As Marriage Changes, Should Joint Tax Return Filing Go The Way Of Ozzie And Harriet?

Howard Gleckman for Forbes writes: Any day now, the Supreme Court will rule on whether same-sex married couples have the right to file joint federal tax returns. But Yale tax law professor Anne Alstott has me wondering whether the entire debate over the tax consequences of the Defense of Marriage Act is missing the point. In an upcoming paper for Yale’s Tax Law Review, she argues that it makes little sense to tie the Revenue Code so closely to formal marriage when so many people are in very different family relationships than they were even 40 years ago.

As Alstott notes, nearly half of American adults are now unmarried, 40 percent of children are born to unmarried parents, and labor force participation among married women is now very close to that of married men (thanks to the always-helpful Paul Caron at TaxProf blogfor tipping me off to her paper). Ozzie and Harriet have been in reruns for half-a-century. So why even bother with the concept of joint tax filing?

Alstott borrows from Johns Hopkins University sociologist Andrew Cherlin, who calls the trend away from formal marriage “new individualism.” This, she says, “has rendered obsolete legal doctrines and policy analyses that treat formal marriage as a proxy for family life … . Joint filing is no longer well-tailored to serve important social objectives.”

And, she adds, this argument applies whether one is a liberal who embraces the new individualism or a conservative who is offended by it.

Reframing the tax treatment of families in this way will help solve some problems and create some new ones. And Alstott isn’t so much arguing for a specific alternative to joint filing as urging tax wonks to consider the law in the context of social change.

While marriage may be sacred to many, there is nothing consecrated about joint filing. Only one-third of major developed countries use the mechanism. Besides, as my Tax Policy Center colleague Bob Williams has described, it doesn’t even necessarily reward marriage. For most households (typically where one spouse earns substantially more than the other) married couples enjoy a tax bonus. However, where the spouses earn roughly the same amount a couple could end up paying a penalty for tying the knot.

Congress created joint filing in 1948 in an attempt to solve a number of problems, including one where couples could game the law by artificially splitting reported income in a way that minimized their taxes.

Today’s system still struggles to resolve what lawyers and economists describe as a “trilemma”: The income tax cannot simultaneously maintain progressive rates, impose equal taxes on all couples earning the same amount, and be neutral between married and unmarried taxpayers. Something has to give.

But, Alstott argues, these concerns become less important if the tax code gets past the concept of marriage. In that environment, Congress could simply restore a system of individual filing for all combined with rules aimed at preventing gaming, such as sham transfers of assets from one spouse to another. With the right anti-abuse rules in place, the law need not bother distinguishing between couples who are formally married and those who are not.

Alternatively, Alstott says Congress could allow couples to file combined returns, whether they are married or not.

In response to those anxious to preserve traditional marriage, she even suggests a package of refundable tax credits to encourage early marriage, discourage divorce, or even help subsidized stay-at-home moms. But none of these require joint filing either.

Alstott goes a bit far when she says joint filing (as well as the spousal benefit in Social Security) tracks a social reality that ‘no longer exists.” After all, more than half of all adults are married and the trend line away from marriage has flattened somewhat in recent years. And who knows, perhaps like martinis, marriage will make a comeback.

But her paper makes a provocative and important argument. As we consider tax reform, we should not ignore how the Revenue Code applies in an environment of rapidly changing social norms. Isn’t that, after all, what the DOMA controversy is all about?

Use Roth IRA for Medical Bills to Avoid Tax Hit?

Dr. Don Taylor for Bankrate/Fox Business writes: QUESTION:  Dear Retirement Adviser,

I have a Roth individual retirement account I opened in 2006. Since then, I was in a bad car accident and unable to work for five months. As a result of lost income, my medical bills are piling up. I've been thinking about taking some money out of my individual retirement account to pay medical premiums and these bills. I understand I can pull from my contributions without an early withdrawal penalty, tax-free. May I take from my earnings without an early withdrawal penalty for such a purpose? I understand that I would need to pay taxes on any withdrawal from the earnings, but is it true that I can choose to avoid having that withheld when I pull the money out?

