, May and October, my neighbors who want to unload some of their crap unwanted goods, ferry the stuff into their driveways and wait for folks to come take it off their hands.

The hubby and I don't participate in the garage sales. Basically, neither of us wants to sit out in front of our house for hours and deal with folks who want to dicker over nickels. Plus the events start way too early for us on a Saturday morning. 

We do, however, appreciate bargains. That's why a recent email I got caught my eye.

It was a link to the Internal Revenue Service auction site, sort of a combination garage sale/eBay option.

I took piano lessons, but haven't touched a musical keyboard in years. Still, I'd love to have a grand piano one day. Lo and behold, that's the first item shown on the current IRS auction Web page.

And it's not just a Steinway, it's a Steinway Model A Tricentennial Dakota Jackson limited edition grand piano. I checked out the company's website for this instrument, and it looks like $24,000 minimum opening bid price isn't bad, since the piano is a collector's piece.

The piano is available for inspection in Charlotte, N.C., but the IRS has several photos on its auction website. If I really do want it, however, I'll have to head to the Queen City; I just missed the cutoff to get a mail bid to the IRS auctioneer.

Wide variety of items for sale: If a piano isn't your thing, the IRS also is offering a variety of items it has seized for nonpayment of taxes. They include vehicles, boats, businesses, commercial and industrial property and supplies and, of course, real estate.

The featured home right now is a mountain retreat in Colorado. It's not far from my sister-in-law. But the hubby is not so keen on moving.

It has nothing to do with his family; he loves his little sister. It has to do with her report that they just had the biggest snowfall of the year last week. In May.

So we're staying put in relatively balmy Central Texas for a while. But there are some properties in the Lone Star State and other temperate locales up for tax auction.

And the IRS does its best Realtor impression in listing its seized real estate offerings:

• PA - Somerset County. 2-Story Townhouse situated in Hidden Valley Resort. Access to all amenities. Beautiful view of Valley! 
• TN - Sevierville. Nice 1/2 acre lot in a great area just outside of Gatlinburg. Make it a vacation spot!! 
• TX - Tulia. Historical building in quaint small town. Next door to bank and other local businesses. Many potential uses - Must see to appreciate!

Like I said, real estate puffery, so be sure to take a good, hard look at the homes and all other items up for sale.

Follow the rules: As with all things IRS, it pays to read the instructions and follow the rules. You can check out the IRS' full frequently asked questions about its auctions, but here are a couple of note:

• All property is offered for sale “where is” and “as is” and without recourse against the United States.
  
  Translation, there's no promise, guarantee or warranty, expressed or implied. You're taking your chances.

• Now about payment ... the IRS doesn't accept personal checks, credit cards or bank letters of guarantee for the items bought at auction. I quote:
  
  "As per the Internal Revenue Code, all payment for property sold must be in the form of Cash, Certified, Cashier's, or treasurer's check drawn on any bank or trust company incorporated under the laws of the United States or under the laws of any State or possession of the United States [or] A United States postal, bank, express, or telegraph money order and made out to the United States Treasury."

But if you're a careful shopper and an auction is near you, have fun. The IRS appreciates you helping retire other taxpayers' debts.

Tax risk: Trust gains have additional levy / Experts are just getting their arms around a little-publicized wrinkle in the 2012 law

Darla Mercado for Investment News writes: Trust and estate planners are zeroing in on another potential tax risk for wealthy clients: income generated by a trust.

The higher tax rates mandated by the American Taxpayer Relief Act of 2012 for individuals earning more than $200,000 a year and $250,000 for married couples filing jointly are well-known.

Less widely publicized, however, are new tax rates for estates and trusts. In addition to being in the top income tax bracket of 39.6%, estates and trusts now face a 3.8% net investment income tax — the health care surtax — if they produce more than $11,950 in income per year.

That wrinkle is just now beginning to be scrutinized.

“Lawyers and [certified public accountants] are starting to get their arms around the 3.8% surtax,” said Robert S. Keebler, a partner at Keebler & Associates LLP.

The low tax threshold for income from trusts is ruffling feathers among the well-heeled, their attorneys and tax experts. What's more, these are only federal taxes.

A separate set of rules that vary from state to state also apply to trusts.

As for clients and their beneficiaries, many were comfortable leaving their money in the trust when the top income tax rate was 35%, but now that it's close to 44%, there is some panic.

“They're saying "Oh, my gosh, I'm losing half of the income to taxes. What will I do?'” Mr. Keebler said.

Before clients hit the panic button, they should consider the fact that not all trusts are subject to this sharp increase in federal income taxes. Grantor trusts leave the tax burden to the grantor.

The grantor controls the property within the trust and declares income on his or her own tax return. This way, the trust doesn't have to file its own return.

“Lots of estate planning is done with grantor trusts,” said Andrew Katzenstein, a partner in the personal-planning department of Proskauer Rose LLP.

Grantor trusts are popular because they allow the grantor to cover the taxes, thus reducing the estate, while allowing the trust to continue growing for the beneficiaries.

Once the grantor dies, however, the trust becomes a non-grantor trust and must file its own tax return. Its income also becomes subject to the aforementioned taxes at the $11,950 income level.

Trusts can collect an income tax deduction for distributions to beneficiaries, so if the terms of the trust permit, this might be a good time to consider distributing the money to beneficiaries who are in a lower tax bracket, said Charles Aulino, director of financial planning for The Glenmede Trust Co. NA.

Whether it is a good time to distribute funds depends on the individual circumstances of the client and the beneficiaries.

DEFERRING TAX IMPACT

In a situation in which a grantor of a revocable living trust died near the end of 2012, it is possible to elect a favorable fiscal year-end for the estate and defer at least some of the tax impact.

“Say you died in November 2012. We could choose October as the end of the fiscal year for the trust,” Mr. Katzenstein said. “In that example, we get 10 months of income that isn't affected by the [3.8%] tax.”

The downside is that the trust's income tax return will be due at a different time than other tax returns.

Still, the client can sock away some substantial savings. One of Mr. Katzenstein's clients saved $150,000 on taxes by setting the fiscal year-end of the trust in 2012 before the new tax regime was put in place.

It also is a good time to think about the underlying investments in the trust.

Mr. Keebler noted that life insurance is always a possibility, combining the benefit of tax-deferred growth and a tax-free death benefit.

Master limited partnerships and municipal bonds also should be considered in order to shield some of a trust's assets from the new federal tax treatment.

“You have to be guided by a desire to have a balanced portfolio and meet your fiduciary responsibility,” Mr. Keebler said.

Tax Rate Reminder / How your investment is taxed may be as important as how it performs.

Dorsey Wright Money Management writes From Wesley Gray at Turnkey Analyst comes a reminder about tax rates.  Tax rates are going up, and how your investment is taxed may be as important as how it performs.  Here’s his table of maximum rates for high-bracket investors:

Most advisors have a lot of clients in the highest tax bracket, so this is quite applicable.  It’s pretty clear that the most tax efficient way to get growth is through long-term capital gains, and the most efficient way to get an income stream is through tax-free bonds and qualified dividends.

Two things strike me about these tax rates.  1) I would rather not pay them, and 2) It makes sense to think about how to structure your investment accounts and investment strategies to be tax efficient.

Tax-deferred accounts like IRAs and 401ks are perhaps even more valuable now that rates have gone up.  It might make sense to stuff in as much as you can.  For taxable accounts, muni bonds are even more attractive than before.  And equity strategies that cut losses and let the winners run (like relative strength) are going to be helpful due to their tax efficiency.  It also occurs to me that ETFs, especially those with smart beta that aim for market-beating performance, could be very attractive because of their tax efficiency.  (I’m partial to PDP, PIZ, PIE, and DWAS, but the point is generally applicable.)

Chances of an Audit Grow With Income

Tom Herman for the Wall St Journal writes: What are the chances that the Internal Revenue Service will audit your income-tax return?  At first glance, the answer appears simple: very low. The IRS has audited only about 1% of all individual income-tax returns in each of the past several years.

But these numbers can be highly misleading. As with so many tax questions, the real answer is: It depends.

The IRS uses a multipronged approach in selecting its victims. For example, IRS statistics clearly show a special interest in upper-income taxpayers. Last year, the IRS audited nearly 4% of those making between $500,000 and $1 million. It audited nearly 9% of those making $1 million to $5 million. For those making $5 million to $10 million, the audit rate was 18%. For those who made $10 million or more, the audit rate was more than 27%.

IRS officials are keenly interested in taxpayers who own their own businesses, file what is known as "Schedule D," and deal in large amounts of cash.

To help in the selection process, the IRS assigns a score to each return based on a secret formula designed to pick those returns where "the potential is high that an examination of your return will result in a change to your income tax liability." Its computer program is known as the "Discriminant Inventory Function" system, or DIF.

Then there is "document matching." The IRS matches what taxpayers have reported on their returns against what was reported separately to the government by employers, investment firms and other sources. If there is a mismatch, be prepared to explain the difference.

Some people are selected because of tips the IRS has received from would-be informants. Or perhaps you were unlucky enough to have your return selected at random.

If you do get audited, don't panic. Most IRS inquiries are "correspondence" audits that raise questions by mail about specific items on your return. You may be able to handle routine items easily by return mail.

Keep detailed records to support everything on your return. While you don't want to turn into a hoarder, err on the side of saving tax-related records just in case your return gets picked.

If you want to attract attention to your return, try making what IRS officials refer to as "frivolous" arguments—such as claiming you don't owe anything because there is no law requiring anyone to pay income taxes, or that wages somehow aren't taxable.

Kashoo Surpasses 100,000 Registered Users, 50,000 iPad App Downloads / Small Business Owners Continue to Say Goodbye to Traditional Desktop Accounting and Hello to Simple Cloud Accounting to Meet “Anytime, Anywhere” Demand.

Kashoo, the makers of simple cloud accounting software for small business, recently surpassed two major milestones: 100,000 registered users and 50,000 downloads of its industry-leading iPad app.

“Apple sold 19.5 million iPads last quarter, according to an April 23rd iMore report, which reaffirms our belief that it’s fast becoming a primary device for people—particularly for the increasingly mobile small business owners of the world,” said Kashoo CEO Jim Secord. “Real business apps like Kashoo and not simple add-ons of a web app are only going to make iPad adoption amongst small business owners that much more rapid. And we’re excited to be a leader on that frontier.”

Kashoo recently released a new version of its iPad app that includes a number of great new features including attachments, easy printing via AirPrint, faster data entry, a variety of beautiful, client-ready invoice templates and more. The company also released a significant update to its web app in late April. To download the Kashoo iPad app or update your existing version, visit the App Store.

About Kashoo 
With over 100,000 registered users in more than 180 countries, Kashoo is simple cloud accounting software for small business—on the web and on the App Store’s most downloaded accounting iPad app. The company was recently named the 2012 Startup of the Year by the British Columbia Technology Industry Association and was nominated a 2012 Small Business Influencer by Small Business Technology. Get started at http://kashoo.com or download the iPad app.

Review: 5 Best Cloud Accounting Software

Windows 7 Themes writes: You want to upgrade your business and manage billing right from the cloud? Cloud accounting software is trending and there are some really reliable choices

Cloud accounting is a powerful tool that allows businesses and their customers to stay on the same page. Most of these cloud accounting tools provide online access of the billing history and current account to both the seller and the buyer. This prevents misunderstandings down the line.

1) FreshBooks

Freshbooks is the pioneer in cloud account software, and many feel that it is still the best. It allows users to manage billing and support tickets as well as other vital tasks like doing taxes. For companies who utilize billable hours, there is a remotely accessible timer, which allows employees to clock in and clock out via their cell phones, so customers are paying for exactly the amount of services that they receive. In addition, Freshbooks allows multiple employees to work collaboratively on any aspect of your accounting from anywhere.

2) Xero Online Accounting

While many of these other cloud software solutions are great for businesses, Xero online accounting is also an excellent tool for managing personal finances as well. While this isn’t as feature-rich as some of the other services on this list, it is very intuitive, and beginners will find it easy to understand. Double entry bookkeeping, typically an arduous and complicated process, is much easier with Xero, which specializes in it.

3) Quickbooks Online

This is another great choice for those with a small business and not a lot of experience dealing with accounting software. While some may find the stripped down nature to be really appealing, others may feel the lack of features to be limiting. Companies who use a lot of invoices, however, will be pleased at how fleshed out this section of the service is. Printable receipts for customers are also a snap to set up.

4) Kashoo

iPad users are probably going to want to turn to Kashoo for their accounting, as it is the only one that supports that particular device to this degree. This program fully supports double entry bookkeeping, and has all of the standards expected from accounting software. Some of the frills aren’t available for this program yet, due to how new it is. However, it does support 100 different world currencies, which is great for people who do business internationally.

5) Outright

This is one of the cheaper solutions for online cloud accounting, but you get what you pay for. For its price, this is capable software designed for sole proprietorships and single-headed LLCs exclusively. It has most of the functions of the larger programs, but on a smaller scale. Especially useful for smaller businesses is the help with the 1099 form, a form that is used to keep track of taxes for people with a lot of miscellaneous income.

Accounting on the cloud is the next big step for companies looking to streamline this typically cumbersome aspect of business. With these tools, you can make accounting faster, easier and more accessible. The co-operative projects allowed by cloud computing, as well as being free of the need for keeping all of your records on site makes cloud accounting the best choice for many business models.

Lifelines for Investors on Their Own

Carolyn T Geer for the Wall St Journal writes: A reader in Minneapolis needs "direction" with her three pots of money—a regular individual retirement account, a Roth IRA and a taxable account, totaling $725,000—but speaks for many investors when she writes:

"I have a hard time believing any adviser—they all want to sweep up my assets and collect 1% of the total annually."

Meanwhile, she joins the growing ranks of so-called mass affluent investors (variously defined as investors with $100,000 to $1 million or $2 million in investible assets) who end up "self-directing" their portfolios—fending for themselves, many by default.

Assets at the likes of Fidelity Investments, Charles Schwab,SCHW +3.31% Vanguard Group and other so-called direct providers of investments grew 9% to $3.7 trillion in 2011, from $3.4 trillion in 2010, outstripping the 3% growth in retail investment assets overall, according to new research from analytics firm Cerulli Associates.

Sensing an opportunity, direct providers have been shrewdly expanding their own investment advisory services. At the same time, a new breed of online financial advisory firm is out to do what human advisers do, only with software—and without the mazes of fees and conflicts of interest that can plague traditional brokerage firms.

Here's the lowdown:

Discount brokers and no-load fund companies generally offer different levels of service.

The most basic comes in the form of all-in-one funds. These are off-the-shelf funds with a diversified mix of investments. Some, such as Fidelity's Asset Manager funds and Vanguard's LifeStrategy Funds, maintain a fixed asset allocation over time. Others, such as target-date retirement funds and 529 college-savings-plan funds, are managed with a specific date in mind and grow more conservative as that date approaches. In either case, all you pay are the management expenses of the fund.

Schwab and Fidelity offer a range of so-called managed accounts, portfolios of funds and individual securities assembled by professional money managers. At Schwab, the minimum account size is $25,000 for a diversified portfolio of mutual funds or exchange-traded funds. Annual account fees range from 0.2% to 0.9% of assets, on top of the underlying fund fees.

You also can buy a financial plan that comes with a list of recommended investments. At Vanguard, the cost is $1,000 for those with accounts under $50,000, and $250 for those with between $50,000 and $500,000 in assets at the firm. This includes the plan and a one-time phone consultation with an adviser.

For your own personal financial planner who'll provide continuing investment recommendations, Vanguard charges an annual "service" fee of 0.7% on the first $1 million in assets, 0.35% on the next $1 million, and 0.2% on subsequent amounts—on top of its fund expenses, which average 0.19%. There's a $500,000 account minimum, and a minimum annual service fee of $4,500.

Software-based advisers invest your money in portfolios of low-cost index funds, using algorithms to determine the mix of investments that's right for you. They also continuously rebalance your account when stock-bond allocations stray from targets.

Betterment.com charges an annual fee equal to 0.35% of assets on accounts up to $10,000, 0.25% on amounts above that, up to $100,000, and 0.15% on amounts above $100,000. It allocates your money between two diversified baskets of ETFs—one containing stocks, the other Treasury bonds.

Wealthfront.com charges nothing on investment amounts up to $10,000, and 0.25% on higher amounts. It uses a wider array of asset classes, including municipal and corporate bonds and real estate. And it continually trolls for chances to realize losses to offset gains in an effort to improve after-tax returns.

At both services, fees embedded in the cost of the underlying ETFs average an additional 0.14% or so per year.

Adam Nash, Wealthfront's chief operating officer, says rebalancing alone can add 0.4% a year to returns and better tax planning, another 1%.

Wealthfront's clients value transparency more than a human touch, he adds. For them, trust is earned not with a handshake but with clear, timely disclosure of costs and portfolio holdings.

Advice For Those With Only $ 1 M / Tax Strategy

Jack A Bass writes: Any financial advisor to a family with a net worth of more than US$2 million who doesn’t suggest that that family diversify their investments and their estate offshore in some way is doing a disservice to that client.

And the client that lets a single financial advisor direct all of his or her activities is, likewise, doing him- (or her-) self a serious disservice.

Years ago I helped a friend whose husband had recently passed away interview financial advisors. She had inherited a substantial amount of money from her husband’s estate, and, while those funds didn’t put her in the mega-millionaires club, they were enough that they needed paying attention to.

Each advisor had his own story and plan for what to do with this woman’s money. After interviewing a half-dozen or so, a pattern emerged. Each financial advisor we met with had a formula he’d adopted…similar to an investment strategy employed by a mutual fund. Every client of the advisor had the same percentages of his or her net worth invested in the same investments. It was one-size-fits-all management.

Which, of course, is easy on the financial advisor. He doesn’t have to think too hard or too often. However, for the client, it hardly seems worth the fees to me. You’re not being advised in this situation; you’re simply being rolled into the same investments as every other client under management.

To be fair, not all financial advisors work this way, but the majority that I’ve known over the years do. In the case of my friend years ago, we eventually found an advisor who was willing to work with the investment strategy and plan that her late husband had established and, at the same time, to work to re-diversify the portfolio in a way that made sense for my friend’s long-term goals.

Each person’s situation is different. Some people need asset protection. Others need better investment diversification. Others need estate planning. However, in today’s world, all investors need some kind of offshore component. In today’s world, if you aren’t diversified offshore, you aren’t diversified.

On the other hand, simply moving assets offshore isn’t necessarily diversification. One financial advisor I know tells his clients, all of them, that they need to be at least 50% in gold. I don’t buy that either. Holding 50% of your assets in any single investment isn’t diversification…and considering that gold is a store of wealth rather than an investment, keeping 50% of your money in the yellow metal and paying storage fees for the privilege seems counterintuitive to me.

What should you be invested in? I couldn’t tell you, of course, not specifically. I do know, though, that, if you have US$10, US$20, or US$100 million, you’ll have no trouble finding advisors to help you figure an answer to that question.

If you have more than US$1 million but less than US$10 million, however, then your challenge is greater. As a “middle-class millionaire,” as I’ve come to think of it, you must largely rely on yourself to make sure to figure out what to do with whatever you’ve got.

Social Collaboration Is in Finance's Future

Robert Kugel for Smart Data Collective writes: Finance departments don’t immediately come to mind in conversations about social collaboration technology. Most of the software used for social collaboration that I’ve seen demonstrated focuses on the 

sales process or for broader employee engagement. The Facebook-style interface may cause finance department managers and executives to roll their eyes, especially if they’re over 40 years old. Yet business and social collaboration is an important set of capabilities that has been taking hold in business.

 Our benchmark research shows it ranking second behind analytics as a technology innovation priority. It will gain adoption over the next several years as software transitions from the rigid constructs established in the client/server days, which force users to adapt to the limitations of the software, to fluid and dynamic designs that mold themselves around the needs of the user. Perhaps because most of the attention so far on the benefits of collaboration has focused on front-office roles, there’s less awareness of the potential in back-office and administrative functions. Indeed, the same research reveals that those in front-office roles five times more often than those in accounting and finance roles (21% vs. a mere 4%) said that business and social collaboration are very important to their organization. However, I assert it’s just a matter of time before the finance group understands that social collaboration has substantial potential to improve its performance.

In examining why this change will occur, let’s start with some background. “Doing business” is all about collaboration, on which my colleague Mark Smith commented in an earlier perspective. Before communication technologies began to eliminate the constraints of time and space, people relied mainly face-to-face collaboration. (Postal letters were another option but they were very slow and limited interaction.) Voice mail was the first breakthrough in enabling people to collaborate quickly across time and space. Busy individuals could conduct conversations through a series of voice messages, discussing an issue in some depth and agreeing on an approach without speaking in real time. Much of business investment in information technology over the past two decades has been aimed at enabling good communications among different elements located in separate buildings, cities and even countries. The same is true for finance.

We all know that the eruption of social media – in both group settings like Facebook and one-to-many channels such as Twitter – has changed the dynamics of how people – especially those under the age of 40 – communicate. A couple of years ago, a group of teenage girls became trapped in a sewer under Adelaide, Australia. It took several hours to rescue them because the one with a phone used it to post their plight on her Facebook page rather than call someone. This example may be extreme, but it illustrates intergenerational differences in expectations of how one communicates. 

As with IM, software companies that build business applications are beginning to include Facebook- and Twitter-like capabilities to support collaboration. Examples include application platforms such as Salesforce.com’s Chatter, IBM’s Connections and stand-alone software that can be integrated with another vendor’s offering such as Socialtext that is now owned by Peoplefluent. Software that fosters collaboration can improve efficiency, for example, by resolving issues faster or finding easier or less expensive alternatives to addressing a need. It can improve effectiveness by improving customer satisfaction or enabling more informed decisions sooner. It can foster better alignment across business units as well across and within departments by enabling closer communications among their people.

Social collaboration is off to an encouraging start, but it’s easy to see where improvements are needed, especially to be useful to the finance function. Ideally, collaboration software will be able to understand the context of the work at hand, the role of the individual participant and the relationships the individual has with others in that context. A technology like Google Glass has the potential to enable a manager, while reviewing a report, to see that there have been comments posted related to specific numbers, text or charts and then select and read these just by moving his or her eyes.

As well, software imbued with social collaboration capabilities should understand and automatically manage the various types of relationships among individuals. For example, people in a company typically have a general role (“I’m in Finance”) and one or more task-specific ones (“I’m the director of financial planning and analysis”). Some relationships are persistent while others begin and end with a project. Issues that arise may be open to all or confined to specific groups, subsets of groups or a private dialogue. 

Queries or comments may be general, specific or somewhere in between. Some conversations, especially in finance and tax departments, must be tightly controlled. Software that understands the context of the work performed and automates the process of managing the who, what and when of the communications will support more effective collaboration, faster completion of tasks, greater situational awareness with the organization and as a result better decision-making.

Which brings me back to the relevance of social collaboration for finance professionals. There are many use cases for comprehensive collaboration capabilities in ERP or accounting and financial performance management software. A good deal (maybe too much) of what goes on operationally in finance departments involves checking details and correcting errors – activities that require direct communications. Resolving billing issues could be streamlined if receivables and sales or payables and purchasing were connected to the appropriate collaborative network in the context of executing business processes. 

For example, end-of-period reconciliations could proceed faster if communications among the right people in the departments involved less effort. The financial close has multiple steps where time saved by resolving snags or clearing up ambiguities consistently can have a meaningful impact on shortening the process. Likewise, planning and review involve a great deal of collaboration, especially in understanding assumptions and expectations or providing perspectives on causal factors behind better or worse than expected results.

Unlike those in sales and marketing, the stereotypical accountant and finance specialist is not thought of as “social.” And at the moment, few people working in finance departments say that social collaboration capabilities are very important to their jobs. An important aspect of my research agenda for this year points to the need to address the demographic shift from executives and managers from the baby-boom generation to those who grew up with computer technology. These shifts will drive demand for a new generation of software, one that emphasizes IT-enabled collaboration, mobility and agility.

Social collaboration used in business applications should be more than a Facebook metaphor. It addresses a key drawback of instant messaging systems: the fact that in business, individuals have multiple roles and multiple networks of people with whom they interact. When tightly integrated into business software of all kinds, social collaboration will become an essential capability by enabling people to resolve issues faster and with less effort than other means of communication. Vendors that focus on the finance function should ignore today’s lack of enthusiasm for social but more practical collaborative capabilities and ensure that their software is designed for the next generation of financial software users.