Tuesday, June 18, 2013

Accountants Face Competition from Other Industries

 AGATA KACZANOWSKA fOR ACCOUNTING TODAY WRITES: Competition is mounting for accountants from similar service providers that are cannibalizing key clients.  In 2013, more firms will offer accounting services in response to rebounding demand, especially from finance and insurance companies. In particular, competition is escalating from various industries, including software publishing, management consulting, payroll services, bookkeeping and the legal profession. As a result, the accounting services industry will face several challenges in the five years to 2018. However, as firms familiarize themselves with the competition, they will be able to hedge these threats to gain a competitive edge.
Software Publishing

Enterprise resource planning software, which includes accounting functions such as general ledger and billing, is becoming cheaper and easier to use in a variety of businesses. As a result, the business analytics and enterprise software publishing industry’s revenue is expected to rise 3.1 percent to $26.9 billion in 2013. Not only is such software increasingly user friendly and affordable for small enterprises, but large businesses are also using these products for particular in-house needs. Therefore, these products have started to become viable substitutes for traditional accounting services, especially as prices for traditional accounting services will continue to rise with demand in 2013.

Although demand will continue to rise for all kinds of accounting services, prices for software will decline as development costs are shared among more users. During the next three years, IBISWorld forecasts the average license price of ERP software to decline at an annualized rate of 2.1 percent. The value proposition of ERP software is high and will only increase as its functionality converges with other enterprise software categories to create a single enterprise-wide system.
In particular, rising demand for accounting services will provide additional incentives for ERP software providers to add accounting functionality to their software capabilities, which will be a selling point for potential clients. Consequently, software with built-in accounting functions is expected to increasingly compete with traditional accounting services, dragging their prices down.
Management Consulting

As more businesses integrate software and systems to streamline interdepartmental functions, they are increasingly demanding solutions to better manage such systems across multiple departments. This has resulted in a push to train specialist management consultants in a variety of fields so they can provide a range of services to clients, allowing the management consulting industry to compete with firms in other industries, including accounting.

Competition is anticipated to escalate for the management consulting industry, leading companies to broaden their service offerings to include those of the accounting services industry. As corporate profit recovers, so will the prospects for the all-inclusive services of the management consulting industry. Driven by increasing corporate spending in 2013, revenue is expected to rise 5.4 percent during the year to total $171.9 billion.
Payroll and Bookkeeping Services

In the past decade, midsize and large businesses have trended toward streamlining interdepartmental systems to focus on core business activities. For example, many have outsourced noncore functions, including payroll and bookkeeping. A major motivation for such outsourcing is to reduce overhead and increase flexibility. When the need for a service increases or decreases, it is relatively easy for a business to alter its use of outsourced services. By contrast, in-housing these tasks often requires additional staff and resources.

In 2013, business expansion is expected to drive up industry revenue 1.7 percent to $50.1 billion. Despite this growth, industry operators still face a consolidating market as many companies bring payroll and bookkeeping functions in-house after delaying the development of these functions because of the recession. Consequently, payroll and bookkeeping service providers are expected to offer more accounting services during 2013.
Law Firms

The waning economy forced many businesses to seek legal advice related to restructuring, bankruptcy and insolvency. The increase in demand for bankruptcy work has caused some lawyers who specialize in the area to raise their rates. Some top partners at prestigious firms charge as much as $1,000 per hour. Demand for countercyclical work has been declining as the economy slowly recovers, and the industry has started to benefit from a return to growth in cyclical activities, such as IPO work. Consequently, IBISWorld estimates revenue for the law firms industry to grow 2.0 percent to $296.5 billion in 2013. Nonetheless, many clients have started to push back on law firms’ high prices by demanding similar services from alternative suppliers.

Accounting firms have started performing some tasks that were previously the domain of lawyers, including aspects of employee contracts and benefit counseling. They are expected to increasingly compete with law firms because of this expansion.
Accounting Services

While many accounting services industry operators have been forced to reduce their rates to remain competitive because of lower demand since the recession, a rebound in the number of businesses is expected to boost demand during 2013, boosting revenue about 1.3 percent.

However, intensifying competition from other industries is expected to continue limiting industry pricing and hurt profitability, which currently represents about 15.6 percent of revenue. Rising wages have also started to cut into profitability as unemployment declines.
IBISWorld forecasts accounting services industry revenue to expand at an annualized rate of 1.9 percent to total $80.1 billion in 2018. Such slow revenue growth reflects rebounding demand and stagnant prices because of escalating competition. During this time, the number of accounting firms is estimated to increase at an annualized rate of 0.9 percent to 91,717 companies. However, many of the firms entering the industry in response to rising demand will likely be small firms that exited the industry during the poor operating conditions of the five years up to 2013. This is projected to further intensify price competition for accounting services during the five years up to 2018 and limit profitability for accounting services providers.
As the services provided by various industries converge, providers from traditionally different specialties are increasingly competing directly against each other. When one type of provider, such as a software publisher, can offer accounting services at a much lower price, traditional accountants must react and differentiate their offerings to retain clients. Instead of offering discounts, accountants can charge more for all-inclusive services, which helps to boost their profitability. Consequently, service differentiation is expected to characterize the market for accounting services during the next five years up to 2018.
Posted on 5:32 AM | Categories:

New online payroll service automatically maintains state and federal payments / Wave has announced the addition of Payroll Tax Service in 10 U.S. states.

CPA Practice Advisor writes:  Wave, the developer of web-based small business accounting and management systems, has announced the addition of Payroll Tax Service in 10 U.S. states. When used as an integrated component of Wave’s other small business solutions, the Payroll Tax Service is intended to streamline the tedious tax payment and filing process, keeping a business’ payroll taxes up to date.
After  small business or their accountant processes a payroll run, the Payroll Tax Service takes care of the rest by filing payroll taxes to federal and state agencies. The service only withdraws funds when taxes are due to maximize control over their cash flow, and notifies customers prior to withdrawal and payment.
“According to the IRS, 40% of small businesses pay an average penalty of $845 per year for late or incorrect filings and payments,” says Craig Hurlbut, Director of Payroll and U.S. payroll tax expert for Wave.
According to The ABCs of FTDs, IRS:
  • There are three basic penalties for not making timely federal tax deposits: Failure to Deposit, Failure to File and Failure to Pay.
  • In addition to penalties, you must also pay interest.
  • Failure-to-Deposit Penalty percentage rates range from 2% for up to five days late, to 15% for more than 10 days after your first IRS bill.
  • The Failure-to-File penalty is 4.5% per month of unpaid tax, up to 22.5% of your unpaid taxes.
  • The Failure-to-Pay penalty is 0.5% per month of unpaid tax, then 1% per month after your Notice of Intent to Levy, up to 25% of your unpaid taxes.
“There are several reasons to outsource payroll, beyond avoiding hefty penalties. It saves time for staff, cuts down on costs, reduces risk associated with in-house payroll processing and ensures secure payroll operations,” adds Hurlbut.
Already available in Florida, Texas, New York, California, Illinois, Pennsylvania, Ohio, Michigan, Georgia and New Jersey for an additional $20 per month, Wave plans to roll out Payroll Tax Service across the country later this year.
“Simplifying the accounting process for small business owners is a cornerstone of Wave’s operations. We know how complicated payroll taxes can be. Payroll Tax Service facilitates payments and filing to the appropriate agencies for our customers, keeping them on time and in compliance,” says Wave CEO Kirk Simpson.
Customers can also download Wave’s payroll app for iOS from the App Store.
Posted on 5:32 AM | Categories:

Roth vs. Traditional for me

From Bogleheads we read:

Roth vs. Traditional for me

Postby Pondo33 » Sun Jun 16, 2013 10:17 pm
I am trying to figure out whether I should contribute to a Roth or Traditional IRA.

I know the rule of thumb is that if you're in a high tax bracket today than you expect to be in the future, you should consider a traditional ira because at some point in the future you will be taxed at a lower rate and you can take the tax deduction now. This is my situation: I expect to be in a lower tax bracket in the future. However, I question whether I should be in a traditional ira now. The reason I doubt this is that while it's true that I will likely be taxed at a lower rate in the future, I feel I can absorb the tax easier now- I would feel it less today than even a lower tax rate later if I am earning less.

Also, isn't it true that the tax deduction is not available if one's taxable income is above a certain amount per year for a couple? If so, and I can't take the tax deduction that normally comes with a traditional ira, then the Roth makes even more sense.

Both of these ideas lead me to the conclusion that I should contribute to a traditional then convert to a Roth right away. Is my thinking correct? Does it make sense?
Pondo33
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Re: Roth vs. Traditional for me

Postby livesoft » Sun Jun 16, 2013 10:22 pm
You haven't given much to go on. Age? Other opportunities? Years to retirement? Other investments? Maybe they all don't matter though.

I don't see why you cannot do traditional plus put the taxes you would pay if you did a Roth into an investment account.

I don't understand the difference between (a) contribute to Roth now versus (b) contribute to traditional then convert to Roth right away.
This information has been prepared without taking into account the Sequestration, investment objectives, financial situation and particular needs of any particular person or company.
livesoft
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Re: Roth vs. Traditional for me

Postby Pondo33 » Sun Jun 16, 2013 10:43 pm
livesoft wrote:You haven't given much to go on. Age? Other opportunities? Years to retirement? Other investments? Maybe they all don't matter though.

I don't see why you cannot do traditional plus put the taxes you would pay if you did a Roth into an investment account.

I don't understand the difference between (a) contribute to Roth now versus (b) contribute to traditional then convert to Roth right away.


Two things:

First, let me fill in some blanks. I did not originally include it because I didn't know it was necessary to address the question. I am forty years old and married. My wife is 36 years old. We file jointly, have no kids, our marginal tax rate is 28% and our state tax is 5%. Combined we earn about $250k per year. We have a $50k emergency fund and about $10K in a separate cash account. We maintain our checking account at $4k. We own a house worth about $180k. We own 2 cars with no payments. I own an airplane worth about $40k. We have $155k in a traditional ira and $15K in a roth, both of which were rolled over from a 401K at my wife's last job. She just started a new job with a 401K available and she will contribute at the maximum rate. I just made a $5,500 contribution to a traditional ira. We are ready to make my wife's annual contribution. We have no debt at all.

Secondly, as to your last point: I believe the difference between contributing to a roth now versus contributing to a traditional then converting to a roth is that because of our income, we cannot contribute direclty to a roth. Am I right about that?
Pondo33
Posts: 11
Joined: 10 Mar 2013

Re: Roth vs. Traditional for me

Postby grabiner » Sun Jun 16, 2013 10:58 pm
Pondo33 wrote:I know the rule of thumb is that if you're in a high tax bracket today than you expect to be in the future, you should consider a traditional ira because at some point in the future you will be taxed at a lower rate and you can take the tax deduction now. This is my situation: I expect to be in a lower tax bracket in the future. However, I question whether I should be in a traditional ira now. The reason I doubt this is that while it's true that I will likely be taxed at a lower rate in the future, I feel I can absorb the tax easier now- I would feel it less today than even a lower tax rate later if I am earning less.


It makes more sense to compare the out-of-pocket investment. If you are in the 25% tax bracket, you can put $5500 in a Roth, or $5500 in a Traditional IRA and then invest the $1375 tax savings in a taxable account. Even given the tax loss from investing the $1375, you'll come out ahead if you retire in a 15% bracket.

Also, isn't it true that the tax deduction is not available if one's taxable income is above a certain amount per year for a couple? If so, and I can't take the tax deduction that normally comes with a traditional ira, then the Roth makes even more sense.


A Roth is always better than a non-deductible IRA, since both are taxed when you make the contribution, and Roth withdrawals are exempt from tax if you follow the rules.

If you are covered by an employer retirement plan, you can't deduct your traditional IRA if you are over the income limit. If you are not covered by an employer plan but your spouse is, then you have a much higher limit for deductibility. If neither of you is covered by an employer plan, then you can always contribute to deductible IRAs, regardless of your income.

Combined we earn about $250k per year. She just started a new job with a 401K available and she will contribute at the maximum rate. I just made a $5,500 contribution to a traditional ira. We are ready to make my wife's annual contribution. We have no debt at all.


The phase-out of deductible IRA contributions if your spouse is covered is $188K-198K, and I don't think you can get your $250K salary down to that range. Thus neither you nor your wife is eligible to contribute to a Roth IRA, and any Traditional IRA contribution either of you make will be non-deductible.

We have $155k in a traditional ira and $15K in a roth, both of which were rolled over from a 401K at my wife's last job


If that is your wife's Traditional IRA, then you can convert your Traditional IRA to a Roth IRA without a problem (this is known as a backdoor Roth IRA). However, your wife cannot use the backdoor Roth IRA, because conversions are prorated across all IRAs; if she contributes $5500, then 155,000/160,500 of any conversion will be taxed. If her new 401(k) accepts transfers from IRAs, she can transfer her existing IRA into the 401(k) to open the backdoor; I would only recommend this if the new 401(k) has very good options.
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Re: Roth vs. Traditional for me

Postby livesoft » Sun Jun 16, 2013 11:02 pm
So are you saying you have no 401(k), no 403(b), no self-employed retirement plan for yourself?

If your spouse contributes $5,500 to a traditional IRA, then converts $5,500 to a Roth IRA, then the taxes will be based on a $5,500/$160,500 conversion, so the taxes will be rather high. This is not quite the same as a back-door Roth where one might pay little to no additional income tax on the conversion.

I personally would not make anymore non-deductible traditional IRA contributions, but would instead put the money in a taxable account invested tax-efficiently. I now regret having made non-deductible traditional IRA contributions in the past.
This information has been prepared without taking into account the Sequestration, investment objectives, financial situation and particular needs of any particular person or company.
livesoft
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Joined: 1 Mar 2007

Re: Roth vs. Traditional for me

Postby damjam » Sun Jun 16, 2013 11:13 pm
If your income is too high to make a direct Roth contribution then generally it is also too high to make a deductibletraditional IRA contribution.
Roth IRA Income limitsIncome limits for IRA deductability when you have a Retirement Plan at WorkIncome limits for IRA Deductability when you do NOT have a Retirement Plan at Work.

You can still make a non-deductible traditional IRA contribution and then immediately convert to a Roth IRA. This is commonly referred to as a Backdoor Roth IRA.

However, in your wife's case that will be complicated by the fact that she has a traditional IRA already. The IRS considers all of a person's IRAs to be one big IRA, no matter how many accounts there are or how many institutions they are spread across. So when she converts part of her traditional IRA to Roth she will have to pay tax on the pro rata portion of the conversion that is taxable. If you don't have a traditional IRA you will be able to do the backdoor Roth easily.

Your wife may be able to rollover her traditional IRA into her new 401k plan. That will clear the way for her to do backdoor Roth conversions.
Posted on 5:31 AM | Categories:

Startup Ltd.: Tax Planning and Initial Incorporation Location

University of California Hastings College of the LawJune 5, 2013
CLICK HERE TO DOWNLOAD THE 40 PAGE PDF FILE
Abstract:      
This Article analyzes the incorporation decisions of relatively new, U.S.-based private business enterprises with global ambitions. Such startup firms generally organize as U.S. corporations. This Article theorizes this dominant structure and its exceptions, drawing from prior literature and illustrating with informal interview results. It identifies explanatory factors including limited tax benefits of non-U.S. incorporation, legal benefits of U.S. incorporation, startups’ liquidity and other resource constraints, and investor preferences.


Number of Pages in PDF File: 40
Keywords: incorporation location, startup, tax haven
Posted on 5:31 AM | Categories:

A Simple Will May Still Not Do / With the federal government only taxing big estates, many clients are asking their financial advisers: Do I really need an estate plan at all?

Arden Dale for the Wall St Journal writes: With the federal government only taxing big estates, many clients are asking their financial advisers: Do I really need a estate plan at all?
Some of them are hearing from friends who, despite having millions of dollars in assets, are deciding a simple will is all they really need.
“There is a degree of truth in this, and where appropriate, we always prefer a more simple structure than one that is unnecessarily complicated,” says Michael Krol, a planner at Waldron Wealth Management, an advisory firm in Pittsburgh with $1.1 billion under management.
But, he said, there is more to consider than the federal income and gift tax exemption, now set by law at $5.25 million with yearly adjustments for inflation.
Trusts, partnerships and other arrangements that reduce taxes often serve other purposes as well, and will continue to hold value for some with estates below the tax threshold. They may protect an estate against potential creditors. Or they could be set up to ensure that a person’s biological children inherit if a spouse remarries and starts another family.
State estate taxes also need thought. Many states tax smaller estates: New Jersey, for example, taxes estates worth more than $675,000.
Advisers are telling clients to think first about where the money will go eventually–to children, siblings, other relatives or friend. That can make a difference in whether a will is sufficient. Parents may decide to create a trust to provide for minor children should they both pass away unexpectedly.
Michael Joyce, an adviser in Virginia, does not advocate for simple wills –one that doesn’t provide for trusts and other arrangements. Too often, he said, owners have to amend them if there’s a change in the law or their circumstances.
“We recommend that the documents are as ‘all weather’ as possible,” said Mr. Joyce, president of JoycePayne Partners in Richmond, Va., with $470 million under management.
A young married couple, both doctors, recently asked Mr. Joyce whether they should just make wills, given the new tax exemption level. He suggested that instead they create estate documents, including a credit shelter trust that could protect against liability.
Limitations on using the exemption can be another reason not to rely on a simple will (sometimes called an “I love you” will). There are conditions, for instance, on the “portability” which one can use the other’s $5.25 million exemption.
Together, a couple can leave around $10 million tax-free. But a surviving spouse can lose out on the deceased spouse’s $5.25 million simply by not filing an estate tax return when the person dies. And if a widowed person remarries, heirs may not get the full $10 million tax-free if their new spouse dies first.
Posted on 5:31 AM | Categories:

Voices: Dan Serra, on Gay Couples' Finances if DOMA Repealed

From the Wall St. Journal we read: Voices is an occasional column that allows wealth managers to address issues of interest to the advisory community. Dan Serra is a senior adviser at Freed Advisors in Chevy Chase, Md.
I've been watching the domestic partnership landscape for about two years now. It's been very interesting to keep track of issues facing same-sex couples as they plan for their financial futures, even as laws about same-sex marriage begin to change. Seeing as how we may see a repeal of the Defense of Marriage Act (DOMA) once the Supreme Court makes a decision this month, the adviser community needs to be ready to reach out to these couples.
One of my concerns is that while a repeal of DOMA will be life changing for same-sex couples, they may not know how the rights they are granted will affect their financial goals. Obviously there will be some great benefits to having DOMA repealed. Once same-sex couples are legally recognized as married, they will be able to qualify for spousal retirement and survivor benefits. They will also be able to shift assets between their accounts without being subject to gift tax. Perhaps most significantly they'll be able to plan their estates with fewer potential legal complications than they face now.
Yet there are ways that legal marriage could be detrimental to a same-sex couple's financial life, without some extra planning.
For example, high-net-worth couples could be particularly affected if they choose to marry. A high-net-worth couple may see their taxes rise when they file jointly if their combined income pushes them into a higher tax bracket. For some couples, getting married could mean they potentially lose deductions, exemptions, and could be subject to the higher Alternative Minimum Tax. By filing jointly, they could also potentially fall under the new tax phase-outs that went into effect this year, and it could also negatively affect their retirement plan contribution limits.
Some planning will be necessary to help these couples decide if it's better to manage taxes as a family or to continue to live as domestic partners, filing separately. Same-sex couples can still be a family without being married, so it's important for a couple to decide if getting married is worth taking a hit to their finances.
A lot of same-sex domestic partners currently make financial agreements to cover how they will obtain debt and own property, or care for each other in the event of serious illness or death–or even how they would negotiate a possible separation. But waiting for a ruling on DOMA is not a reason for same-sex couples to put off making such plans now. There is always the chance that something tragic could happen that leaves a couple or an individual financially unprotected. Couples should continue to plan for their futures as they have in the past, because there is still a chance that DOMA won't be repealed. It's easy to revise a financial plan to reflect the changes in the law–and it's always better for a couple to be protected.
Posted on 5:31 AM | Categories:

An Investment Primer / What do you need to know before you start investing on your own? Here are some basics for the newcomer.

Your success as an investor, whether off-line or online, depends on your attitude. "Money ranks with love as man's greatest source of joy, and with death as his greatest source of anxiety," said economist John Kenneth Galbraith. So are you a person who looks for opportunities and ideas? Or do you engage your mental brakes out of the fear you'll make a mistake? You should try to find a happy medium that accounts for your stage in life and is based on a realistic assessment of your finances and goals. The summertime lull in trading is a great time to do your homework.
Though you can use programs such as Intuit's Quicken (quicken.com) or Mint (mint.com) to keep tabs on your expenses and set up a basic plan, you might want to check out Financial Fate (financialfate.com), a free program that walks you through goal-setting scenarios. This is a small download that runs on PCs, and helps you come up with annualized estimates of where you are and where you'd like to go. Another planning tool is Personal Capital (personalcapital.com), which can import data from your existing financial accounts and create a picture for you.
You'll need to consider three buckets for your investing: Cash savings for immediate needs and emergencies, short-term investing for goals such as a down payment on a house or a vacation, and long-term investing for items such as retirement or your newborn baby's college education. Take a hard look at how deep you are in debt, as well -- your car loan, your credit-card bills, and your mortgage. Get rid of the credit-card debt as quickly as you can; it's a rare investor who is able to generate the 18% (or more) interest that your unpaid credit-card balances rack up.
The key to investing is to plan how much you'll put away rather than having it happen haphazardly. The younger you are, and the longer your investment time frame, the more risk you can handle in your portfolio. To assess the level of risk you're willing to handle, check out the investment risk-tolerance quiz from, of all places, Rutgers University's agricultural extension program (njaes.rutgers.edu/money/riskquiz/default.asp). This quiz will give you an idea of the type of risk you feel you can handle with your finances.
How much financial savvy will you need? Since you're reading Barron's, I'm going to assume you are at least interested in the markets and in the ¬underlying pressures that influence their movements. You need to be comfortable doing some arithmetic and know the basics of how a business is run, so you can figure out the components of a company's financial statements and how changes in the economy might ¬affect an individual firm. The ability to evaluate a graph that plots a stock's price over time is a necessary skill.StockCharts.com has an education module called Chart School that walks you from basic charts all the way through the intricacies of technical analysis (though you don't have to go that far).
At some point, you have to ask yourself whether you want to go it alone, or work with an advisor. I'm a dedicated self-directed investor. There was a time when I had some help, but I'm an independent sort, knowing that nobody out there is as interested in my financial future as I am. Perhaps you are more trusting or just need some help to get started; Barron's regularly lists financial advisors who can offer lots of ideas.
But if you're thinking of striking off across the wilderness and opening an online brokerage account, make sure you're comfortable. I've spent a lot of time testing my investment ideas using virtual trading sites, such as the Virtual Stock Exchange Games at MarketWatch (marketwatch.com/game).
What are the best online brokers for the trading newcomer? I'll tell you next time.

Posted on 5:31 AM | Categories: