Monday, May 20, 2013

Investment income Medicare tax tricky / Question: I’m confused about the new Medicare tax. Does it only apply to income from investments?


Mary Baldwin for FloriaToday.com writes: Answer:  The short answer is yes, and only above a certain level of income. This can be tricky.
The Affordable Care Act of 2010 established a 3.8 percent Medicare “surtax” that started Jan. 1. If you owe this surtax, it will be added to your regular tax.
The surtax applies to singles with annual modified adjusted gross income (MAGI) over $200,000, and married folks with annual MAGI over $250,000 — another marriage penalty. If you don’t earn this much, you can stop reading.
To calculate the surtax, estimate your net investment income (NII) by adding your interest, dividends, capital gains, rental and royalty income, non-qualified annuities, along with a couple other income categories. Don’t include your wages, salaries, Social Security, self-employment income, tax-exempt interest, and distributions from qualified pension or retirement plans.
And don’t be concerned with capital gains that are currently excluded from gross income, like the sale of a principal residence.
The surtax is 3.8 percent of the amount of your MAGI that exceeds your income threshold, or NII, whichever is less. For instance, let’s assume that you’re single and your income is $150,000 and your NII is $75,000. Your MAGI is $225,000. You’re $25,000 over the threshold ($225,000-$200,000). Since your $25,000 over the threshold is less that your NII, your surtax is $25,000 times 3.8 percent, or $950.
Tax-smart strategies may reduce your surtax by the smart placement of investments. For example, municipal bonds are typically placed in taxable and trust accounts since their earnings are excluded from both MAGI and NII calculations. Growth stocks often don’t pay large dividends and are also more tax-efficient for taxable and trust accounts.
Retirement accounts can hold tax inefficient investments like Treasury Inflation Protected Securities (TIPS) and dividend paying stocks. Tax-deferred accounts, like IRAs, 401(k)s, and SEPs are taxed only when there are withdrawals.
It’s usually better to maximize contributions to retirement accounts and lower your MAGI if you won’t need the money before age 59½. If you’re close to your threshold, consider some tax-smart actions. Consult a tax adviser.
Posted on 9:14 AM | Categories:

How to Retire With $1 Million / Almost anyone can become a millionaire using these strategies

Emily Brandon for US News World Report writes:  Saving $1 million for retirement is a realistic goal for most workers, but it will take a considerable amount of effort to get there. And there are plenty of fees, taxes and penalties that could make it even more difficult to hit this worthy savings target. These strategies will help you to save $1 million over the course of your career:


Start young. The easiest way to save $1 million is to begin saving at your first job. If you start saving at age 25, you could save just $4,682 per year and reach $1 million by age 65, assuming 7 percent annual returns, according to calculations by David Fernandez, a certified financial planner for Wealth Engineering in Scottsdale, Ariz. "You could do that by maxing out a Roth IRA or saving in a 401(k)," Fernandez says. "If you wait until 35, the amount you need to save more than doubles." Beginning at age 35, you will need to save $9,894 each year to accumulate $1 million at age 65. If you further delay saving, you'll need to tuck away $22,798 annually beginning at 45 or $67,643 at 55 if you hope to be a millionaire upon retirement at 65.

Set intermediate goals. While saving $1 million might be your ultimate retirement goal, it helps if you set some intermediate goals along the way. "If you've gotten to save $50,000 or $100,000, then you can do something significant that is important to you to celebrate," says Mary Brooks, a certified financial planner for Brooks Financial Planning in Colorado Springs, Colo. "Your enthusiasm is renewed because you really feel like you have gotten someplace."

Keep expenses low. Pay attention to the expense ratio of each investment you choose, and try to select those with low fees and expenses. "Always go for low-cost investments. The only thing you can control is what you pay for stuff," says Walter Romatowski, a certified financial planner for Castellan Financial Advisors in Palo Alto, Calif. "For most people, it probably makes sense to invest in index funds because they typically have lower expenses as compared to actively managed funds. You can pay 0.1 percent or 1 percent, and that makes a huge difference over your lifetime."

Minimize taxes. Saving in a traditional 401(k) or IRA can reduce your current tax bill and will allow your savings to grow without the drag of income tax. For example, a worker in the 25 percent tax bracket who contributes $5,000 to a traditional IRA will save $1,250 on his current tax bill, potentially allowing him to save that extra $1,250 for retirement. You won't have to pay the taxes until you withdraw the money in retirement. Alternatively, you could pre-pay the income tax using a Roth IRA or Roth 401(k), and no additional taxes will be due on the growth when you withdraw the money in retirement or leave the money to heirs.

Get your employer to chip in. If your employer offers a 401(k) match or makes other contributions to your 401(k), you will get to $1 million much faster than by saving on your own. "If you have an employer 401(k) plan or 403(b) plan, get the employer match if your employer matches," Romatowski says. "If you don't do that, you are just giving away free money."

Don't inflate your lifestyle. As you get raises, try not to increase your spending. Instead, save at least a part of the extra income. "Every time you get a raise, bump your company 401(k) contribution up by another percent or two," Fernandez says. "That way, you don't even notice it that you are saving more." Also, consider saving a portion of other windfalls, including inheritances and tax refunds.

Avoid early withdrawals. Obviously, if you tap into your 401(k) and IRA accounts before retirement, it will be more difficult to accumulate a significant nest egg. The negative effects of early withdrawals also include missing out on valuable compound interest, paying the income tax that will be due on the amount withdrawn and incurring a 10 percent early withdrawal penalty if you are under age 59 1/2.

Don't spend it too quickly. While $1 million may feel like a lot of money, spread over a 30-year retirement, it is likely to provide a modest income. "One million bucks gives you roughly $40,000 of income per year," Romatowski says. "If you save diligently, you can get to $1 million. It just takes a lot of discipline." While becoming a millionaire isn't likely to produce a lavish retirement, gradual withdrawals combined with Social Security payments will likely be enough to provide a comfortable retirement in many parts of the country.
Posted on 9:13 AM | Categories:

I am looking to open a trust fund for an 8-month-old baby boy. I would like him to have something when he gets old enough to retire, but I’m not sure where to start.

Karin Price Mueller/The Star-Ledger writes: Answer: Your two main choices would be starting a trust, or using an UGMA (Uniform Gift to Minors Act) or UTMA (Uniform Transfer to Minors Act).

There are advantages to the UGMA or UTMA route, but if you do this, there will be no guarantee the funds would be used for the baby’s retirement.
Still, it’s worth considering.

“Opening this type of account is fairly simple and allows a donor to gift funds to the beneficiary and manage the account until the beneficiary reaches the age of majority, which is 21 in New Jersey but can vary by state,” said Brian Kazanchy, a certified financial planner with RegentAtlantic Capital in Morristown.

The potential ease of the UGMA/UTMA account is offset with the lack of long-term control you can maintain over the use of the funds, he said. Once the beneficiary has reached the age of majority, the account must be placed in his name and he will have full control to use the funds.

“Since your stated objective is to earmark the funds for the beneficiary’s retirement, you may want to consider having a trust document drafted by an attorney,” he said. “The document can be drafted to name a trustee to oversee the trust assets and to ensure that they are used for your stated goal.”

Also important is how much you give, and how.  In 2013, the IRS allows you to give up to $14,000 per person without having to report that gift at all, and married couples can combine their gifts, which allows you to give up to $28,000 per recipient, said Victor Medina, an estate planning attorney with Medina Law Group in Pennington.

“If you gift more than the annual exclusion amount, you’ll have to file a gift tax return — which isn’t the same thing as owing gift tax,” he said. “You don’t start to owe gift tax until you give more than your lifetime exemption, currently $5.25 million — which would be quite a trust fund.”

Medina said as a bonus, when made correctly, these gifts will be outside of your estate for estate tax purposes, and New Jersey doesn’t have any rules about gift taxes except that gifts made within three years of death will be rolled back into your estate.
To your specific goal of retirement funding, it sounds like a trust would be the way to go.
There are some income tax considerations, too.
Under custodianships like UGMA or UTMA, the income is taxable to the minor whether or not it is distributed, Medina said.

Posted on 9:13 AM | Categories:

Identifying and Valuating Intangible Assets and Intellectual Property : Discussed

Craig A Jacobson for the NY Law Journal writes:    All businesses are comprised of a variety of assets, including both tangible assets and intangible assets. Tangible assets include items such as cash, inventory, accounts receivable, and fixed assets. Intangible assets include both "traditional" intangible assets and intellectual property (IP). "Traditional" intangible assets can include the company's customer lists, vendor relationships, license agreements, and noncompete agreements. Some intangible assets (such as customer lists) exist in the normal course of business. Other intangible assets, such as noncompete agreements, typically originate during the course of an unusual event such as an acquisition.1 Balance sheets of American companies are increasingly comprised of intangible assets such as those discussed in this article.

IP, on the other hand, is a special category of intangible asset. IP is created by human intellectual or inspirational activity, and includes patents, trademarks, trade names, copyrights, trade secrets, technological know-how, and software. IP may enjoy special legal recognition, which provides motivation for intellectual property innovators and protection for intellectual property creators.This article discusses the identification and valuation of intangible assets and intellectual property, including situations in which the valuation of such assets often arise.

Recorded vs. Non-Recorded Intangibles

The tangible assets of a company are recorded on the company's balance sheet at the time of their acquisition or creation. Although intangible assets are developed in the normal course of operating a business, unlike tangible assets, they are only recorded on the company's balance sheet when the subject company is acquired. Just because intangible assets don't show up on the balance sheet does not mean that they don't exist.

Reasons to Value Intangible Assets

In many valuation assignments, it is not necessary to separately value intangible assets (which are already baked into the conclusion of enterprise value). However, certain situations require the separate valuation of intangible assets. The purpose of these valuation assignments may include: Financial reporting purposes. As discussed above, intangible assets are not recorded in the normal course of business. However, when a company is acquired, the purchase price is allocated among the company's assets, which requires the intangible assets to be valued and recorded on the balance sheet of the buyer. Intangible assets also may need to be valued after the acquisition, when a company tests its goodwill or intangible assets for impairment. Tax purposes. Intangible assets are sometimes transferred to a separate company, and need to be valued for tax purposes. For example, a company may separate the income from its centrally developed IP by retaining it at the corporate level and licensing it out to its foreign operating subsidiaries. Litigation purposes. Intangible assets are sometimes separately valued for litigation purposes in situations including (but not limited to) infringement, breach of contract, fraud, and expropriation.

Standard of Value

An important determination in any business valuation analysis is the applicable standard of value. The standard of value is the definition of the type of value being sought, indicating "value to whom" and "under what circumstances."2 An entity can be worth different amounts depending upon the standard of value that is selected. Two common standards of value used in valuation are fair market value and fair value. Fair market value. Fair market value (FMV) is defined by the American Society of Appraisers as "the price, expressed in terms of cash equivalents, at which property would change hands between a hypothetical willing and able buyer and a hypothetical willing and able seller, acting at arm's length in an open and unrestricted market, when neither is under compulsion to buy or sell and when both have reasonable knowledge of the relevant facts."3The FMV standard of value often applies for valuations prepared for tax or matrimonial dissolution purposes. Fair value. As employed under Generally Accepted Accounting Principles (GAAP), the Financial Accounting Standards Board defines fair value (FV) as "the price that would be received to sell the unit as a whole in an orderly transaction between market participants at the measurement date."4The FV standard of value applies for valuations prepared for financial reporting purposes.5A key difference between FMV and FV is that FMV assumes a hypothetical buyer or seller, while FV is considered from the perspective of a market participant that already holds the subject asset. A fair value analysis estimates the exit price, or what the holder would receive upon a sale of the asset.

Overview of Intangible Asset Valuation

Valuation Approaches. At the outset, it is important to understand what value is and isn't. While these precepts apply to business valuation in general, they are particularly important to understand for intangible asset valuation.Irrespective of the selected standard of value (see above), value is generally considered to be a market-based concept. In other words, a valuation is an estimate of the price at which an asset would sell in an open marketplace. The cost to produce an asset may or may not provide any meaningful information on the value of the asset. For example, one can envision a software program that cost several thousands of dollars to create, yet does not have any current economic value that would result in a meaningful sales value in an open market. Likewise, the fact that an asset sold for a particular price might not indicate the value of the asset. If a transaction price was influenced by factors that were particular to one of the participants, and not to the market in general, the price might not provide meaningful information about the value of the asset. There are three valuation approaches commonly used to value intangible assets: the cost approach, the income approach, and the market approach. These valuation approaches are conceptually similar to the approaches used to value companies themselves. However, it is important to note that the nature of specific intangible assets indicates which valuation approaches are appropriate as discussed below. The cost approach generally estimates value based on the replacement cost of the subject asset. This valuation approach assumes that the value of an intangible asset will be no more than the cost of an intangible asset with similar utility. When applied to intangible asset valuation, the cost approach does not assume that the cost estimate will result in an intangible asset that is identical to the subject intangible asset. Rather, the utility of the intangible asset to its owner is the basis of its value.It is important to note that replacement cost differs from reproduction cost. Reproduction cost involves creating a replica of the subject intangible asset. However, reproduction cost does not consider whether the market would even want an exact replication.

A cost approach analysis necessarily involves consideration of the inputs to the production of the asset. These inputs can include labor, materials, and overhead. The valuation analyst should utilize inputs that reflect the costs to a market participant. For example, if a company is paying a certain type of programmer $200 per hour, but a market participant could obtain similar services for $100 per hour, the lower amount is the proper input into a cost approach analysis. The cost approach is often used to value intangible assets such as software that do not directly generate economic benefits for the owner. If the valuation analyst establishes that the software is important to the operations of the subject company or reporting unit, this indicates that the software does in fact have value, which can be estimated using the cost approach. The cost approach should also consider the obsolescence of the subject intangible asset. There are three common types of obsolescence for intangible assets: functional, technological, and economic. Functional obsolescence represents a decline in the utility of the asset due to its function having become dated. Technological obsolescence (a related concept) is when the intangible asset is less needed (although the asset still works as designed) due to newer, more useful intangible assets. Economic obsolescence represents the loss in value due to factors external to the intangible asset. The various forms of obsolescence must be considered under the cost approach, and generally represent a reduction in the value of the intangible asset from its replacement cost. The income approach estimates value based on the economic benefit, often expressed as cash flow, expected from the ownership of the subject intangible asset. The economic benefit can take the form of increased revenue and/or decreased expenses. The application of the income approach involves (1) projecting the expected economic income attributable to the ownership of the subject intangible asset, and (2) discounting the economic income to present value at a discount rate that reflects the risk in achieving the projected income stream. The discount rate for the subject intangible asset is related to the discount rates for the other assets (tangible and intangible) owned by the company (the weighted average of which should represent the discount rate for the company as a whole). Each asset of a company contributes to the earnings of the company. The most risky assets of a company are usually its intangible assets and IP, and therefore these assets warrant the highest rates of return. Within this realm, intangible assets are usually considered the less risky assets, with IP representing greater risk and requiring higher rates of return.The measure of economic income should include only the portion of economic income attributable to the subject intangible asset. As discussed above, every asset of the company may contribute to the earnings (and therefore to the value) of the company. For example, when estimating the value of a customer list, the valuation analyst should consider that other assets may contribute to the earnings: current assets (e.g., cash, inventory), fixed assets (e.g., buildings and equipment), and intellectual property (e.g., patents and trade names). An adjustment, often called a "capital charge," can adjust for the portion of income attributable to other assets of the business. The market approach estimates the value of an intangible asset based on the price of arm's length transactions in similar intangible assets. The market approach begins with analyzing empirical data on transactions in both the subject intangible asset and comparative intangible assets. Transactions can include either or both of (1) the sale of the asset itself, or (2) a license agreement to utilize the subject asset. In terms of comparable sales, the usefulness of transactional information can be limited by differences between the transactional asset and the subject asset. The market approach requires consideration of changes in market conditions between the date(s) of the comparative transactions and the valuation date. The valuation analyst may need to adjust market-derived pricing information to account for changes in market conditions.

Intangible Asset Valuation Examples

This section presents some examples of certain types of intangible asset valuation that frequently arise in an intangible asset valuation assignment. This is not a representative list of intangible assets or applicable valuation approaches, and is intended only to serve as examples of the intangible asset valuation process. Customer list. A company often earns profits from its existing list of customers as of the valuation date. The value of the customer list is often estimated using the multiperiod excess earnings method under the income approach. A multiperiod excess earnings method analysis utilizes projections of the economic income expected to be derived from the ownership of the customer list. Such an analysis considers factors such as the expected remaining useful life of the customer list and the expected falloff in the income generated from the customer list. One question to ask at the outset is what constitutes a repeat customer? For some companies, a repeat customer is a customer who purchases the company's products every year. For other companies, such as car manufacturers, a repeat customer might only make a purchase every three to five years. A customer list is a decaying asset (one that has a limited life, and for which the value is expected to decline over time). Historical sales information may indicate not only which customers are repeat customers, but the expected decay (or decline) in business from the customer list over time. The expected economic benefit is projected over the remaining useful life of the asset, and discounted to present value at an appropriate discount rate. Note that the discount rate for a customer list will often be higher than for the company's tangible assets, but lower than for the company's IP. Noncompete agreement. Many purchase and sale agreements include a provision preventing the sellers from competing with the buyer for a specified period of time. This represents a component of value to the buyer, which is often valued using the "with and without" method of the income approach. Here, the difference in economic income both "with and without" the noncompete agreement is analyzed. Such an analysis necessarily will utilize subjective information (often provided by management) as to the decline in sales and profits that the company would experience "without" the noncompete agreement in place. The projections period for such an analysis are determined by the length of the noncompete agreement, and the projected economic benefits are discounted to present value at an appropriate discount rate. Patent. The value of a patent can be estimated based on the royalty payments the company would be willing to pay if it didn't own the subject patent using the "relief from royalty" method. This valuation method is in essence a hybrid valuation method that uses an assumed royalty rate derived from analysis of uncontrolled license agreements for other comparable patents (which is a market approach analysis) and discounting the economic benefits from owning the patent (and therefore being "relieved" from making royalty payments) to present value (which is an income approach analysis). This valuation method involves examining licensing agreements for other patents, and making adjustments to this data based on differences between the benchmark licensed patents and the subject patents. The projected economic benefit is then discounted to present value at an appropriate risk-adjusted discount rate. Software. Software that is directly income-generating can be valued using an income approach that considers the direct economic benefit from the ownership of the software. However, software is most often valued without any measure of economic benefit. For example, software might be acquired without any history of generating sales. Software is thus often valued using a cost approach analysis. As discussed above, such an analysis should estimate replacement cost, and not reproduction cost. This accounts for factors such as the software possibly not having been developed in an optimal manner. Such an analysis should consider the technological obsolescence of the software. Various methodologies have been developed to estimate the value of software using the cost approach. These methodologies consider factors such as the number of lines of code, the number of hours to program each step of the development process, the cost of programmers, obsolescence, etc.

Valuation Reconciliation

In performing valuations of intangible assets and IP, the valuation analyst should make sure that the value conclusions reached are reasonable within the context of (1) the other assets of the company, and (2) the value of the company as a whole. A company is comprised of several tangible and intangible assets, and the value of the company should reflect the value of the combined assets. If the combined value of the assets is greater than the value of the company as a whole, this suggests situations such as (1) the company might be worth more as an assemblage of assets than as a going concern, or (2) there is a problem with one or more of the valuation analyses. In addition, the required rate of return on the company's assets, calculated on a weighted average basis, should reflect the risk of the company as a whole.

Summary and Conclusion

This article has discussed the valuation of intangible assets and IP for different purposes. It is important for business owners to identify and understand the value of the intangible assets owned by the company. Proper management of intangible assets can enhance the operations and value of a company, making knowledge of its value important for both business owners and their professional advisors.
Posted on 9:13 AM | Categories:

Indian startup simplifies billing for Small Business / Chargebee, offers software tools targeted at enterprises and SMBs to manage recurring subscription payments. Co-founder and CEO Interview

   for India Start-Up  / ZD Net writes:  A lot of businesses today offer services that require customers to sign up online, and many are both startups as well as karge enterprises. As the customer base grows for these enterprises, managing their billing becomes a tougher task.

With this increasing fast, it becomes a challenge for businesses to manage these signups on their own especially if the startup or enterprise has a global offering or service. Keeping track of recurring bills manually is certainly not an option. Businesses should focus on providing their product or service to customers and can save money and time if they're able to resolve the hassle that comes with managing these online subscriptions. That's where Chargebee comes in.

The Chennai-based startup is your off-the-shelf plug-and-play billing tool that's delivered on the cloud. You can connect with ChargeBee via API (application programming interface) if you are technically inclined or use PCI-compliant hosted payment pages to collect payments, and go live in a matter of minutes.

ChargeBee says it provides a robust and flexible billing system to enable your sales and marketing team to run special promotions, as well as the right tools for your support team to bill accurately and respond faster for billing queries. And it helps collect payments online from payment gateway of your choice.

I had a word with Krish Subramanian, co-founder and CEO of Chargebee, over an e-mail interview where he gave an idea of what his product does and how it helps various startups and enterprises.

Q: How did the idea for Chargebee come about?

Krish: Zoho was one of the early companies that saw the opportunity in cloud and transformed itself from a Network Management Service provider (then called Adventnet) to a cloud-based services provider. That is a well documented story.


KP Saravanan was one of the early employees of Adventnet, and Rajaraman Santhanam and T. Thiyagarajan had been with Zoho for over 10 years. So the opportunity was very clear to us. Rajaraman and I were classmates during engineering days and we have always wanted a startup of on our own. So that is how we all came together and decided to start ChargeBee.

We could see rapid SaaS (software-as-a-service) adoption as an area which requires subscription, besides the fact that the world is moving toward a subscription economy.

Sample of the subscription economy:
  • Online TV, digital magazine, retail subscriptions, health center, school fees--all of them have an element of recurring payments about them.
  • Today you no longer need to buy a BMW or Audi to use it. You can lease it. The pay-as-you-go model is not new to car rental, real estate rental, media or insurance industries.
  • Adobe, one of the big players in traditional installable software is soon moving away from the one-time licensing model and taking the leap toward subscriptions.
  • With large-scale adoption of SaaS and supporting services coming up online, we see this as a huge opportunity to build a platform that serves the SMB segment in providing billing services. The application of online subscription billing as a model is tremendous across multiple verticals, as the business model by itself is quite nascent. It has a long way to mature.
What business problems were you looking to solve through Chargebee?If you are building an online product or service, there is a core value proposition that your customers try out before they decide to buy. The quality of the product and, more importantly, the service itself is what sets you apart from your competitors. You need to continuously iterate and improve on the product while customers continue to use it on a daily basis. This is like changing the engine of your car while it's running.

To help you deliver that service phenomenally well, you also need some great supporting applications to enable you do it well. For example, you'll need CRM, analytics, helpdesk, and accounting systems to automate your operational pieces and gain insights. We believe ChargeBee is a service in this category that will continue to enable cloud applications to serve their customers way better by being a subscription-based infrastructure provider.
Since three of the founding team members are from Zoho, we understand which components get built over and over again, and subscription management is a component that needs to be built for every service that is launched--just like login management. We believe we are emerging as a billing infrastructure player for online businesses to provide customer lifecycle management and recurring billing.

When you started out, were there startups in the market offering similar services?Zuora is the biggest player in the subscription billing space serving enterprise customers. Other players addressing the SMB segment are Chargify and Recurly, specializing in recurring payments.

Interestingly we joined hands with our competitor Spreedly, which is pivoting to a slightly different model, to provide support for additional payment gateways and the external vault for storing the credit card data. Times of India's BoxTV.com is one of our first customers under this partnership.

What kind of pricing do you offer customers. Is this customized?Our pricing model is based on the number of invoices generated and not as a percentage of the transaction amount, unlike what our competitors offer. This ensures we make money only when our customer makes money. We offer three price-points: Silver plan at US$49 per month for 200 invoices; Gold at $149 per month for 750 invoices; and Platinum $249 per month for 2,000 invoices. Rates for additional invoices vary as per plan.
The service is free until our clients hit 10 invoices per month. And of course we offer custom pricing for customers with higher volume.

This is an interesting point that most subscription businesses need to think about--it is essential to experiment with pricing until you figure out your ideal price-points. However, you also need to ensure clients you are on firm ground. By this, I mean you should always "grandfather-in" the pricing for existing customers even while introducing new pricing for new customers. This is absolutely non-negotiable or you may break the trust with your customer base.

So, at ChargeBee, we assure minimum guarantee of two years grandfather clause in our prices. We also make pricing experimentation a breeze for our own customers. Grandfather-in of prices is the default behavior for even those businesses that use ChargeBee for their payments.

