Your marriage and the IRS Commentary: The most important things to know

Bill Bischoff  for MarketWatch writes: When you get married, your tax situation changes — for better or for worse. Here are the most important things to know. 

Married at year-end means married for the whole year

Your marital status on December 31 determines your tax filing options for the entire year. If you’re married at year-end, you only have two choices: (1) filing jointly with your new spouse or (2) using married filing separate status for a separate return based on your income and your deductions and credits.

There are two reasons why most married couples file jointly.

• It is simpler. You only have to file one Form 1040 and you don’t have to worry about figuring out which income, deduction, and tax credit items belong to which spouse. Other things being equal, simple is good!
  
• It is often cheaper too. That is because using married filing separate status makes you ineligible for some potentially valuable tax breaks such as the child-care credit and the two higher-education credits. Therefore, filing two separate returns often results in a bigger combined tax bill than filing one joint return.
  

If you file jointly, you’re on the hook for your spouse’s tax misdeeds

Despite the preceding advantages, filing jointly isn't a no-brainer for one big reason: for any year that you file a joint return, you’re generally “jointly and severally liable” for any federal income tax underpayments, interest, and penalties caused by your new spouse’s unintentional tax errors or omissions or deliberate tax misdeeds. Joint and several liability means the IRS can come after you if collecting from your spouse proves to be difficult or impossible. They can even come after you long after you’ve become divorced. 

However if you can prove that you didn’t know about your spouse’s tax failings, had no reason to know, and didn't personally benefit, you can try to claim an exemption from the joint-and-several-liability rule under the so-called innocent spouse provisions. Believe me, this is easier said than done.

In contrast, if you file separately, you have no liability for your spouse’s tax screw-ups or misdeeds. Period. 

Bottom line: If you have doubts about your new spouse’s financial ethics in general and attitude about paying taxes in particular, I suggest filing separately until those doubts are dispelled. While your tax bill might be somewhat higher than if you file jointly, it could be a small price to pay for “insurance” against the joint-and-several liability threat. 

Will you pay the marriage penalty or collect the marriage bonus?

You’ve undoubtedly heard about the tax penalty on marriage. It causes some (but not all) married joint-filing couples to owe more federal income tax than if they had remained single. The reason: at higher income levels, the tax rate brackets for joint filers aren't twice as wide as the rate brackets for singles. 

For example, the 28% rate bracket for singles starts at $87,851 of taxable income (for 2013). For married joint-filing couples, the 28% bracket starts at $146,401. If you and your spouse each have $85,000 of taxable income, you’ll pay a marriage penalty of $708 because $23,600 of your combined taxable income falls into the 28% rate bracket. If you had stayed single, none of your income would have been taxed at more than 25%. Because the marriage penalty is usually a relatively modest amount, I think it should be viewed as more of an annoyance than a deal-breaker.

On the opposite side of the coin, many married couples actually collect a tax bonus from being married. If one spouse earns most or all of the taxable income, it is highly likely that filing jointly will reduce your tax bill (the marriage bonus). For a high-income couple, the marriage bonus can be several thousand dollars a year.

Bottom line: If you and your new spouse both earn healthy and fairly equal incomes, you’ll likely fall victim to the marriage penalty. If not, you’ll likely collect the marriage bonus.

 

Selling an appreciated home after getting married 

Say you and your spouse both own homes. If you sell yours for a profit, up to $250,000 of the gain will be free from any federal income tax if you owned and used the home as your principal residence for at least two years during the five-year period ending on the sale date. The same is true for your spouse. So you could both sell your respective homes, and you could both potentially claim the $250,000 gain exclusion deal — for a combined federal-income-tax-free profit of up to $500,000. Nice! 

Say you sell your home, and you both move into your spouse’s home (this could happen before or after you get married). After you’ve both used that home as your principal residence for at least two years, you could sell it and claim the larger $500,000 joint-filer gain exclusion. In other words, you could potentially claim a $250,000 gain exclusion on the sale of your home, and with a little patience claim a later $500,000 gain exclusion on the sale of your spouse’s home. That is what I would call good tax planning! 

For more information

This article hits what I think are the most important tax implications of getting married. Needless to say, there is more to the story. For additional information, check out IRS Publication 504 (Divorced or Separated Individuals) at www.irs.gov. The name of the publication is misleading. It actually has almost as much to say about getting married as getting divorced or separated.

How to write off your summer vacation / There are many travel scenarios that can lead to deductible business expenses. But you need to know what they are. And you'd better be able to back them up with records.

Barbara Weltman for MSN Money writes:  If you're lucky enough to get away this season, consider making vacation plans that will enable you to deduct some of your travel expenses. The only way to do this is to include certain activities in your trip.

Combine business with pleasure
Take a meeting for business in a distant location and all of your airfare is a deductible business expense even though you spend some time on your personal activities. As long as the primary purpose of the trip is business within the United States, transportation and lodging costs and 50% of meal expenses on business days can be written off. If you drive instead of fly, you can deduct 56.5 cents per mile, plus parking and tolls.

However, there's no red line for determining whether the primary reason for your trip is for business or pleasure. Clearly, if you spend more days on business than personal activities, it demonstrates a business need for the travel.

The key to nailing down a deduction for business travel is good record keeping. Be sure to carefully follow the rules outlined on IRS.gov so that if your return is questioned, you can back up your claims. Consider using an app such as Expensify to keep track of your business-related travel expenses.

If your significant other accompanies you, there may be little or no added expense (other than the cost of meals). The cost of a hotel room is typically the same for one or two people. And if you drive your car or use frequent flier miles, the travel costs are covered.

But don't expect to turn a sightseeing trip into deductible travel by claiming it's research for a book you might write someday -- the IRS won't buy it. Similarly, you can't deduct travel costs for attending an investment seminar.

Note: When it comes to traveling abroad, different rules determine whether some or all of your airfare is deductible.

Learn something
Enrolling in a business-related seminar or continuing education program while traveling can be a tax-deductible way to learn something and unwind. As long as the course relates to your job skills, you can deduct your travel costs and the cost of the education. Again, keep careful records and be sure to sign in for the classes you take.

Lend a hand
If you do volunteer work away from home, your expenses can be deducted as an unreimbursed charitable contribution as long as you itemize your deductions. You must be able to show there's no significant element of pleasure, recreation or vacation in the travel.

Spending a few hours working on an archeological dig may not suffice to make travel costs deductible if the balance of the day is devoted to vacation activities.

Meanwhile, participating in a Habitat for Humanity volunteer program, for example, may entitle you to deduct your out-of-pocket expenses. If you drive to the location of your charitable work, you can deduct car expenses at the rate of 14 cents per mile, plus parking and tolls.

Get healthy
Costs for maintaining or improving general good health are not deductible, but if you suffer from a certain medical condition like obesity, a stay at a health spa for the purpose of losing weight may be a deductible medical expense. Be sure your doctor advises the treatments are for a medical condition. If you drive to the spa, deduct car expenses at the rate of 24 cents per mile, plus parking and tolls. Only total medical expenses in excess of 10% of your adjusted gross income (7.5% if you're 65 or older) are deductible, and you must itemize.

Final thoughts
Expedia.com, Priceline.com and Kayak.com may help you find good travel rates, but they can't determine for you whether the costs are tax deductible. Talk with your tax adviser to find out whether you can use any of these tax breaks to shift some of the financial burden of your summer vacation to Uncle Sam.

Don’t get run over by the ‘rollover rule’ / When it comes to moving retirement funds, the once-per-year rollover rule is all too often overlooked.

Jeffrey Levine for MarketWatch writes: This rule limits the amount of times certain retirement funds can be moved per year via a 60-day rollover (where retirement funds are distributed to an account owner who returns them to another retirement account within 60 days).

Breaking the rule can lead to severe tax consequences.

If you take a second distribution from your retirement account within a year that can't be rolled over, not only can it become irrevocably taxable but, if it's errantly "rolled over" to another retirement account, you could end up paying a 6% excess contribution penalty for each year the funds remain there.

The good news, though, is that if you know what you're doing, it's pretty easy to avoid making once-per-year rollover mistakes. So with that in mind, below are the key aspects of the rule you need to know so you can avoid the costly tax mistakes that can ruin a retirement.

Moving money directly from one retirement account to another avoids the issue

Whenever you move money from one retirement account to another, it's generally best to do so directly, either by direct rollover or by transfer. In both scenarios, the key is that money is going right from one retirement account to the next. Generally, this is done by having one IRA custodian or plan send your retirement funds directly to another IRA or plan, bypassing you altogether. Doing so avoids a lot of pretty lousy tax issues.

The most obvious tax trap avoided when moving money directly from one IRA to another is that there is no 60-day rule to worry about — but another tax trap that's avoided is the once-per-year rollover rule. When you move retirement account money directly, you can move the money as often as you like. You can transfer your funds from one IRA custodian to another today, only to transfer them to another custodian tomorrow. The same process can be repeated indefinitely — but I wouldn't recommend it.

Keeping track of what financial institution holds your money shouldn't be a full-time job.

The rule only applies to IRA-to-IRA and Roth IRA-to-Roth IRA rollovers

The once-per-year rollover rule does not impact all 60-day rollovers equally because the rule only impacts IRAs. More specifically, it only affects 60-day rollovers that are made from one traditional IRA to another traditional IRA or those made from one Roth IRA to another Roth IRA.

As a result, there are a number of rollovers that are completely exempt from this rule. For instance, 60-day rollovers of plan funds rolled to IRAs (either traditional or Roth) are exempt from this rule because the funds are not coming from an IRA. The opposite is also true. IRA funds rolled within 60 days to a company plan account are also exempt from the once-per-year rollover rule because the funds are not going to an IRA. Similarly, 60-day rollovers of plan funds to another plan are also exempt, since neither account is an IRA.

Of greater value, however, for some IRA owners, is that a 60-day IRA-to-Roth IRA rollover, which is one way to make a Roth IRA conversion, is also exempt from this rule. As such, you can always make a Roth whenever you want, without worrying about the once-per-year rollover rule, whether that conversion is made by 60-day rollover or by direct rollover (which is still generally the better option).

The rule applies on an account-by-account basis

If you make a 60-day rollover with some of your IRA money, you may still be able to make 60-day rollovers of other IRA money in the same year. The once-per-year rollover rule applies to IRAs on an account by account basis, so if you have multiple IRAs, you may have some flexibility.

Once you make a 60-day IRA-to-IRA or Roth IRA-to-Roth IRA rollover, both the distributing and receiving accounts are "tainted" for the following year, preventing you from rolling over another distribution taken from either account. For instance, let's say you have three IRAs, IRAs "A," "B" and "C." On July 1, 2013 you take a distribution from IRA "A" and, within 60 days, roll those funds over to IRA "B." As a result, you cannot rollover any distributions taken from IRAs "A" or "B" for the 12-month period beginning July 1, 2013. You could, however, take a distribution from IRA "C" during that time and roll it over. Furthermore, the IRA "C" distribution can be rolled into any of your IRAs. The one-rollover-per-year rule does not prevent IRA money from being rolled into an account, just from being rolled out of an account.

There are a few other items worth noting here. First, it is possible to rollover a distribution back into the same IRA it came out of. In such cases, there is only one "tainted" account to worry about, since the distributing and receiving accounts are the same.

Another key point here is that the one-year clock for both the distributing IRA and the receiving IRA are the same. The one-year clock for both IRAs begins ticking on the day the funds are withdrawn from the distributing account. It does not make a difference when, during the 60-day rollover window, the rollover is completed. It has no bearing whatsoever on the one-year clock.

If you make a mistake, don't ask the IRS for help

Making a mistake with your retirement account is never a good idea, but some mistakes are worse than others. For instance, there are some mistakes which, with some time, money and a little luck, can be fixed. Missing the 60-day rollover deadline is an excellent example of this. Under the law, the IRS actually has the authority, through a private letter ruling, or PLR, to grant an extension of this window when certain circumstances permit.

On the other hand, there are some mistakes that generally can't be fixed, such as those involving more than one rollover made in the same year. Regardless of the circumstances that led to the mistake, the IRS has no authority under the law to waive or adjust this rule.

The only way you might be able to fix such a mistake is if you catch it quickly and take appropriate action. Quickly, in this case, means within 60 days of your "bad" distribution. And what action do you take? Simply complete your 60-day rollover to a retirement account that is exempt from the once-per-year rollover rule. For example, if you accidentally take a second IRA distribution within the no-rollover period and catch your mistake within 60 days, you can roll that distribution over to a plan account (if you have one that accepts rollovers) or to a Roth IRA. In either case, the rollover is not counted for the once-per-year rollover rule.

You might be thinking to yourself, "But wait, if I roll the money over to a Roth IRA, won't I still have to pay tax on the distribution?" The answer, of course, is yes, but if you have to pay tax on the distribution you planned on rolling over anyway, you might as well do it getting the money into a Roth IRA where it can grow tax free. Plus, if you really don't want to pay the tax, you can always recharacterize, or undo, your conversion by October 15th of the year after you convert. You can even recharacterize the next day because guess what? A recharacterization of a Roth IRA conversion moves money from a Roth IRA directly back to a traditional IRA, so it's exempt from the once-per-year rollover rule too.

Bison Analytics Brings Quickbooks Users Advanced Reporting and Analytics Through InetSoft’s Style Intelligence

Bison Analytics, a leading specialist in extraction and delivery of accurate QuickBooks data for analysis, has partnered with InetSoft Technology, an innovator in mashup-driven dashboard and reporting solutions, to bring QuickBooks users the ability to visualize their data in unique and innovative ways. Using InetSoft’s Style Intelligence BI solution as the front-end for their Bison System, Bison Analytics enables users to view their information in dashboards and detailed analytics reports anytime, anywhere.

The Bison System is a specialized, hosted business intelligence tool with the best data connector available for millions of QuickBooks customers. The Bison System extracts customer QuickBooks data, securely transfers it to the Bison Servers, and then immediately processes it into the customer’s database. Within moments, the data is available for dashboards and customized reporting for QuickBooks business stakeholders.

The Bison System is the most intuitive, flexible, and simple-to-operate reporting system on the market, thanks to its integration with Style Intelligence. Clients can quickly create personalized dashboards and reports, and provide secure access to QuickBooks data on an as-needed basis. Dashboards, visualizations, and highly formatted reports are easily created in a Web browser by clients or ProAdvisors. Additionally, the Bison System enables users to import their own data from Excel, creating instant mashups of anything the user can imagine. With the Bison System, this is completed in minutes, not days.
The Bison System is full of high-level features that are easy to use for QuickBooks companies.

For example, QuickBooks companies can place alerts on key metrics and be emailed if an important threshold is crossed, or they can schedule reports to be delivered via email first thing in the morning.
Bison Analytics’ CEO, Kurt Steckel, explains: “Bison Analytics chose to partner with InetSoft because of their ease-of-use and industry-leading features. Now, with our partnership, we provide the tools to empower average business users to do in-depth analysis easily, without a learning curve, and without IT involvement.”

"The true beauty of this partnership is that QuickBooks companies get real analytics and dashboards with little to no effort. Growth-centered companies can compete more effectively with the deep analytics power this partnership provides. QuickBooks ProAdvisors are finally provided the necessary tools to consult with their clients instead of having to wrestle with building complicated reports.”

Mark Flaherty, CMO of InetSoft Technology, echoes Kurt’s enthusiasm: “This is a great joint solution that fills a void in the marketplace. QuickBooks users have been hamstrung in their reporting ability by the limited analytics functions available to them out of the box. Not only that, but they have been missing out on the power of interactive dashboards and self-service visual analysis that the Bison Analytics/InetSoft joint solution provides. With Bison Analytics expertise and the technology they bring, we are very pleased to expand the range of data sources our BI platform supports, and the catalogue of ‘Integrated with InetSoft’ solutions.”

For more information on the new solution, or to request pricing or a demonstration, please visit http://www.bisonanalytics.com/goods/bison-system/.

The 5 Best Inventory Management Apps for Small Business

Natalie Burg for Forbes writes: When your inventory is constantly moving in and out of your storefront at paces varying from day of the week to month of the year, things can get pretty complicated. Though not every small business can afford expensive inventory management software systems, new apps are making it possible to digitally manage stock in a more cost effective way.  Here’s a roundup of apps that can help small businesses keep inventory in check without the risk of bouncing a check in the process:  

Inventory Tracker
The site iGeeks Blog recommends Inventory Tracker, which functions as a comprehensive inventory tracking system for iPad.
“It works excellently in synchronizing your inventory and comes with some really amazing features that you’d only expect from a desktop app,” said the blog.
A free version of the app is available, and the pro version is just $3.99.

SOS Inventory
If you’re already using QuickBooks, the Intuit App Center includes a number of apps that help the software do more for your business. Among them is SOS Inventory, which integrates with QuickBooks and offers expanded features, such as sales orders.
“It also lets you manage inventory in multiple locations, track items by serial number and cost history, track multiple stages of work-in-progress, and create pick tickets and packing slips,” reported Christina DesMarais for Inc.com.
The prices of SOS Inventory plans are based on available features and range from $25 to $200 a month.

Retail Inventory
App developer Cashier Live offers Retail Inventory, an app that not only functions as an inventory management system, but also scans barcodes and syncs with point-of-sale purchases made with a Cashier Live account.
Pricing packages range from Basic at $20 per month, to Premium at $75 per month.

Lettuce
Lettuce is more than just an inventory app. As reported by Amy Gahran for Entrepreneur.com, it integrates such systems as order capture, payment processing, shipping, tracking, customer relationship management and more.
Lettuce offers a companion cloud-based web app for easy use between your iPad and computer that includes user setup, accessing records, and customizing the software for $59 per month and an additional $25 for each additional user.

jumpStock
For a more in-depth inventory management system, iGeeks Blog points to jumpStock, for $99 per month. Though costly, the software is so interactive that it’s almost like having a human inventory manager on staff, saving you man hours over the more time-intensive apps, the blog said.
When inventory is constantly on the go through your business — and so are you — it only makes sense to have an inventory management system in place that is mobile as well. Not only can these apps be more affordable than full-fledged management software, it’s good to know they can keep up with the speed of your business as well.

IRS Income Tax Tables for 2014 Tax Season

Isaac M. O'Bannon for CPA Practice Advisor writes: The below tax tables were released by the IRS and are the official rates for individuals and married taxpayers when they file their returns before April 2014. These are, then, the official rates for tax year 2013, which ends Dec. 31, and for which filers who pay estimated taxes during the year should follow.
The tax tables for TY 2014, for which most taxpayers must file or extend by April 15, 2015, will be announced by the IRS later in the year.
The AMT exemption amount for TY 2013 is $51,900 ($80,800 married/joint). The AMT is now pinned to inflation.
Also new for tax year 2013 (whether paying quarterly estimated taxes or filing in April 2014), the top tax rate is 39.6 percent for individual income over $400,000, or $450,000 for married taxpayers filing jointly. The other marginal rates are 10, 15, 25, 28, 33 and 35 percent, the same as in recent years.
The standard deduction has been raised to $6,100 for individuals, $12,200 for married/joint filers. The personal exemption is $3,900, but is jubject to a phase-out starting at $250,000.
Starting in TY 2013, there will be a limit for itemized deductions for individuals with income over $250,000 ($300,000 for married/joint filers).
Individual Filer Rates:

• $0 to $8,925 = 10% rate
• $8,926 to $36,250 = 15%
• $36,251 to $87,850 = 25%
• $87,851 to $183,250 = 28%
• $183,251 to $398,350 = 33%
• $398,351 to $400,000 = 35%
• $400,001 and above = 39.6%

Married Filing Jointly:

• $0 to $17,850 = 10%
• $17,851 to $72,500 = 15%
• $72,501 to $146,400 = 25%
• $146,401 to $223,050 = 28%
• $223,051 to $398,350 = 33%
• $398,351 to $450,000 = 35%
• $450,001 and over = 39.6%

Married Filing Separate:

• $0 to $8925 = 10%
• $8,926 to $36,250 = 15%
• $36,251 to $73,200 = 25%
• $73,201 to $111,525 = 28%
• $111,526 to $199,175 = 33%
• $199,176 to $225,000 = 35%
• $225,001 and over = 39.6%

New Accounting Rules Proposed for Small Businesses

 MICHAEL RAPOPORT for the Wall St. Journal writes:  Millions of U.S. small businesses will be able to use simplified, streamlined methods for measuring and presenting their financial results under a new accounting framework announced Monday.

The new guidelines for "small and medium-size entities" come from the American Institute of Certified Public Accountants, the nation's main accounting trade group.

The guidelines are designed as an alternative to generally accepted accounting principles, or GAAP, the system large companies use in the U.S.

"It is a framework that is tailored for small business—a very relevant, simplified framework," said Bob Durak, the AICPA's director of private company financial reporting.

Public companies in the U.S. must use GAAP, as must privately held companies if their lenders, bonding companies or regulators require it. But smaller, less-complex private companies long have complained that GAAP is overly burdensome and complicated.

The Private Company Council, a new panel created last year with the AICPA's participation, is focused on carving out potential modifications to GAAP to benefit privately held firms.

But even given those efforts, Mr. Durak said many private companies that don't have to use GAAP have been "looking for another option" that omits some of the complexities of GAAP that aren't relevant to them.

Among the ways in which the new framework would simplify GAAP: The new framework uses only historical cost as a basis for valuing assets and liabilities, not current market value. It doesn't include more-complex accounting for areas that smaller, simpler companies are unlikely to get into, such as off-balance-sheet entities, derivatives or hedging.

The new framework will be optional even for companies who might choose to adopt it. The AICPA doesn't have any authority to compel companies to do so.

Some have opposed the group's efforts, saying the AICPA should wait for the Private Company Council to develop its modifications to GAAP to benefit private companies instead of trying to develop a separate system.

In April, the council and the Financial Accounting Standards Board, the U.S. accounting rule maker under whose auspices it works, issued a proposed "decision-making framework" that would guide when it was appropriate to make such exceptions to GAAP.

"We believe efforts focused on enhancing GAAP will be more beneficial for a broader population of private company stakeholders than creating another non-GAAP framework," PricewaterhouseCoopers LLP, an accountancy firm, said in a January letter sent to the AICPA.