ANSWER:

I'm sorry to hear of your troubles. As you know, the money you contributed to the Roth individual retirement account was made with after-tax dollars, so the contributions aren't taxed a second time when distributed. When you take your investment earnings from the account on an unqualified distribution, the investment earnings are taxable and may also be subject to a 10 percent penalty tax.

In your situation, there are two potential exceptions to the 10 percent penalty tax. The first is for paying medical insurance premiums for yourself, your spouse and your dependents during a period of unemployment. As spelled out in Internal Revenue Service Publication 590, titled "Individual Retirement Arrangements," this exception requires that you meet each of the following four conditions: You lost your job; you received unemployment compensation paid under any federal or state law for 12 consecutive weeks because you lost your job; you received the distributions during either the year you got unemployment compensation or the following year; and you received the distributions no later than 60 days after being reemployed.

The second exception is if your unreimbursed medical expenses are more than 7.5 percent of your adjusted gross income, then you won't owe the penalty tax on the difference between the amount you paid and the 7.5 percent. Money you take out to pay household bills doesn't qualify for these exceptions. This only allows you to take into account unreimbursed medical expenses that you would have been able to include in a deduction for medical expenses on Schedule A of Form 1040. You do not have to itemize your deductions to take advantage of the exception to the 10 percent penalty tax.

The taxable portion of your Roth individual retirement account distribution is subject to mandatory federal income tax withholding. You may be eligible to elect to avoid having federal income tax withheld. Whether state income tax withholding is mandatory varies by state law. The account's custodian can explain this further to you. You might also want to talk with an accountant.

Can You Deduct Building Materials for New Home?

George Saenz for Bankrate/Fox Business writes: QUESTION:  Can I take a sales tax deduction for taxes paid on building materials for my new home? The home is being built on land owned by myself and financed via a 35 percent down payment and construction loan. The builder is paid as we go via five or six "draws" based on completion of milestones. The land and home will never be in our builder's name. We carry all insurance and pay all real estate taxes throughout the build. 

ANSWER

The sales tax deduction keeps getting extended every couple of years. While most folks know they can claim their state and local income taxes as a deduction, others may not be aware that alternatively you can claim a deduction for sales tax paid if it is greater than the income taxes. Obviously, folks that live in states with no income tax such as Florida and Texas will always opt to deduct sales tax paid. If you live in a state that imposes income and sales tax, you'll have to make a decision to determine which deduction is greater.

The Internal Revenue Service offers tables based on family size and income level for each state that provides an automatic deduction for sales tax. Certain big-ticket items can be added to the table amount. Alternatively, if you keep all your receipts, you can deduct actual sales tax paid during the year, including big-ticket items.

IRS Publication 600 states that you can consider a home as a big-ticket item if any of the following apply:

• Your state or locality imposes a general sales tax directly on the sale of a home or on the cost of a substantial addition or major renovation.
• 
  
• You purchased the materials to build a home or substantial addition or to perform a major renovation and paid the sales tax directly.
• 
  
• Under your state law, your contractor is considered your agent in the construction of the home or substantial addition or the performance of a major renovation. The contract must state that the contractor is authorized to act in your name and must follow your directions on construction decisions. In this case, you will be considered to have purchased any items subject to a sales tax and to have paid the sales tax directly.

Expat IRS Tax Filing Deadline Is June 17

Robert W. Wood for Forbes writes:  You may be used to thinking of April 15 as tax return filing day. For many, it is. But there’s an automatic two month extension for some. It applies to U.S. citizens and resident aliens living overseas, or serving in the military outside the U.S. on the regular due date of their tax return.

This year you get 2 extra days—until June 17–since June 15 falls on a Saturday. To use this automatic two-month extension, taxpayers must attach a statement to their return explaining which of these two situations applies. 

U.S. citizens and resident aliens are legally required to report their worldwide income, including income from foreign trusts and foreign bank and securities accounts. In most cases, affected taxpayers need to fill out and attach Schedule B, Interest and Ordinary Dividends, to their tax return. Part III of Schedule B asks about the existence of foreign accounts, such as bank and securities accounts. It usually requires U.S. citizens to report the country in which each account is located.

As a result of FATCA, the Foreign Account Tax Compliance Act, foreign banks must report U.S. account holders to the IRS. But there is self-reporting too. FATCA added another form that accompanies tax returns. Certain taxpayers may also have to fill out and attach to their return Form 8938, Statement of Foreign Financial Assets. Generally, U.S. citizens, resident aliens and certain nonresident aliens must report specified foreign financial assets on Form 8938 if the aggregate value of those assets exceeds certain thresholds.

Note that a Form 8938 is filed with your tax return and is distinct from FBAR filing obligations. The filing thresholds form Form 8938 and FBAR are different, and the latter form is filed separately, and due by June 30 each year for the prior year. See FBARs & FATCA Form 8938: Maddening Duplication? There’s some duplication. IRS Form 8938 Or FBAR?

If you’re reading this and not a U.S. taxpayer you might be mopping your brow and breathing a sigh of relief. The scope and reach of the U.S. taxing agency is mighty, and U.S. taxpayers worldwide and even foreign banking institutions are feeling it. However, might you have a U.S. tax return filing obligation if you are a nonresident alien?

Yes. If you received income from U.S. sources in 2012, also must determine whether you have a U.S. tax obligation. The filing deadline for nonresident aliens can be April 15 or June 17 depending on sources of income.

Too Many Happy Returns for H&R Block

Spencer Jakab for the Wall St Journal writes: America's largest tax preparer is feeling chipper these days. Even so, it is a far cry from the old H&R Block Inc. HRB -1.67%

Its share price and earnings per share for fiscal 2013, due to be reported Wednesday, have clawed their way back to where they were in the company's 2005 heyday. But both revenue and operating income were about two-thirds higher then. Today's H&R Block, which has repurchased shares and shrunk considerably, would like to get even smaller.

Any news from management Wednesday on the sale of H&R Block's bank could trump the reaction to earnings for its fiscal fourth quarter through April. Analysts polled by FactSet see those at $2.62 a share.

That would be nearly a third higher than a year ago, despite the company saying the actual number of tax returns prepared fell slightly. Much of the expected earnings improvement should come from revenue H&R Block would have earned a quarter earlier hadn't it been for delayed tax filings arising from the "fiscal cliff." Tax-service revenue for that quarter fell 29% from a year earlier.

The sale of the bank would free up substantial capital, possibly enabling additional share buybacks. More good news on claims related to wholly owned mortgage firm Sand Canyon also would cheer investors.

But with H&R Block shares up 58% year to date, the good news appears to be priced in. So any further gains Wednesday might offer investors a good chance to take profits.

A pure tax-preparation business presents opportunities but also risks. On the plus side are "Obamacare" and immigration overhaul. More red tape, and perhaps millions more people who will be forced to cope with it, are positive.

The negatives are significant, too. A wave of free, online tax-filing options has forced H&R Block and peers to prepare returns gratis for some customers in hope of selling other services.

Meanwhile, the creation of the Consumer Financial Protection Bureau threatens the way H&R Block makes much of its money: lending people their own refunds in advance at high rates.

Still, at least one regulatory risk that H&R Block dutifully reports in its securities filings seems remote—the possibility U.S. tax forms will be simplified. The only sure things in life are death, taxes and paperwork.

When 529s Don’t Make the Grade / Money has been flowing into 529 college savings plans, but not all the plans are equally appealing.

Stan Luxenburg for WealthManagement writes: More families have been discovering 529 college savings plans. In fact, assets in the plans jumped 25 percent in 2012 to $166 billion, according to Morningstar. But not all the plans are equally appealing. Some come with high expenses and uninspiring investment track records. According to a recent study by Morningstar, the average 529 investment returns lagged behind comparable mutual funds. Some choices performed so badly that savers would have done better by avoiding 529s and investing in taxable mutual funds.

And yet, at a time when families worry about saddling the younger generation with education loans, it’s even more important for advisors to steer clients to the best selections. “When they sit down with clients to make comprehensive plans, advisors can also provide value by discussing 529s,” says Paul Curley, director of college savings research for FRC, a division of Strategic Insight.    

Tax-Free College Savings

The case for using 529s is compelling. Under the rules, a saver can set aside more than $200,000 and not pay any state or federal taxes on the earnings—provided the money is used to pay for college tuition. In addition, many states offer sizable deductions. Each state sponsors its own 529, but you are free to invest in any plan you like. Popular choices for out-of-state investors include plans from Maryland and Alaska.            

While states such as California and Pennsylvania offer no incentives to keep the money at home, some states provide hefty rewards for stay-at-home investors. A couple in New York can reduce state taxes by deducting up to $10,000 annually. For high-income investors, that can result in tax savings of more than $500 a year.

Bargain Shopping

Even if a client’s state offers a deduction for using the home plan, advisors should still shop around the country for the best choice; fees vary widely. Annual expenses range from 1.74 percent for the Iowa Advisor 529 Plan to 0.25 percent for the Michigan Education Savings Plan. Part of the reason for the varying costs is that many states tack on an extra layer of fees. In a typical arrangement, a 529 portfolio invests in a group of mutual funds. So investors must pay the normal expense ratios of the funds. In addition, some plans charge administrative fees. As a result, 529 investments tend to be more expensive than conventional mutual funds. While the average moderate allocation mutual fund charges an expense ratio of 0.99 percent, comparable 529 funds charge 1.22 percent.  

States typically offer two classes of shares: advisor shares that come with loads and direct-sold options that are designed for do-it-yourself investors. The loads are similar to the sales charges on mutual funds, with front-end charges ranging up to 5.75 percent. In the past, most sales came from advisor-class shares. Virginia’s plan, which features load selections from American Funds, has been a popular choice with advisors around the country. But lately direct-sold plans have been gaining more traction, and they now account for half of all assets in 529s. “We are seeing more fee-only planners and RIAsbuying direct-sold plans,” says Joseph Hurley, founder of Savingforcollege.com.

Many funds allocate assets based on the age of the child. As college enrollment approaches, the portfolios become more conservative. In a typical approach, an investment for a newborn has 80 percent of assets in stocks and the rest in bonds. For a 19-year-old, stocks only account for 10 percent.

For advisors seeking a low-cost alternative, a top choice is the New York plan. The direct-sold portfolio for children ages 0 to 5 has an expense ratio of 0.17 percent. Designed to please diehard passive investors, the portfolio includes two Vanguard index funds. For moderate-risk investors, the portfolio has about 75 percent of assets in Vanguard Institutional Stock Market Index (VITPX) and 25 percent in Vanguard Total Bond Market II (VTBNX). So far the simple approach has produced winning results. During the past five years, the portfolio has returned 7.1 percent annually, topping average competitors by 4 percentage points.

For advisors who sell load funds, a top choice is Oregon’s MFS 529 Savings Plan, which has an annual expense ratio of 1.37 percent. The high-equity choice for children aged 0 to 6 has about 92 percent of assets in stocks. During the past five years, the portfolio returned 4.1 percent annually. The assets go to a mix of solid MFS funds, including MFS International Growth R5 (MGRDX), MFS Global Real Estate R5 (MGLRX), and MFS Mid Cap Growth R5 (OTCKX).

The Structure of 529s

Many of the states use what is called closed architecture, relying on funds from one company. Other choices are open architecture, offering choices from several companies. A solid open-architecture choice is the Illinois Bright Directions program. The moderate portfolio includes top performers, such as Oppenheimer International Growth (OIGIX), PIMCO Total Return Institutional (PTTRX), and Templeton International Bond (FIBZX).

While many clients prefer age-weighted portfolios, it is also possible to buy and hold a single stock fund. A top choice is the Illinois program’s large value selection, which puts all its assets in American Century Value (AULIX). During the past five years, the fund returned 5.7 percent annually, outdoing the average large value competitor by 2 percentage points.

Picking an individual fund could be an appealing solution for high-net-worth clients, says Andrea Feirstein, managing director of AKF Consulting. Say a family already has a broadly diversified portfolio with extensive stock and bond holdings. The 529 offers a chance to shelter an individual fund that would otherwise be in a taxable account. “If the 529 fund collapses just before the child enters college, you can delay withdrawing the money for a few years until the market rebounds,” Feirstein says.

What if you fail to spend all the money in the account on the child’s tuition? You can keep the money in the tax shelter and use it later—perhaps paying for a younger child or a favorite nephew.  

Lowering Business Taxes with New Ownership Structure

AUSTIN KILHAM for the Wall St Journal writes: The client was in his mid-40s and the head of his family-owned business. He was worried about rising taxes on the income he and his other family members earned from that business.

Recent changes to federal tax laws and new taxes related to the Affordable Care Act had the family on track to pay 43% tax rate on its business income in 2013--an 8% increase over previous years.

"It motivated them to proactively search for creative tax techniques," says Jeff Camarda, founder and chairman of Camarda Wealth Advisory Group in Fleming Island, Fla., which manages $200 million for 500 clients.

Mr. Camarda and the client discussed strategies to reduce the family's tax burden, including different options to increase retirement-account contributions. But those moves would only delay taxes, he says. Instead, the adviser suggested a strategy that would solve the tax problem this year, and in the years to come: Changing the company's ownership structure.

The company was an S-Corporation, which generates incomes for its owners that are subject to income taxes. However, income from partnerships is subject to the lower capital-gains tax. With the 24% capital-gains tax rate, changing the business structure to a partnership would cut the family's business taxes in half.

Mr. Camarda and his client looked at partnership options. Limited Partnerships offered tax benefits but didn't protect the partners from liability for the company's debts and obligations, which was important to the family. Instead, they settled on a limited liability limited partnership, which affords the capital-gains tax benefits of partnerships while also limiting liability for partners. Although LLLP's are relatively new and aren't widely used, they are available in 22 states, including Florida.

To make the change, Mr. Camarda transferred all the assets in the S-Corporation to the LLLP and established partners from among the current ownership. All business income was then earned by the partnership, which the family could divide among themselves. That structure allowed 100% of the family's taxable income from the business to be taxed at the capital-gains rate.

Although it cost nearly $35,000 to establish the new LLLP, Mr. Camarda says, the tax savings will vastly outweigh the cost. Based on the company's projected income for 2013, the family would likely owe nearly $1.3 million in income taxes had they not restructured the company, he says. But under the new ownership structure, the family will likely owe $714,000 at the capital-gains tax rate of 24%--a savings of $606,000.

Despite being initially concerned about the complexity of the process, the client and his family were happy they made the change, rather than sticking with the status quo.

Mr. Camarda says that it's a good reminder to consider long-term solutions to a recurring problem, rather than relying on small tweaks to solve problems year after year. "A lot of people will overpay in taxes because they are conservative and like to stay in tight parameters," he says.

How much is your data worth? Don't expect accountants to know

Toby Wolpe for ZD Net writes: Businesses — and even whole national economies — are being seriously undervalued because existing accounting methods make it hard to record the value of data on balance sheets.

Companies rely increasingly on data to make money and try to classify it for compliance. But they are being hampered by systems not designed to cope with the concept of valuing software and information services, according to a report from the Centre for Economics and Business Research and business-intelligence firm SAS.

"Existing international financial accounting frameworks struggle to incorporate these assets, leading to growing discrepancies between market and book values of firms," the reports' authors wrote.

Current accounting methods do allow data to be assigned a value in balance sheets but only when it is expected to produce future benefits that can be accurately estimated. This shortcoming also affects the figures for national economies.

"GDP measures were designed for an economy in which goods and assets are largely physical, and suggest that the information sector makes up the same share of the US economy as it did 25 years ago — about four percent," the report said.

"The same argument can be made in the UK, where the proportion of gross value added accounted for by information and communications industries has remained at six percent since 2002, despite continuous technological progress."

Putting a value on data is extremely difficult because it depends on its intrinsic characteristics and the environment in which a business uses it, the report said. Other obstacles include assessing accurately the cost of collection, depreciation and the life of the data, and its additive value, whereby it becomes more valuable as more is collected.

Accounting for data assets

Despite these issues, organisations and governments need to find more accurate ways of accounting for data assets.

"Without this innovation, decisions at both corporate and national level will be made on the basis of incomplete information, magnifying the risk of misallocation of resources and consequent economic inefficiency," the report said.

It backs the idea of a shift to integrated reporting, as recommended by the International Integrated Reporting Council, which argues that current accounting frameworks overemphasise short-term financial information and neglect sources of long-term value creation.

"We suggest an integrated reporting framework, providing investors and other interested parties with a more comprehensive view of a company's value by dealing with the factors and risks that can boost or depress the value of data," the report said.

Understanding different types of IRAs can help retirement planning

Paula G Freston writes: According to the Employee Benefit Research Institute, “Like never before, the American public is being reminded each day of the retirement challenges that lay ahead.” Despite that, many people are unprepared for taking on the important responsibility of understanding and planning for their increasingly hazy financial future. While there are a lot of different retirement plans, this month’s BFEC article provides a brief overview of the two simplest types of individual retirement arrangements, the traditional IRA and the Roth IRA.

In general, an IRA is a special account set up with a trustee or custodian (bank, credit union, S&L, brokerage firm, etc.) which allows an individual to set aside a portion of their annual compensation for retirement. According to IRS rules, “compensation” income includes wages, salaries, tips, professional fees, bonuses, and other amounts received for providing personal services. It also includes commissions, self-employment income, alimony and separate maintenance, nontaxable combat pay, and some scholarship and fellowship payments. However, it does not include earnings and profits from property, pensions and annuities (including Social Security), interest and dividend income, or income from certain partnerships.

For 2013, the maximum amount that can be contributed to an IRA is the lesser of $5,500 ($6,500 if you’re age 50 or older), or total taxable compensation for the year. However, if you are married filing a separate return or your modified adjusted gross income (AGI) is above a certain amount, your contribution limit may be reduced.

While there are several distinctions between Traditional and Roth IRAs, the two most significant are the tax treatment contributions get the year money is put into the account and the treatment distributions receive when taken out of the account.

A contribution to a traditional IRA is listed as an adjustment on the taxpayer’s return and will correspondingly lower the taxpayer’s income for that year. Because the net result is that no income taxes are paid on that contribution, it will be taxed as ordinary income when withdrawals are made during retirement.

A Roth IRA, on the other hand, does not provide a tax break the year money is placed into the plan; instead, the tax break is granted when the money is withdrawn from the plan during retirement. In other words, while Roth contributions do not reduce current income, assuming withdrawal rules are adhered to, distributions are tax-free.

Contributions can be made to either account throughout the year or in one lump sum. The deadline for making a contribution is April 15 of the year following the “contribution year,” i.e., while contributions can be made earlier, April 15, 2014 is the deadline for 2013 contributions. Further, under current tax law, depending on one’s filing status and adjusted gross income, contributions to either type of IRA may qualify for a Retirement Savings Contributions Credit (Saver’s Credit) of up to $1,000 ($2,000 if filing jointly).

Once funds have been deposited to a custodial IRA account, the investment options available to the depositor are limited only by IRS rules and the custodian’s charter. An IRA with a brokerage firm as custodian will provide the broadest array of investment choices: stocks, bonds, mutual funds, etc. A bank, credit union, or S&L account may be limited to Certificates of Deposit (CDs) or mutual funds; an insurance company may offer only mutual funds or annuities. Regardless of whether the account’s designated as a traditional or Roth, interest income, dividends, and capital gains accumulate without the burden of taxes.

Neither of these types of savings arrangements is intended for short-term savings. Generally, the amounts an individual withdraws from his or her IRA or other qualified retirement plan before reaching age 59 1/2 are called ”early” or ”premature” distributions and individuals must pay an additional 10 percent early withdrawal tax unless one of several exceptions apply. An additional requirement of a Roth account is that it must be held for five years before distributions are tax-free. Although contributions can continue to be made to a Roth IRA beyond age 70 1/2 and funds can be left in a Roth as long as the account holder lives, at 70 1/2 the owner of a traditional IRA can’t make additional contributions and must begin withdrawing funds.

This article’s been intended as a general overview of traditional and Roth IRAs. A more comprehensive explanation can be found in IRS Publication 590, via internet search, or by consulting your tax or investment advisor. Regardless of how you choose to become more knowledgeable of your options, keep in mind George Carlin’s quote: “The future will soon be a thing of the past.” Plan for your future sooner as opposed to later.

The Sky Is The Limit: Taxing The Cloud

Matthew Litz for BarryDunn writes: Does your business provide cloud-based computing services to customers in various states or outside the country?  If so, your business may unknowingly be subject to sales tax and use tax in the jurisdictions where your customers are located, and you could be subject to value-added tax (VAT) if those customers are located outside the US.

The cloud blurs geographic boundariesOne challenge with cloud-based services is defining where the transaction occurs and where the service is delivered. Even if your business does not perform any services outside of your home state, you could be assessed taxes (and perhaps interest and penalties) by the jurisdiction in which your customers reside.

In an effort to keep up with changes in technology, states are amending their tax laws to subject cloud-based services to sales and use tax.  For example, the New York Department of Taxation and Finance determined that cloud-based services that were hosted on servers located outside of New York were nonetheless subject to sales and use tax in New York if the software is accessed by customers with New York addresses.

Value-added tax and "place of supply" rulesThis is not just a domestic issue. Many countries have adopted "place of supply" rules when assessing value-added tax to cloud-based services. Generally, these rules focus on either the location of the service provider or the location of the customer to determine the tax consequences of a transaction. Thus, a supplier of cloud-based services may be subject to VAT based on the location of its customers.

Because many businesses are unaware of the tax implications resulting from the provision of cloud-based services to customers outside their home state, they can find themselves burdened with significant tax liabilities. If you offer cloud-based services, you will need to know the different states' tax treatments and compliance requirements.

Selling a business: How tax exposure affects the priceFor owners looking to sell their business, the potential tax exposure in one or two key states can drive down the price of the business, significantly more than the known exposure. If the issue arises during the due diligence process, the buyer may significantly reduce the purchase price or require funds to be held in escrow to cover any liabilities that may be assessed, especially if the extent of the exposure is unknown. To avoid this situation, you can do a preemptive review of your exposure, and, if needed, file Voluntary Disclosure Agreements (VDAs) prior to entering sales negotiations.

Swizznet Sees Growth in Accountants Embracing the Cloud

2013 Tax Season Saw 50% Increase in Accountants Using Swizznet a QuickBooks hosting and online accounting solution provider that grew the number of accountants using its solution by 50 percent during the 2013 tax season. Swizznet attributes the growth to accountants finally embracing the benefits of cloud technology and setting aside the concerns that once made them wary.

"It's taken some time, but the accounting industry has finally come to the realization that the cloud is not a scary place," said Kristin Callan, COO, Swizznet. "Using our hosted QuickBooks solution has made tax season much more collaborative and efficient for accountants and their clients because everything they need is at their fingertips. Our entire staff is very proud that we're able to add value to the compliance process by making this busy time of year a lot more manageable."

Accountants and businesses choose Swizznet's cloud hosted version of QuickBooks because it allows them to focus on growing their business and not on managing IT. Swizznet and its US-based technical support and engineering teams assist with implementation and are on call for any support issues that may arise. With no need to worry about software upgrades and licensing, customers enjoy the anywhere/anytime access to their accounting software and financial systems that hosted solutions provide, allowing them to more efficiently manage their business and better serve their clients.

Swizznet recently increased its product offerings by being the first company to offer a hosted version of QuickBooks Point of Sale in a multi-lane as well as a single-lane environment.