How many transactions does your company now support? Can you provide some stats?We are doing over 5,000 transactions a month with over 100 customers which have integrated with us. We're growing at 25 percent month-on-month in terms of the number of transactions. There are close to 50 customers that have live transactions delivered via our system right now.

What are the biggest online billing problems your customers face which you want to address?In SaaS, the pricing model is either based on number of transactions, licenses, or number of users--similar to how it's done for CRM and helpdesk systems. And you expect the customer's business to grow and pay higher amounts while using the service. This brings interesting opportunities and challenges.

Your product not only needs to do its core functions well, you also need a set of tools integrated with the application to manage them well. It requires a customer lifecycle management system and recurring billing tool that helps track, retain, manage, and nurture users that are signing up to become paid customers.

Because you need to collect repeat monthly payments, you need the ability to do frictionless payments and collect these automatically. This is non-negotiable as any amount of friction will lead to customer churn. Typically payment gateways with recurring capability are not built for these use cases.

And you need to allow thousands of customers to "try" the service before a small percentage of them become paid users. A low-touch sales model is required to hand-hold customer, convince them to use product, and explore it themselves while staying engaged through the trial period. Businesses that figure ways to build engagement are super successful.  This is definitely one area where Chargebee helps online businesses.

Who are your primary customers? Can you share some insights on the demographics?Chargebee caters primarily to SMB customers in the United States, Western Europe, and Asia-Pacific--primiarly Singapore and the Australia and New Zealand regions.
We provide verticalized products for SaaS, subscription commerce, and digital media services which are mostly premium newsletter services. We make invoice generation, payments receivables run like clockwork besides providing value-added services like conversion analytics, transactional e-mail system, and integrations with CRM and accounting softwares.

What's the future of subscription billing like for India? ChargeBee's primary customer base is outside India. We work with over 30 payment gateways like Braintree, Stripe, and Authorize.net. That said, we support 2Checkout as the payment gateway for Indian businesses that have a global customer base.
As you may be aware, recurring billing is still a challenge for Indian businesses due to the RBI (Reserve Bank of India) regulation, particularly if you are selling within India. We support 2checkout.com which is a PayPal alternative for Indian businesses that sell globally.

What major challenges do you face as a startup?Although we do not have much to complain about I feel that, as a ecosystem, we have much work to do to enable startups to thrive within proper regulations. Subscription as a business model is a raging phenomenon in SaaS community globally and validated in various verticals, but it is unfortunate that it is stifled in India due to regulation challenges.
Many startups are spending precious time solving a regulation problem with technology, when we should be focusing on solving business problems. In the context of India, I hope regulation challenges can be overcome sooner. We have more than 400 startups in India registered with us asking for a tool, but we have fewer than 10 customers using our product from India. The reason being it is hard to solve the problem completely.
Imagine the possibilities if e-commerce companies can experiment with newer business models like the Zaarlys and BirchBoxes of the world here in India. Or even for the pharma industry to deliver medicines for chronic illnesses. The possibilities are endless, only if startups can focus on solving real-world issues than having to overcome regulation challenges.

What's one key feature in your product that's popular with your customers?That would be the frictionless upgrade and downgrade of plans. We also provide our customers the ability to easily configure add-ons and promotional offers such as coupons, discounts and so on within seconds.
Posted on 9:12 AM | Categories:

Amateur investors tap 401(k)s to buy homes

Les Christie at CNN Money writes:   In order to get in on hot housing markets, amateur investors are buying up homes and taking risky measures -- like tapping their retirement accounts -- to fund the deals.


"We're seeing many people cash out 401(k)s or IRAs because they want to take advantage of the market," said Sean Galaris of financial services firm LM Funding, based in Tampa. "This new scenario involves people losing significant personal funds since they are financing real estate through retirement accounts, savings and life insurance."
Galaris should know. His company buys delinquent fee accounts from condo associations and collects the debts. Many of the condo owners he collects from either resort to tapping their 401(k)s or IRAs when they come up short or have already used up those funds to buy the property in the first place.
Lori McDermott, an insurance broker from West Seneca, N.Y., took out a $50,000 loan against her 401(k) for a downpayment on a home in Sarasota, Fla., last December. A short sale, McDermott got the place for $225,000 -- a steal considering the seller owed $465,000 on the mortgage.
But still, it's a risk. If McDermott loses her job or quits, then any unpaid part of the loan will be subject to income tax and possibly a 10% early withdrawal penalty.
"The decision to take money from your 401(k) is not for everyone," said McDermott. At the age of 48, she has already had five arterial stents implanted. "Having heart disease put me in a position where I was scrambling for life insurance," she said. " I looked elsewhere to create a legacy: real estate."
Adam Bergman, a tax attorney for IRA Financial Group in New York, gets several calls a day from clients like McDermott looking to invest their retirement funds in real estate.
"Our average client has retirement accounts of about $150,000 and is looking to buy one or two properties," he said. "After 2008, they didn't trust Wall Street. They wanted hard assets."
But Wall Street is getting into this market as well and that is driving prices higher. Many of the single-family homes and condos that have been purchased over the past three years have been snapped up by hedge funds, foreign investors, private equity and wealthy real estate partnerships.
The large-scale purchases these investors are making are driving up prices in markets that were hit hardest during the housing bust. Atlanta home prices jumped 16.5% in the 12 months ended in February, according to the S&P/Case-Shiller home price index.
In Las Vegas, which was ground zero for the foreclosure crisis, prices have climbed 17.6% and Phoenix has seen an increase of 23%. In Florida, Tampa and Miami have recorded double-digit increases.
"They bought a lot of stuff cheap last year, but now they're paying market value," said Jack McCabe, a Florida-based real estate consultant. "Sometimes they're overpaying."
As home prices rise, profits are harder to come by for investors than they were a year or two ago. "There's no way they can get an 8% return buying at today's market prices," said McCabe.
After deducting all the fees, taxes, maintenance and other costs, "They're lucky to get a 2% return," he said.
And that's if all goes well with the rental. It often does not. Investments in rental properties can quickly sour if, say, a tenant stops paying rent for a few months or if a condo or homeowners association imposes special assessments to pay for major repairs.
"When that happens, investors may not have the wherewithal to pay their monthly common charges and property taxes," said Galaris. "A whole lot of the people in the markets are not experts."
Galaris said amateur investors sometimes spend all their free cash on their purchases and then have to scramble to pay the fees. If real estate turns south again, that could leave a lot of investors in dire financial condition for their golden years. 

Posted on 9:12 AM | Categories:

New IRS Guidance Takes Restrictive View Of Material Participation By Non-Grantor Trusts

Randal J. Kaltenmark and Michala P. Irons for Barnes & Thornburg writes: Recently published Technical Advice Memorandum 201317010 (the TAM) limits the circumstances in which a complex, non-grantor trust can materially participate in the activities of an S corporation. In the TAM, the IRS National Office concluded that a fiduciary's participation in the activities of a trust count only toward material participation to the extent the fiduciary participated in those activities in a fiduciary capacity. Although the TAM evaluated material participation for purposes of the alternative minimum tax rules, its reasoning would also apply to the passive activity loss and credit rules and the new 3.8 percent net investment income tax.


The TAM considered whether trust shareholders materially participated in the business activities of an S corporation and its subsidiaries. The trusts were complex trusts that had a Trustee and a Special Trustee. The Special Trustee was a beneficiary of the trusts, was a shareholder of the S corporation, and was the president of one of the S corporation's subsidiaries. The Special Trustee was permitted under the trust agreement to make all decisions regarding the sale or retention of the stock and all voting of the stock. The trusts argued that all of the Special Trustee's time spent in the activities of the S corporation (as fiduciary, shareholder, and employee) should be considered. The IRS National Office concluded that only time spent by Special Trustee in his fiduciary capacity (for example, voting the trusts' S corporation stock) counted toward the trusts' material participation in the S corporation's activities.

The TAM's conclusion is at odds with the only judicial authority on this issue in Mattie K. Carter Trust v. U.S., 256 F.Supp.2d 536 (N.D. Tex. 2003). Although technical advice memorandums like the TAM are not precedential, given the lack of authoritative guidance on how trusts materially participate, any new pronouncement is significant because it shows that this issue is far from resolved. The TAM also highlights the increasing importance of the issue of material participation by trusts due to the 3.8 percent net investment income tax.
Posted on 9:12 AM | Categories: