Would like everyone considering Quickbooks Online to know there is a 5 day sale going on with Intuit that's ending on May 24, 2013. Example, Quickbooks Online Plus with Payroll is normally $80/Month, now it's $40/Month (and that's a 5 user license for 12 months). For small businesses that's a savings of $500/year. You can see all their offerings at the below link.
Wednesday, May 22, 2013
ETFs? Here's What You Should Know / A Quick Primer on ETF Tax Efficiency / Fact or Fiction: Exchange-Traded Funds Are More Tax-Efficient Than Mutual Funds
Jeff Brown for CNBC.com writes: Investing in stocks and bonds has become easier and easier over the years. First, there were mutual funds, then index funds. Now, exchange-traded funds are all the rage.
Certain asset classes offer better aftertax returns in tax-deferred accounts, such as assets that throw off a large share of their total returns in the form of interest income, which is taxed at ordinary income tax rates. For example, if an investor in the highest tax bracket were to hold iShares Core Total U.S. Bond Market ETF (AGG) in a tax-deferred account, he or she would have earned a 5.78% annualized return for the five years ended Dec. 31. That same investment held in a taxable account would have returned only 4.43% for an investor in the highest tax bracket. When choosing a fund for a taxable account, one would have been better off with the iShares S&P National AMT-Free Muni Bond ETF (MUB), which returned 5.48%. But in the tax-deferred account, the muni fund underperformed the taxable iShares Core Total U.S. Bond Market fund.
Although the asset location decision--which asset classes to hold in which account types--is a crucial component of tax management, investors also can help improve their aftertax results by focusing on tax-efficient strategies for their taxable holdings. Exchange-traded funds are often touted as tax-efficient investments because they can gain an edge through the use of an additional tax-fighting weapon at their disposal: the creation and redemption process. Rather than selling stock to meet investor redemptions, ETFs are redeemed through an in-kind transfer with an authorized participant. The in-kind, or shares-for-shares, transfer allows for the elimination of low-cost-basis shares, thus reducing (but not eliminating) the possibility of future capital gains distributions.
Let's look at some specific examples to illustrate the point that ETFs can be more tax-efficient than active mutual funds but are not necessarily more tax-efficient than well-run index mutual funds.
In fact, you could do all your investing with the 1,000 or so ETFs, most of which use index-style strategies rather than active management. It's very easy, taking just a few clicks of a mouse with your online-broker—just like trading a stock. Fees are extraordinarily low, and ETFs can be very kind come tax time.
So why not buy a few ETFs and let it go at that?
Many financial advisors indeed like ETFs, but caution they are not perfect for all occasions.
Like mutual funds, ETFs pool investor assets and buy stocks or bonds according to a basic strategy spelled out when the ETF is created. But ETFs trade just like stocks, and you can buy or sell anytime during the trading day. Mutual funds are bought or sold at the end of the day, at the price, or net asset value (NAV), determined by the closing prices of the stocks or bonds owned by the fund.
Because they trade like stocks, ETFs can be sold short, a way of profiting if the ETF price drops instead of rises. And many ETFs have related options contracts, which allow investors to control large numbers of shares with less money than if they owned the shares outright. Short selling and options are not available with mutual funds.
This difference makes ETFs better for day-traders betting on short-term price changes of entire market sectors. For long-term investors, these features don't matter.
Most ETFs are index-style investments, similar to index mutual funds. That means the ETF simply buys and holds the stocks or bonds in a market gauge like theStandard & Poor's 500 stock index or Dow Jones Industrial Average. Investors therefore know what securities their fund holds, and they enjoy returns matching those of the underlying index. If the S&P 500 goes up 10 percent, your SPDR S&P 500 Index ETF (SPY) will go up 10 percent, less a small fee. Many investors like index products because they are not dependent on the talents of a fund manager who might lose his touch, retire or quit.
While the vast majority of ETFs are index investments, mutual funds come in both flavors, indexed and actively managed, which employ analysts and managers to hunt for stocks or bonds that will generate alpha—return in excess of a standard performance benchmark.
So investors really face two issues: Should they choose actively managed funds over indexed products? If they prefer indexed ones, are ETFs preferable to mutual funds?
Active Management
Many studies have shown that over time, most active managers fail to beat their comparable index funds and ETFs, because picking market-beating investments is very hard. Also, managed funds must charge larger fees, or "expense ratios," to pay for all that work. Many managed funds have annual charges as high as 1.3 percent to 1.5 percent of assets in the fund. In contrast, the Vanguard 500 Index Fund (VFINX), a mutual fund, charges just 0.17 percent. And the SPDR S&P 500 Index ETF just 0.09 percent.
"Over the long term, taking into consideration costs and taxes, active management does not outperform indexed products," said Russell D. Francis, an advisor with Portland Fixed Income Specialists in Beaverton, Ore.
Active management is worth paying for only if returns (which account for the fees) beat those of the comparable index products. And the investor must be convinced the active manager won through skill, not luck.
"A simple way to answer this question is to look at the managers' track record," said Matthew Reiner, a financial advisor with Capital Investment Advisors of Atlanta. "Have they continuously been able to outperform the index? Not just over one year, but three, five, 10 years?"
In looking at that track record, be sure the long-term average has not been skewed by just one or two extraordinary years, as spikes are often due to sheer luck, cautioned Stephen Craffen, a partner with Stonegate Wealth Management in Fair Lawn, NJ.
Some financial advisors believe that active management can beat indexing in fringe markets, where a small amount of trading and a shortage of analysts and investors can leave bargains undiscovered.
"I think there are areas of the market that active management may be beneficial," Reiner said, citing international bonds. Others favor active management for high-yield bonds, foreign stocks or small-company stocks.
Christopher J. Cordaro, an advisor with RegentAtlantic of Morristown, N.J., said active management can be especially valuable with bond funds.
"Active bond managers can avoid areas of the bond market that may be overheated," he said. "They can shorten maturities to reduce interest rate risk." That's the risk that older bonds with low yields will lose value if newer bonds are more generous—a widespread concern today.
"The time I want active management is when risk is elevated," Cordaro said.
For stocks and bonds that receive heavy scrutiny, like those in the S&P 500 or Dow, it is much more difficult for active managers to find bargains, because so much is so widely known about these securities.
Many experts therefore suggest that index investments make up the core of the small investor's portfolio, since the core is typically invested in widely traded, well-known securities.
Indexed products are especially good in taxable accounts because their buy-and-hold style means they don't sell many of their money making holdings. That keeps annual "capital gains distributions"—a payout to investors late in the year—at an absolute minimum. Actively managed funds, because they do lots of selling in the pursuit of the "latest, greatest" stock holdings, can have large payouts, which produce annual capital gains taxes.
ETFs Vs. Index Mutual Funds
So if indexing is for you, are ETFs better than indexed mutual funds?
In the past few years, ETFs have moved into some very narrowly defined markets focused on very small stocks, foreign stocks and foreign bonds. While advocates think bargains can be found in esoteric markets, ETFs in thinly traded markets can be subject to problems like "tracking error," when the ETF price does not accurately reflect the value of the assets it owns, said George Kiraly, an advisor with LodeStar Advisory Group in Short Hills, N.J.
"Tracking large, liquid indexes like the S&P 500 is relatively easy," he added, "and tracking error is essentially zero for those ETFs."
Therefore, if you see worrisome discrepancies between an ETF's net asset value and price, maybe you should look for a comparable index mutual fund. This data is available on fund tracker Morningstar's ETF pages.)
The biggest issue in the ETF versus traditional mutual fund battle is the broker's commission you pay with every purchase and sale. Many actively managed mutual funds carry "loads," which are upfront sales commissions, often 3 percent to 5 percent of the investment. With a 5 percent load, the fund would need a significant gain before the investor could sell for enough to break even.
ETFs, however, can also rack up fees when used with certain investing strategies. If you are employing a dollar-cost averaging strategy to mitigate the risk of investing during a big swing in the market—investing, say, $200 a month—those commissions would add up, even if they were only $8 or $10 each at a deep-discount online brokerage. You'd also pay commissions when you made withdrawals in retirement, though you could minimize that by taking out more money on fewer occasions.
"Because of transaction costs, ETFs don't work well for a dollar-cost averaging plan," Kiraly said.
ETF fees do tend to be lower. And although index mutual funds have small annual distributions and low taxes, comparable ETFs sometimes have even smaller distributions.
So, for investing a large sum in one block, an ETF may be the cheaper choice. For piecemeal investing every month, the index mutual fund could be the better option.
A Quick Primer on ETF Tax Efficiency
John Spence for ETF Trends writes: Tax efficiency is one of the key benefits of exchange traded funds, but most investors would probably be hard-pressed to explain the details of how stock ETFs pull off this advantage.
The answer has to do with how ETFs are traded between investors. Their tax efficiency is also related to how ETFs create and redeem shares, and how they differ from traditional mutual funds.
When investors buy an equity mutual fund, the portfolio manager puts the cash to work by buying company shares. Conversely, when the fund receives redemption requests from shareholders, the manager sells stock to raise the cash, which can trigger a capital gain distribution for all the shareholders remaining in the fund.
ETFs do things differently. Invesco PowerShares has a great overview of how ETFs achieve their tax efficiency.
Investors trade ETFs on an exchange in the secondary market like individual stocks.
“When one investor sells ETF shares and another investors buys them on the exchange, the underlying securities of the ETF don’t need to be sold in order to raise cash for the redemption,” Invesco PowerShares notes.
Furthermore, trading firms known as authorized participants or APs are responsible for working with the ETF manager to create and redeem large blocks of shares, called creation units. These exchanges are “in-kind” transactions that involve stock rather than cash.
These large creation units are created and redeemed based on demand for the ETF, and selling pressure.
“An in-kind redemption process enables the fund manager to purge the lowest cost-basis stocks through stock transfers during the creation and redemption process,” according to Invesco PowerShares. “The result may be greater tax efficiency because shareholder activity and resulting portfolio turnover don’t affect the portfolio to the same extent as with mutual funds.”
Fact or Fiction: Exchange-Traded Funds Are More Tax-Efficient Than Mutual Funds
Michael Rawson, CFA for Morningstar writes: With so much uncertainty in the financial markets, there are few outcomes over which investors have much control. One area where informed decision-making can consistently pay off is tax planning. Investors in high tax brackets or with a lot of money to invest should consider which asset classes and strategies are best held in a taxable account and which are best held in a tax-deferred account. Passive strategies generally are more tax-efficient, but this is not always the case, particularly if an index fund invests in an asset class with high tax costs or tracks an index with high turnover.
Asset-Class Tax Treatment Trumps All Else
Certain asset classes offer better aftertax returns in tax-deferred accounts, such as assets that throw off a large share of their total returns in the form of interest income, which is taxed at ordinary income tax rates. For example, if an investor in the highest tax bracket were to hold iShares Core Total U.S. Bond Market ETF (AGG) in a tax-deferred account, he or she would have earned a 5.78% annualized return for the five years ended Dec. 31. That same investment held in a taxable account would have returned only 4.43% for an investor in the highest tax bracket. When choosing a fund for a taxable account, one would have been better off with the iShares S&P National AMT-Free Muni Bond ETF (MUB), which returned 5.48%. But in the tax-deferred account, the muni fund underperformed the taxable iShares Core Total U.S. Bond Market fund.
Investments that generate nonqualified dividends, such as REITs, are also better held in tax-sheltered accounts because those dividends are taxed at investors' ordinary income tax rates. For example, T. Rowe Price Real Estate's (TRREX) 10-year annualized return of 12.53% drops to 10.99% for an investor in the highest tax bracket once taxes are factored in.
Qualified dividend income, on the other hand, is somewhat tax-advantaged compared with ordinary income. For 2013, the highest ordinary income tax rate is 43.4% when including the 3.8% Medicare tax surcharge on high earners, while the highest tax rate is 23.8% on qualified dividends. Over the long term, dividend-paying stocks have performed well, so risk-tolerant investors with additional money to invest can hold dividend-focused funds in taxable accounts, despite the slight tax disadvantage compared with holding them in a tax-deferred account. Naturally, you would put dividend-paying funds in a tax-deferred account first, but those with large taxable accounts should not necessarily avoid dividend-paying stocks. It is important to remember that it is the total aftertax return that is most important, not necessarily minimizing taxes. For example, while it is true that during the past five years an investor in Vanguard Dividend Growth (VDIGX) paid more in taxes than an investor in a typical S&P 500 Index fund, VDIGX still had a much higher aftertax return.
Strategies Still Play a Role
Although the asset location decision--which asset classes to hold in which account types--is a crucial component of tax management, investors also can help improve their aftertax results by focusing on tax-efficient strategies for their taxable holdings. Exchange-traded funds are often touted as tax-efficient investments because they can gain an edge through the use of an additional tax-fighting weapon at their disposal: the creation and redemption process. Rather than selling stock to meet investor redemptions, ETFs are redeemed through an in-kind transfer with an authorized participant. The in-kind, or shares-for-shares, transfer allows for the elimination of low-cost-basis shares, thus reducing (but not eliminating) the possibility of future capital gains distributions.
But here is the rub: This in-kind creation and redemption mechanism works best for U.S.-stock funds. Once we venture outside of the U.S.-stock asset class, the tax benefits stemming from the in-kind creation and redemption process might diminish somewhat. For example, in the bond market, in-kind creations are more difficult, so cash creations and redemptions are common. During the past five years, both iShares Core Total U.S. Bond Market and iShares iBoxx $ High Yield Corporate Bond (HYG) were no more tax-efficient than comparable index mutual funds.
Investors also should remember all the commonalities between the taxation of ETFs and mutual funds. ETF investors will owe taxes on the distributions of dividends or interest income that an ETF receives and passes through to investors. They also will face capital gains taxes when selling the fund, regardless of whether the fund is an ETF or index mutual fund.
And even for U.S.-equity ETFs, most of their tax efficiency stems from the fact that they are index funds, which typically have low turnover and thus generate fewer capital gains than actively managed funds. There are plenty of ETFs (and conventional index funds, for that matter) that follow higher-turnover, so-called strategy indexes, which might be less tax-efficient than traditional, market-cap-weighted index mutual funds. For example, PowerShares Fundamental Pure Large Core (PXLC) had a five-year tax-cost ratio of 0.63, high by equity ETF standards, likely because the fund has high turnover.
In addition, a handful of tax-managed mutual funds--traditional open-end funds that hew closely to market benchmarks but have active oversight--have achieved tax efficiency by following best practices, such as limiting trading, keeping track of tax lots, and appropriately timing the sale of high-cost-basis shares. In summary, tax efficiency comes from diligent implementation of a sound low-turnover strategy, not necessarily from some magical tax loophole afforded only to ETFs.
Delving Into the Details
Let's look at some specific examples to illustrate the point that ETFs can be more tax-efficient than active mutual funds but are not necessarily more tax-efficient than well-run index mutual funds.
The iShares Core S&P 500 ETF (IVV) had a 10-year pretax annualized return of 7.03% and a post-tax (but preliquidation) return of 6.71%. This results in a tax-cost ratio of 0.30. The tax-cost ratio measures the amount of return lost to taxes, so a lower number in combination with a higher after return is better. A similar ETF, SPDR S&P 500 (SPY) had a 6.99% pretax return and 6.65% post-tax return, for a tax-cost ratio of 0.32. The average tax-cost ratio for actively managed large-blend funds during the past decade has been 0.60, so these two ETFs have been much more tax-efficient.
But a number of index mutual funds and tax-managed funds have also been tax-efficient. The institutional share class of Vanguard Institutional Index (VINIX) had a pretax return of 7.11% and 6.78% post-tax, for a tax-cost ratio of 0.31. This Vanguard index mutual fund was as equally tax-efficient as the two ETFs.
In theory, an equity ETF could be even more tax-efficient than an index mutual fund, but it is hard to find the data to prove it. One reason for that is ETFs have eliminated a large chunk of their index-fund competitors. Back in the year 2000, there were more than 118 index funds in the large-blend category; today, there are 84, despite the fact that indexing has continued to grow in popularity. With the exception of Vanguard's index-fund lineup, all of the interim net new inflows into the category have gone to ETFs, while many index mutual funds have languished. Competition from ETFs has washed out more costly and less efficient competitors in the realm of traditional index funds. The end result is a leaner, less expensive, and more efficient menu for investors to choose from.
Data sourced from iShares, PowerShares, T. Rowe Price, Vanguard, and Morningstar. Tax-cost ratio data reflects five- and 10-year periods ended Dec. 31, 2012.
Q: During 2010, I sold some stocks at a loss through my brokerage account, but I never took any money. Since I had no other taxable income, I did not bother to file a tax return. I just received a notice from the IRS assessing a huge tax for the stocks I sold. What do I do?
Barry Dolowich for the The Herald writes: Answer: Through its computers, the IRS matches the information it receives from
third parties to the information you report on your tax returns. You should be
extra careful to report accurately all information on your tax return that the
IRS already knows about.
On Form 1099-B, the IRS received the details of your stock sales. The IRS makes the assumption that your tax basis in the stocks is zero. It is up to you to prove otherwise. I recommend you respond promptly to the notice by providing a completed tax return for the year in question and an explanation of the omission and evidence (broker advice slips, brokerage statements, etc.) of your tax basis. Notice CP2000 is sent by the IRS anytime Forms 1099 or 1098 received by them do not reconcile with the tax return filed. With proper documentation, the IRS will abate the proposed additional tax, penalty and interest. Other types of income that are reported by third parties to the IRS each year: Your income: If you have been paid more than $600 for services rendered as an outside or independent contractor throughout the calendar year, the payer is required to report the total paid to you on Form 1099-MISC, Statement for Recipients of Miscellaneous Income.
Other types of income reported on Form 1099-MISC include: Rent and royalty payments; prizes and awards not for services; Payments made by medical and health-care insurers to a doctor or other supplier of medical services under an insurance program; attorney and accounting fees for professional services; witness or expert fees paid by a lawyer during a legal proceeding; payments made to entertainers for their services; all other free-lance income. Your wages: The IRS receives a copy of your Form W-2 directly from your employer and you are required to attach a copy to your tax return. Therefore, the IRS knows exactly what you earned in regular income, bonuses, vacation allowances, severance pay, moving expenses and travel allowances. The IRS also knows about your retirement plan participation. Interest and dividend income: Payers of interest and dividends in excess of $10 per year are required to report this information to the IRS using Forms 1099-INT and 1099-DIV, respectively. You should make sure the information reported on these forms agree with your records. Tax refund income: State tax refunds you receive are reported to the IRS on Form 1099-G, Statement for recipients of Certain Government Payments. Note: If you receive a state tax refund for a year in which you did not itemize your deductions or you did not utilize the full benefit of your state tax deduction, then all or part of your state refund may be excluded from your federal taxable income.
Gambling winnings: Generally, payments of $600 or more must be reported by the payer from horse racing, dog racing, jai alai, lotteries, raffles, drawings and slot machines. Bingo payments of $1,200 or more and Keno payments of $1,500 or more are also required to be reported. These gambling winnings are reported on Form W-2G, Statement for Recipients of Certain Gambling Winnings. Other income the IRS knows about: Unemployment insurance; Social Security benefits; Money received from broker (security sales proceeds) or barter exchanges; Distributions from pension and profit-sharing plans, IRAs, etc.; Cash payments of more than $10,000 received in a trade or business; Cash deposits of more than $10,000 made to your bank account; fringe benefits received from your company; tax shelter participation; original-issue discounts.
On Form 1099-B, the IRS received the details of your stock sales. The IRS makes the assumption that your tax basis in the stocks is zero. It is up to you to prove otherwise. I recommend you respond promptly to the notice by providing a completed tax return for the year in question and an explanation of the omission and evidence (broker advice slips, brokerage statements, etc.) of your tax basis. Notice CP2000 is sent by the IRS anytime Forms 1099 or 1098 received by them do not reconcile with the tax return filed. With proper documentation, the IRS will abate the proposed additional tax, penalty and interest. Other types of income that are reported by third parties to the IRS each year: Your income: If you have been paid more than $600 for services rendered as an outside or independent contractor throughout the calendar year, the payer is required to report the total paid to you on Form 1099-MISC, Statement for Recipients of Miscellaneous Income.
Other types of income reported on Form 1099-MISC include: Rent and royalty payments; prizes and awards not for services; Payments made by medical and health-care insurers to a doctor or other supplier of medical services under an insurance program; attorney and accounting fees for professional services; witness or expert fees paid by a lawyer during a legal proceeding; payments made to entertainers for their services; all other free-lance income. Your wages: The IRS receives a copy of your Form W-2 directly from your employer and you are required to attach a copy to your tax return. Therefore, the IRS knows exactly what you earned in regular income, bonuses, vacation allowances, severance pay, moving expenses and travel allowances. The IRS also knows about your retirement plan participation. Interest and dividend income: Payers of interest and dividends in excess of $10 per year are required to report this information to the IRS using Forms 1099-INT and 1099-DIV, respectively. You should make sure the information reported on these forms agree with your records. Tax refund income: State tax refunds you receive are reported to the IRS on Form 1099-G, Statement for recipients of Certain Government Payments. Note: If you receive a state tax refund for a year in which you did not itemize your deductions or you did not utilize the full benefit of your state tax deduction, then all or part of your state refund may be excluded from your federal taxable income.
Gambling winnings: Generally, payments of $600 or more must be reported by the payer from horse racing, dog racing, jai alai, lotteries, raffles, drawings and slot machines. Bingo payments of $1,200 or more and Keno payments of $1,500 or more are also required to be reported. These gambling winnings are reported on Form W-2G, Statement for Recipients of Certain Gambling Winnings. Other income the IRS knows about: Unemployment insurance; Social Security benefits; Money received from broker (security sales proceeds) or barter exchanges; Distributions from pension and profit-sharing plans, IRAs, etc.; Cash payments of more than $10,000 received in a trade or business; Cash deposits of more than $10,000 made to your bank account; fringe benefits received from your company; tax shelter participation; original-issue discounts.
Bill.com Offers Free Webinar on How to Stay in Control and Keep Projects on Target During Summer Vacation Season
Webinar Demonstrates How You and Your Staff Can Keep Productivity up While Still Enjoying Summer Travel. Bill.com, the leader in integrated bill payment, invoicing and cash flow management solutions for businesses, today announced that it will offer a free webinar on how stay in control and keep things running smoothly even when you or key staff are out of the office this summer. The webinar will be held on Thursday, May 30, at 11 a.m. PT and registration is available now at http://cashflow.bill.com/SummerVacation053013.html?medium=pr.
This webinar will explain how to keep your business humming without decision makers on site -- and without having to FedEx documents to vacationing employees. As this webinar will demonstrate, professionals can now keep productive while still enjoying summer travel and vacations by using game-changing, access-from-anywhere technology to free themselves and their key employees from their desks while still staying in touch and in control. With solutions such as Bill.com, there is no need to take documents with you -- you can have access to your notes and backup documents via the Cloud. Even more importantly, you can access your co-workers' documents and back-up data when they are out of the office, so there is no guesswork and no projects stall due to other people's vacations.
Stacey Lee, CFO, Earth Class Mail, and Curt Hill, CEO, PMRG, will share their secrets to summertime success. Moderated by Bill.com founder and CEO René Lacerte, the webinar will demonstrate how the cloud can save your summer vacation by teaching you how to:
Bill.com delivers a complete web-based financial solution for businesses and accountants that provides the tools, information, and collaboration required to better manage their financial tasks and optimize cash flow. Bill.com's game-changing technology allows users to access online bill payments, e-invoicing, document management, and automated workflow through one easy system. In addition to seamlessly integrating with businesses' existing accounting software programs, Bill.com provides financial leaders with a comprehensive view of their cash forecast -- making it the only solution that connects a user's banks, bookkeeping, and business.
This webinar will explain how to keep your business humming without decision makers on site -- and without having to FedEx documents to vacationing employees. As this webinar will demonstrate, professionals can now keep productive while still enjoying summer travel and vacations by using game-changing, access-from-anywhere technology to free themselves and their key employees from their desks while still staying in touch and in control. With solutions such as Bill.com, there is no need to take documents with you -- you can have access to your notes and backup documents via the Cloud. Even more importantly, you can access your co-workers' documents and back-up data when they are out of the office, so there is no guesswork and no projects stall due to other people's vacations.
Stacey Lee, CFO, Earth Class Mail, and Curt Hill, CEO, PMRG, will share their secrets to summertime success. Moderated by Bill.com founder and CEO René Lacerte, the webinar will demonstrate how the cloud can save your summer vacation by teaching you how to:
- get more freedom to travel, managing by remote control;
- stay on top of critical decisions any time;
- automate activity that you approve in advance;
- collect receivables with a click of a button;
- set up approvals for trusted employees and watch how they handle them; and
- gain improved efficiency and higher productivity, no matter where you might be.
Bill.com delivers a complete web-based financial solution for businesses and accountants that provides the tools, information, and collaboration required to better manage their financial tasks and optimize cash flow. Bill.com's game-changing technology allows users to access online bill payments, e-invoicing, document management, and automated workflow through one easy system. In addition to seamlessly integrating with businesses' existing accounting software programs, Bill.com provides financial leaders with a comprehensive view of their cash forecast -- making it the only solution that connects a user's banks, bookkeeping, and business.
Online Accounting Software for Self Employed / Freshbooks Online Accounting Keeps It Simple / Kashoo Online Accounting App with iPad App / QuickBooks Online Simple Start or QuickBooks Essentials for Small Business
Shelley Elmblad, for About.com Guide writes: FreshBooks is an online accounting app that helps small businesses manage time and expenses, and send branded professional-looking invoices. The app also collects online payments from customers who pay by credit card, PayPal, or eCheck. The latest improvement to Freshbooks is Automatic Expense Import, which automatically uploads transactions from business bank, credit card and brokerage accounts. Over 5 million people have used FreshBooks since it launched in 2003, and there are now customers in over 120 countries.
If you have a very small business and don't work with more than three clients, you can use Freshbooks at no cost. Between four and 25 users will cost you about $30 per month. See below for more price levels. In addition to the online app, you can use Freshbooks mobile apps for iPhone and iPad when you're away from a computer. There are currently no Android apps, but I found some that work with Freshbooks from other developers: Nead Money Pro, TimeDroid for Freshbooks and GoBooks for Freshbooks. Freshbooks is designed to be really easy to use. You create expense reports by snapping a photo of a receipt, setting up any recurring expenses you may have then assign expense. You'll set up rates for project and track your time, then create an invoice and accept payments either electronically or via cash or check. Freshbooks can bill in any currency, includes account aging, profit and loss and other accounting reports and will export date in CSV format, which is readable by Excel and other spreadsheets. Freshbooks has a number of add ons, like Basecamp, ReportAway for Blackberry, zendesk, Expensify, Google Apps and many more.
Kashoo is another good easy to use online accounting software choice for the self employed freelancer or entrepreneur. The iPad app is hugely popular, but Android tablet and smart phone users and iPhone users will have to stick to the online version since there are currently no apps available for these devices.
When you first log on to Kashoo, you see a Welcome screen with short videos that show you how to use Kashoo to handle accounting, create invoices and enter payments, set up accounts, create reports and more. Primary navigation is done on a sidebar on the left and a simple dashboard lets you start with just a mouse click (or finger tap, if you're on an iPad) or two to start entering income and payments or entering invoices. You can enter expenses that go with an invoices, too. Other options are to enter transfers, adjustments, print checks and reconcile bank accounts. Further down the navigation bar, you can choose to enter customers and vendor or expense and income accounts, set up sales tax, and enter invoice and inventory items. You can import data from spreadsheets and other accounting software toDon't be intimidated by the QuickBooks title in this online accounting software. QuickBooks Online is easy to get started with and to use with a home screen that has a simple Money In and Money Out chart that boils down the whole accounting process to small set of graphical icons.
There are five versions of QuickBooks Online: Simple Start, Essentials, Online Plus, Online Essentials with Payroll and Online Plus with Payroll. If you're self employed and working by yourself, QuickBooks Online Simple Start will likely meet all of your accounting needs. If you decide to grow your business but keep it small, then you will have to step up to Online Essentials for more billing and invoicing options. A number of mobile and online apps work with QuickBooks Online, like Shoeboxed, Bill.com and many others. A good number of financial reports are included.A chart is provided to compare QuickBooks Online versions so you can choose one that works for you. Compared to other online accounting software, versions above Simple Start are more expensive. Most other online accounting options offer more features than QuickBooks Simple Start, so you may find a less expensive option that is a better fit for a very small business or self employed individual. QuickBooks Online is still worth trying though, and there's a free 30 day trial. If you need to upgrade to a higher version in the future, it's really simple to do so with no loss of data.
If you have a very small business and don't work with more than three clients, you can use Freshbooks at no cost. Between four and 25 users will cost you about $30 per month. See below for more price levels. In addition to the online app, you can use Freshbooks mobile apps for iPhone and iPad when you're away from a computer. There are currently no Android apps, but I found some that work with Freshbooks from other developers: Nead Money Pro, TimeDroid for Freshbooks and GoBooks for Freshbooks. Freshbooks is designed to be really easy to use. You create expense reports by snapping a photo of a receipt, setting up any recurring expenses you may have then assign expense. You'll set up rates for project and track your time, then create an invoice and accept payments either electronically or via cash or check. Freshbooks can bill in any currency, includes account aging, profit and loss and other accounting reports and will export date in CSV format, which is readable by Excel and other spreadsheets. Freshbooks has a number of add ons, like Basecamp, ReportAway for Blackberry, zendesk, Expensify, Google Apps and many more.
- Learn more about Freshbooks
- Monthly Cost: Free (supports 3 clients) / $19.95 (25 clients) / $29.95 (Unlimited clients) / $39.95 (Unlimited clients, two users)
- License: One user, unless you enroll in the $39.95 plan which includes one additional use and can add more users at $10 per month, per user.
- Free Trial: 30 days, full access to all features
- Mobile apps: iPhone and iPad
Kashoo Online Accounting App with iPad App
When you first log on to Kashoo, you see a Welcome screen with short videos that show you how to use Kashoo to handle accounting, create invoices and enter payments, set up accounts, create reports and more. Primary navigation is done on a sidebar on the left and a simple dashboard lets you start with just a mouse click (or finger tap, if you're on an iPad) or two to start entering income and payments or entering invoices. You can enter expenses that go with an invoices, too. Other options are to enter transfers, adjustments, print checks and reconcile bank accounts. Further down the navigation bar, you can choose to enter customers and vendor or expense and income accounts, set up sales tax, and enter invoice and inventory items. You can import data from spreadsheets and other accounting software toDon't be intimidated by the QuickBooks title in this online accounting software. QuickBooks Online is easy to get started with and to use with a home screen that has a simple Money In and Money Out chart that boils down the whole accounting process to small set of graphical icons.
There are five versions of QuickBooks Online: Simple Start, Essentials, Online Plus, Online Essentials with Payroll and Online Plus with Payroll. If you're self employed and working by yourself, QuickBooks Online Simple Start will likely meet all of your accounting needs. If you decide to grow your business but keep it small, then you will have to step up to Online Essentials for more billing and invoicing options. A number of mobile and online apps work with QuickBooks Online, like Shoeboxed, Bill.com and many others. A good number of financial reports are included.A chart is provided to compare QuickBooks Online versions so you can choose one that works for you. Compared to other online accounting software, versions above Simple Start are more expensive. Most other online accounting options offer more features than QuickBooks Simple Start, so you may find a less expensive option that is a better fit for a very small business or self employed individual. QuickBooks Online is still worth trying though, and there's a free 30 day trial. If you need to upgrade to a higher version in the future, it's really simple to do so with no loss of data.
- Learn more and sign up at www.kashoo.com/books
- Cost: Free / $15 per month / $144 per year
- License: Up to 20 transactions per month for free version / unlimited for subscriptions
- Free Trial: 30 days, unlimited use
- Mobile apps: iPad
QuickBooks Online Simple Start or QuickBooks Essentials for Small Business
Don't be intimidated by the QuickBooks title in this online accounting software. QuickBooks Online is easy to get started with and to use with a home screen that has a simple Money In and Money Out chart that boils down the whole accounting process to small set of graphical icons.
There are five versions of QuickBooks Online: Simple Start, Essentials, Online Plus, Online Essentials with Payroll and Online Plus with Payroll. If you're self employed and working by yourself, QuickBooks Online Simple Start will likely meet all of your accounting needs. If you decide to grow your business but keep it small, then you will have to step up to Online Essentials for more billing and invoicing options. A number of mobile and online apps work with QuickBooks Online, like Shoeboxed, Bill.com and many others. A good number of financial reports are included.
A chart is provided to compare QuickBooks Online versions so you can choose one that works for you. Compared to other online accounting software, versions above Simple Start are more expensive. Most other online accounting options offer more features than QuickBooks Simple Start, so you may find a less expensive option that is a better fit for a very small business or self employed individual. QuickBooks Online is still worth trying though, and there's a free 30 day trial. If you need to upgrade to a higher version in the future, it's really simple to do so with no loss of data.
- Learn more about QuickBooks Online
- Monthly Cost: $12.95 (Simple Start - 1 user) / $26.95 (Online Essentials - 3 users) / $39.95 (Online Plus - 5 users) /$65.95 (Online Essentials with Payroll - 3 users) / $78.95 (Online Plus with Payroll - 5 users)
- Free Trial: 30 days
- Mobile apps: iPhone, Android, Blackberry
Powering Your Accounting Online – FinancialForce Review
GetAPP for Business2Community writes: For all their benefits, online accounting applications are not always a winning proposition. While they may be cost-effective and scalable, these solutions do not always translate into process improvements. For example, stand-alone cloud systems with limited integration and time-consuming processes are just like on-premise solutions, minus the maintenance headache. To achieve real efficiencies, cloud accounting solutions need to provide value beyond normal accounting solutions.
This week, we will review a solution that promises to do just that.
FinancialForce Accounting Application is a software package that transforms data and processes of traditional standalone accounting packages into exciting 360 degree views of your company. In addition, it integrates with over one thousand cloud apps on the Saleforce AppExchange which is akin to the Apple App Store but for enterprise apps. and enables you to automate several accounting-related functions. We will look at its features, interface and see how it can be of use to you.
SO, HOW FORCEFUL IS FINANCIALFORCE ACCOUNTING?
FinancialForce.com focuses on building business applications for Force.com, a leading cloud computing platform from salesforce.com. The folks at FinancialForce.com have over 30 years expertise designing accounting systems, but the cloud platform provides them some unique capabilities to create a more innovative solution to an old business function. The platform includes a full range of application tools that work together in one single cloud environment including workflow, reporting, enterprise social media, enterprise wide search, customization and Salesforce.com’s market leading web-based CRM application. This translates into applications that move beyond the footprint of traditional accounting packages and an ability to take a more modern and holistic approach. Thus, in addition to its accounting package, FinancialForce.com also has Professional Services Automation, Billing and Media applications, that are all tightly linked to Salesforce CRM.
This means you can analyze your whole operation from CRM to Financials in one cloud or system. So, you can see customer sales opportunity data from Salesforce CRM, customer invoices, revenue analysis, cash payments and project services activity for each of your customers in one place. Reporting, Dashboards and Search work across the entire spectrum of Marketing, Sales, Services, Billing and Accounting. FinancialForce.com calls this a 360° view of the customer.
THE SPECIFICS OF THIS FORCE
As I mentioned earlier, FinancialForce Accounting automates several accounting-related functions. Perhaps, the most useful one is automated invoice creation. The system enables you to generate invoices and capture financial data in multiple-currencies. What’s more, you can do this in a by turning a “closed’ Salesforce opportunity into an invoice in a single click.
Because invoice generation is an automated process, you can reduce business cycle time by quickly generating invoices from multiple sources and divisions within your organization. Enhanced features such as deferred revenues enable you to move beyond manual excel sheet forecasts into automated processing.
The system has a myriad of ways to structure your chart of accounts to create more insightful and detailed reports. Thus, you can generate financial reports for practically any aspect of your business using the financial system like your own custom database. The chart of accounts flexibility is particularly valuable if you are migrating from an entry level bookkeeping system or a legacy accounting application that is struggling to keep up with the information needs of your business.
One of the most awesome features of FinancialForce.com is its integration to native Salesforce CRM and other native Force.com applications on the App Exchange. There are over 1,300 applications available on the AppExchange with over 1,000,000 applications downloaded in 2011. These application plug-ins can be used in several ways. For instance, document management and electronic signature applications can be added to help retrieve contracts, and design approval systems for the order approval process. There are applications available to automate pesky chores like sales commissions and tax filing. FinancialForce Accounting comes bundled with Chatter, Salesforce’s Enterprise Social Media software that is built into the platform. This Facebook like application allows you to create Chatter streams around customers, accounts, transactions and other data in the system. For instance, the software enables you to create or extract information relating to specific deals and have conversations with relevant stakeholders regarding these deals. What’s more, you can also build specific rules relating to each of these deals for alerts.
THE BASICS: WHAT DOES IT LOOK LIKE?
It looks pretty nice. The interface is split into two panels and looks very much like an Inbox. The global navigation panel on the top enables you to move between sections. The left hand panel is simple and enables you to create new objects such as Invoices. On the other hand, the system’s mobile layout is significantly different. It is split into sections and objects. While sections provide summary (and informational views of accounting), objects enable you to perform specific tasks such as generate an invoice or make a list of tasks. You can also customize your dashboard or the layout of your reports to perform a multidimensional analysis of your revenue structure. If you are familiar with Salesforce CRM, FinancialForce applications will be very easy to learn as the UI and tools are identical.
SUPPORTING YOUR SYSTEM
Based on research and conversations, I guess this one comes out tops. In fact, support begins during installation. A FinancialForce.com consultant is assigned to each client. The consultant guides clients through the implementation process, provides an overview of the application, and assists in data migration. Users are offered three support options: direct, online, and premier. While the direct and online options refer to telephone (human) and automated support channels, premier is especially designed for customers who use both Salesforce.com and FinancialForce.com premier support. According to the company website, premier has been designed to provide maximum value, a collaborative partnership, and personalized services. This translates into quicker response time for your problems and expert and personal guidance to resolve them.
IS IT FOR YOU?
If you are looking for a cost-effective solution that integrates seamlessly with Salesforce CRM and moves accounting beyond excel sheet chores, then this solution is definitely for you. That said, this recommendation comes with a caveat. Accounting (and, indeed, finances) retrieve data from multiple domains and systems. Whenever you are considering a new system it is important to evaluate solutions against your existing systems and if necessary stagger migration in phases.
May the force be with you!
When a Roth 401(k) Makes the Most Sense
Dan Caplinger for The Fool.com writes: If the idea of tax-free growth throughout your lifetime sounds attractive to you, then using a Roth 401k could be one of the most valuable parts of your retirement savings strategy. But given all the other choices you have with the money you're setting aside for retirement, figuring out when a Roth 401(k) is your best option can be complicated.
Whenever you have to consider tax issues in your investing, things can get complex in a hurry. But when you step back and consider the basics of the Roth 401(k) and how it works, there are some simpler guidelines you can use to decide whether the plans are right for you.
The basics of the Roth 401(k)
Most Americans are familiar with the traditional 401(k), in which you're allowed to put money into an employer-sponsored retirement account on a pre-tax basis. By contributing to a regular 401(k), you're able to reduce your current-year taxable income, giving you an immediate reduction in the amount of tax you pay. With contribution limits this year of $17,500 for those under age 50 and $23,000 for those 50 or older, the tax savings from using a traditional 401(k) can amount to thousands of dollars.
By contrast, the Roth 401(k) works differently. Rather than using pre-tax money, contributions to a Roth are done on an after-tax basis, meaning that you don't get any upfront tax savings from putting money in the Roth. But in exchange for giving up the current-year tax break, you get what could be an even more valuable benefit: You'll never have to pay taxes on the income your Roth 401(k) produces, even when you withdraw it from the account in retirement. By contrast, with a regular 401(k), you do have to pay tax at your normal income-tax rate when you make withdrawals in retirement.
So when is the Roth 401(k) a smart move?
Another way to look at the pre-tax versus after-tax issue is to ask yourself a question: What is your current tax bracket, and what's your tax bracket likely to be after you retire? If you're in a high tax bracket right now and expect your taxes to be lower in retirement, then the value of the upfront tax deduction is more than the taxes you'll save after you retire. In this case, Roth-style retirement-plan accounts aren't as valuable as a regular retirement plan.
But if you're current tax rate is relatively low compared with what it could be later in your lifetime, then a Roth 401(k) makes a lot more sense. Essentially, a Roth 401(k) lets you lock in the tax rate you're paying now, forever removing the money inside the account from whatever tax rates may prevail in the future.
In particular, three sets of people should take a close look at Roth 401(k) options:
Give the Roth 401(k) a chance
Regardless of how you choose to invest, consider the Roth 401(k) if it's available in your employer's retirement plan. Escaping the tax man for life could well be worth the price of giving up a modest tax break now.
Whenever you have to consider tax issues in your investing, things can get complex in a hurry. But when you step back and consider the basics of the Roth 401(k) and how it works, there are some simpler guidelines you can use to decide whether the plans are right for you.
The basics of the Roth 401(k)
Most Americans are familiar with the traditional 401(k), in which you're allowed to put money into an employer-sponsored retirement account on a pre-tax basis. By contributing to a regular 401(k), you're able to reduce your current-year taxable income, giving you an immediate reduction in the amount of tax you pay. With contribution limits this year of $17,500 for those under age 50 and $23,000 for those 50 or older, the tax savings from using a traditional 401(k) can amount to thousands of dollars.
By contrast, the Roth 401(k) works differently. Rather than using pre-tax money, contributions to a Roth are done on an after-tax basis, meaning that you don't get any upfront tax savings from putting money in the Roth. But in exchange for giving up the current-year tax break, you get what could be an even more valuable benefit: You'll never have to pay taxes on the income your Roth 401(k) produces, even when you withdraw it from the account in retirement. By contrast, with a regular 401(k), you do have to pay tax at your normal income-tax rate when you make withdrawals in retirement.
So when is the Roth 401(k) a smart move?
Another way to look at the pre-tax versus after-tax issue is to ask yourself a question: What is your current tax bracket, and what's your tax bracket likely to be after you retire? If you're in a high tax bracket right now and expect your taxes to be lower in retirement, then the value of the upfront tax deduction is more than the taxes you'll save after you retire. In this case, Roth-style retirement-plan accounts aren't as valuable as a regular retirement plan.
But if you're current tax rate is relatively low compared with what it could be later in your lifetime, then a Roth 401(k) makes a lot more sense. Essentially, a Roth 401(k) lets you lock in the tax rate you're paying now, forever removing the money inside the account from whatever tax rates may prevail in the future.
In particular, three sets of people should take a close look at Roth 401(k) options:
- Young adults. Usually, people have the lowest income when they're just starting out in their careers, and therefore, their income-tax rates are likely to only get higher as their income rises. As attractive as a small tax break might be, using a Roth 401(k) is usually a better choice, as it lets you take advantage of those low rates while you have them.
- Workers with substantial assets in taxable or non-Roth retirement accounts. At the other end of the spectrum, a Roth 401(k) can make sense even if you're not in a low tax bracket right now. Wealthy people can't expect to see their tax rates go down in retirement, as the amount of taxable income they'll have from investment income and regular IRA and 401(k) distributions will probably keep them in top tax brackets even when they stop working. For them, locking in a high tax rate with a Roth 401(k) may be preferable to leaving yourself exposed to the even higher tax rates that could prevail in the future.
- Those who want to hedge their tax bets. If you're able to set aside a substantial amount toward your retirement, using a mix of Roth and regular 401(k) accounts and IRAs will give you the best of both worlds: some tax savings now along with some tax-free growth to provide benefits in the long run.
Give the Roth 401(k) a chance
Regardless of how you choose to invest, consider the Roth 401(k) if it's available in your employer's retirement plan. Escaping the tax man for life could well be worth the price of giving up a modest tax break now.
Intuit Sales, Profit Top Estimates Aided by Mobile Software Push
Aaron Ricadela for Bloomberg writes: Intuit Inc. (INTU), the largest seller of personal-finance software, reported fiscal third-quarter sales and profit that topped analysts’ estimates as more customers used Web tools for tax-preparation and other tasks.
Profit excluding some items for the period, which ended in April, was $2.97 a share on sales of $2.18 billion, Mountain View, California-based Intuit said in a statement yesterday. That compares with analysts’ average projection for earnings of $2.93 a share on revenue of $2.17 billion, according to data (INTU)compiled by Bloomberg.
Intuit Chief Executive Officer Brad Smith is trying to boost adoption of new tax and small-business products for Apple Inc. (AAPL)’s iPad and other mobile devices as the company’s core tax-filing business stagnates. TurboTax revenue this fiscal year will grow just 4 percent, hurt by an inability to boost online share and fewer Americans filing tax returns, Intuit said.
“They’ve got to step on the gas here,” said Brent Thill, an analyst at UBS AG in San Francisco who recommends buying the stock. “They’ve got an engine out in tax, and it’s a big piece of the business. It puts even more pressure on these other businesses to kick in.”
Smith has been adding services aimed at smartphone and tablet users to help boost the number of repeat customers and bolster revenue as consumers and small businesses cut software spending. New products, including a tax-filing application for Apple’s iPhone, online-marketing software for small businesses, and a new online version of QuickBooks accounting software for global users are attracting customers, he said on a conference call yesterday.
Yet TurboTax, which accounts for about a third (INTU) of annual sales, has been dogged by competition from H&R Block Inc. (HRB), an overly complex user interface, and a decline in the number of U.S. tax filers, he said. “It was a challenging tax season in almost every dimension,” Smith said. “TurboTax has to be drop-dead simple.”
Intuit cut its third-quarter sales and profit forecasts last month, citing a decline in tax returns filed as of April 12. The IRS didn’t start accepting electronic returns until Jan. 30, about two weeks later than usual, Intuit said.
Net income in the third quarter rose 12 percent to $822 million from $734 million a year earlier.
Profit excluding some items for the fiscal fourth quarter will be 3 cents to 7 cents a share, on sales of $702 million to $727 million, Intuit said. Analysts on average had projected earnings of 10 cents a share on revenue of $726.1 million, according to data compiled by Bloomberg.
Intuit’s shares rose as much as 1.1 percent in extendedtrading (INTU). Earlier, they retreated 2.9 percent to $57.89 at the close in New York, leaving them down 2.7 percent this year.
Profit excluding some items for the period, which ended in April, was $2.97 a share on sales of $2.18 billion, Mountain View, California-based Intuit said in a statement yesterday. That compares with analysts’ average projection for earnings of $2.93 a share on revenue of $2.17 billion, according to data (INTU)compiled by Bloomberg.
Intuit Chief Executive Officer Brad Smith is trying to boost adoption of new tax and small-business products for Apple Inc. (AAPL)’s iPad and other mobile devices as the company’s core tax-filing business stagnates. TurboTax revenue this fiscal year will grow just 4 percent, hurt by an inability to boost online share and fewer Americans filing tax returns, Intuit said.
“They’ve got to step on the gas here,” said Brent Thill, an analyst at UBS AG in San Francisco who recommends buying the stock. “They’ve got an engine out in tax, and it’s a big piece of the business. It puts even more pressure on these other businesses to kick in.”
Smith has been adding services aimed at smartphone and tablet users to help boost the number of repeat customers and bolster revenue as consumers and small businesses cut software spending. New products, including a tax-filing application for Apple’s iPhone, online-marketing software for small businesses, and a new online version of QuickBooks accounting software for global users are attracting customers, he said on a conference call yesterday.
Tax Season
“These are a lot of smaller efforts that represent big opportunities,” said Brad Zelnick, an analyst at Macquarie Capital USA Inc. He has a neutral rating on the shares.Yet TurboTax, which accounts for about a third (INTU) of annual sales, has been dogged by competition from H&R Block Inc. (HRB), an overly complex user interface, and a decline in the number of U.S. tax filers, he said. “It was a challenging tax season in almost every dimension,” Smith said. “TurboTax has to be drop-dead simple.”
Intuit cut its third-quarter sales and profit forecasts last month, citing a decline in tax returns filed as of April 12. The IRS didn’t start accepting electronic returns until Jan. 30, about two weeks later than usual, Intuit said.
Profit Forecast
CEO Smith is reckoning with a second straight year of tax software sales missing the company’s goals, and Intuit said May 20 it’s reorganizing into six new units starting Aug. 1, and that the managers of its small business and global business groups would retire after the end of the fiscal year in July.Net income in the third quarter rose 12 percent to $822 million from $734 million a year earlier.
Profit excluding some items for the fiscal fourth quarter will be 3 cents to 7 cents a share, on sales of $702 million to $727 million, Intuit said. Analysts on average had projected earnings of 10 cents a share on revenue of $726.1 million, according to data compiled by Bloomberg.
Intuit’s shares rose as much as 1.1 percent in extendedtrading (INTU). Earlier, they retreated 2.9 percent to $57.89 at the close in New York, leaving them down 2.7 percent this year.
Estate planning for the rest of us / Why everyone needs a will and a living trust
Bill Bischoff for MarketWatch writes: Most folks are no longer exposed to the federal estate tax,
thanks to today’s relatively generous $5.25 million exemption. Great. But being
exempt from the federal estate tax is not the end of the story. If you have
assets (maybe just a car or two and some nice furniture) or minor children, you
probably need an estate plan regardless of your tax situation. Here’s why.
Why You need a will or living trust document If you die intestate (without a will), the laws of your state determine the fate of your assets and your minor children. So unless you have an inordinate amount of faith in your state legislature, you need a written will to make your wishes known.
In addition to a will, you may also want to set up a living trust to avoid probate.
The will
The main purposes of a will are to name a guardian for your minor children (if any), name an executor for your estate, and specify which beneficiaries (including charities) should get which assets.
The guardian’s job is to take care of your kids until they reach adulthood (age 18 or 21 in most states).
The executor’s job is to pay your estate’s bills, pay any taxes due, and deliver what’s left to your intended heirs and charitable beneficiaries.
For wills, good do-it-yourself software is readily available online.
The living trust
Another basic estate planning goal is to avoid probate. Probate is a court-supervised legal process intended to make sure a deceased person’s assets are properly distributed. Probate typically means legal fees and red tape. Also, if your estate goes through probate, your financial affairs become public information. These are things to be avoided when possible. That’s where the living trust comes in.
You establish the living trust and transfer legal ownership of assets for which you wish to avoid probate (such as your main home, your vacation property, your cars, your antique furniture, and your coin collection) to the trust.
In the trust document, you name a trustee to be in charge of the trust’s assets after you die and you specify which beneficiaries will get which assets from the trust.
You can function as the trustee or you can designate your attorney, CPA, an adult child, a faithful friend, or a financial institution. Whatever works.
Because a living trust is revocable, you can change its terms at any time, or even unwind it completely, as long as you’re alive and legally competent.
For income tax purposes, the existence of the living trust is completely ignored while you’re alive. As far as the IRS is concerned, you still personally own the assets in the trust. So you continue to report on your Form 1040 the income generated by the trust’s assets and any deductions related to those assets (such as mortgage interest on your home).
For state-law purposes, however, the living trust is not ignored. Done properly it avoids probate.
When you die, the assets in the living trust are included in your estate for estate tax purposes. However assets that go to your surviving spouse are not included in your taxable estate, assuming your spouse is a U.S. citizen. (This is thanks to the unlimited marital deduction privilege.)
I think you should hire an attorney to draft a living trust document, and you don’t have to be “rich” to need one.
Wills and living trusts are not cure-alls
The benefits of a will or living trust are obvious. However, you won’t get the expected advantages without minding the details.
- If you’re married, you and your spouse should have separate, but compatible, wills or living trusts. That’s because you never know who will die first.
- Your will or living trust should be compatible with your beneficiary designations and the manner in which your assets are legally owned. For example, when you fill out forms to designate beneficiaries for your life insurance policies, retirement accounts, and brokerage firm accounts, the named beneficiaries will automatically cash in upon your death without going through probate. The same is true for bank accounts if you name payable-on-death beneficiaries. It makes no difference if your will or living trust document specifies to the contrary. So keep your beneficiary designations current to make sure the money goes to the right places.
- When you co-own real estate jointly with right of survivorship, the other co-owner(s) will automatically inherit your share upon your death. It makes no difference if your will or living trust document says otherwise.
- If you set up a living trust, you must transfer legal ownership of assets for which you wish to avoid probate to the trust for the trust to perform its probate-avoidance magic. Many people set up living trusts and then fail to follow through by actually transferring ownership. If so, the probate-avoidance advantage is lost.
- In and of themselves, wills and living trusts do nothing to avoid or minimize estate taxes. If you have enough wealth to be exposed to federal or state estate taxes, additional planning is required to reduce or eliminate that exposure. Note that quite a few states have estate tax exemptions that are significantly below the $5.25 million federal exemption. So you could be exposed to state estate tax even though you’re exempt from the federal estate tax.
Things change. You may acquire new assets, win the lottery, lose relatives to death, disown relatives, take them back, and gain children or grandchildren. Any of these events could require changes in your estate plan. In addition, the federal and state estate tax rules have proven to be unpredictable. For all these reasons, you should review your estate plan at least annually and update it as needed. Now is a good time to review your existing plan or set one up if you don’t yet have one.
Unveiled today, Reckon One ushers in a new era for the company that was previously behind the QuickBooks brand in Australia. So what does it look like?
William Maher for Business IT writes: Reckon One is the latest product to join the likes of Xero, Saasu, MYOB AccountRight Live and QuickBooks Online in the push to win over business owners attracted to the advantages of cloud accounting.
Unveiled today, but not ready to go on sale yet, Reckon One is particularly significant as it will be marketed to tens of thousands of Australians who have stuck by the QuickBooks product over the years. QuickBooks was recently renamed Reckon Accounts. Now, Reckon One joins it, for those ready to switch to the cloud for their accounting. You can register here to be notified when Reckon One is officially available. The QuickBooks name lives on separately as a different product called QuickBooks Online from another company.
Selling these people on the benefits of Reckon One will be a big ask. The company claims half a million users of its products, including more than 100,000 users of QuickBooks (now called Reckon Accounts), but at today's Sydney demonstration, a spokesperson said that 95% of people in the room were probably using desktop software.
The message coming from Reckon is one of reassurance that desktop software isn't being abandoned. "We're excited about the cloud, but at the same time we will continue to invest and enhance our desktop applications," said a Reckon spokesperson. "Some country areas today don't have the broadband yet, they don't have the ability to put their business on the cloud."
"We're not saying we're moving everything from desktop to cloud". "We're going to continue on all three areas," said the spokesperson, referring to cloud, hosted software and desktop products.
A key selling point is that you only pick the modules you want. You start with the "Core" module, then you can add Invoices and BankData modules. You only pay for the modules you choose.
"The important point here is they are all Reckon one modules. Same development team, same guys, same code," said a spokesperson.
For each module, you can choose "Lite", "Medium" or "Advanced" levels of features.
"Once you start adding all the pieces you need to run your business, all of a sudden the price starts to get maybe more than what you'd pay for a desktop application," said a spokesperson, referring to cloud products in general.
Nevertheless, Reckon spokespeople claim the product is a good value. "From a starting point, Reckon One is less expensive than the competition," claimed one.
Reckon also unveiled a phone app, which allows users to take photos of receipts and enter expenses into their phone, which can be categorised and billed to customers, as well as perform other tasks like updating timesheets and accepting payments.
Certain key features won't be there when Reckon One is first made available (payroll and inventory in particular).
A beta version will be launching "hopefully" in July, according to a Reckon spokesperson at today's Sydney event.
"We are getting very, very close to a release," said a spokesperson. "We're up for the fight and in for the long run."
Selling these people on the benefits of Reckon One will be a big ask. The company claims half a million users of its products, including more than 100,000 users of QuickBooks (now called Reckon Accounts), but at today's Sydney demonstration, a spokesperson said that 95% of people in the room were probably using desktop software.
The message coming from Reckon is one of reassurance that desktop software isn't being abandoned. "We're excited about the cloud, but at the same time we will continue to invest and enhance our desktop applications," said a Reckon spokesperson. "Some country areas today don't have the broadband yet, they don't have the ability to put their business on the cloud."
"We're not saying we're moving everything from desktop to cloud". "We're going to continue on all three areas," said the spokesperson, referring to cloud, hosted software and desktop products.
The Reckon One modules
The Reckon One Dashboard: the top left shows net position, on the right are reminders for due invoices and bills. On the bottom are charts showing top income sources and top suppliers. These views can be customised to show different reports. The red buttons at the top are for accessing key features like profit and loss reports and to see bank transactions.
Like other cloud accounting products, Reckon One is being pitched as being easy to use. "It's nothing like we had before," said a spokesperson today, referring to the new streamlined user interface.
"The important point here is they are all Reckon one modules. Same development team, same guys, same code," said a spokesperson.
For each module, you can choose "Lite", "Medium" or "Advanced" levels of features.
So how much does Reckon One cost?
Reckon One comes as a package, or you can take a smorgasbord approach and pick just the modules you want.
- The cheapest option is the "Get Started" package, which is just the Core module for $5 per month. This doesn't include the bank data capability, or invoicing, time billing and some other key features.
- For $20 a month for the "Lite" package, you get the Core module, plus "Lite" versions of the various other modules, like invoicing, bank feeds and others. The web site says this is "ideal for small businesses".
- For $28 a month for the "Medium" package, you get "Medium" versions of the same modules. The web site says this is ideal for "businesses that need approval process and have complex projects".
- Alternatively, if you only want a couple of key modules, you can just pay for those. The photo below shows how much they all cost. For example, if you just want the Core module and the invoicing module (Medium level) it's $5 plus $5 a month.
- Another selling point is the ability to save money by "turning on" and "turning off" modules as you need them.
"Once you start adding all the pieces you need to run your business, all of a sudden the price starts to get maybe more than what you'd pay for a desktop application," said a spokesperson, referring to cloud products in general.
Nevertheless, Reckon spokespeople claim the product is a good value. "From a starting point, Reckon One is less expensive than the competition," claimed one.
Reckon also unveiled a phone app, which allows users to take photos of receipts and enter expenses into their phone, which can be categorised and billed to customers, as well as perform other tasks like updating timesheets and accepting payments.
Certain key features won't be there when Reckon One is first made available (payroll and inventory in particular).
A beta version will be launching "hopefully" in July, according to a Reckon spokesperson at today's Sydney event.
"We are getting very, very close to a release," said a spokesperson. "We're up for the fight and in for the long run."
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