BackOps raises $7M to grow workforce of moms making business better / BackOps provides cloud-based accounting, HR, and finance services on a subscription basis. Its approach combines software with the expertise of a crowd sourced pool of stay-at-home moms who help businesses keep their back office operations running smoothly.

Rebecca Grant for VentureBeat writes: BackOps is assembling an army of moms dedicated to supporting small businesses.

BackOps provides cloud-based accounting, HR, and finance services on a subscription basis. Its approach combines software with the expertise of a crowd sourced pool of stay-at-home moms, known as “riveters,” who help businesses keep their back office operations running smoothly.

Today the company announced raising $7 million to add more riveters into its ranks and scale its platform.

Founder and CEO Kristen Koh Goldstein spent 15 years working in finance and serving as a Chief Financial Officer, helping startups with their back office operations. She said there was a reverse financial incentive to stay efficient and that the various components of the back office often don’t communicate with each other. She was spending as much as a third of her time coordinating back office vendors and saw an opportunity to create a service that would take care of all of this, so business owners could focus on their business.

Backoffice software has been around for a long time. NetSuite, Salesforce, SAP, Zoho, Intuit, WorkDay (and more) all offer technology along these lines. BackOps stands out by including a highly-trained, educated workforce of women in its service to provide an extra (and significant) layer of support.

“There are so many rote, repetitive processes to running a small business and they can be so inefficient and ridden with human error,” Goldstein said in an interview with VentureBeat. “Most small businesses don’t have an internal staff of people to handle these tasks or run complicated software, so they are stuck. Our experience for CEOs is different. We allow them to take care of the back office needs in just 10-to-15 minutes a week. If they have any questions or concerns, they can immediately contact someone who is uniquely qualified to answer that question.”

BackOps customers receive an automated email every week with an overview of what is happening. All documents are stored in the cloud and real-time information is accessible from a central dashboard. Customers receive notifications whenever they need to log in and make approvals.

Each business is also assigned a “platoon” of riveters for those times when a human touch is needed, which Goldstein said is often for entrepreneurs without a lot of experience or resources. The riveters are a vetted force of stay-at-home moms who spent most of their professional lives helping to run businesses. Many have MBAs or CPAs, but left to raise a family. BackOps allows them to maintain a career from home.

“We systematically strip women of their professional identity at their most productive years, and this isn’t ok,” Goldstein said. “Women shouldn’t have to give up being home with their kids for a cubicle job existence. This field isn’t as time-sensitive as others, but people still get penalized for taking advantage of flexibility or standing up to leave at 4 o’clock. BackOps means moms don’t have to choose between their kids and their job.”

Goldstein talked about “mommy magic time” — or the hours between 4 and 8 pm when it is important to spend time with kids. She said riveters can work when they are able, but don’t have to worry about leaving for baseball games or dance recitals. The riveters make up a collaborative community and step in to help each other when needed. BackOps is on track to have 200 riveters and customers by the end of the calendar year and this financing will support that growth. The company is also releasing new software products on “2 week sprints” and will continue to keep up this pace.

Shervin Pishevar’s Sherpa Ventures and e.ventures co-led this round, with participating from Google Ventures and seed investor CrunchFund and Mark Pincus. This is the first investment for Sherpa Ventures, and Pishevar said in a statement that BackOps is a defining company in the sharing economy space.

Women in the workplace has been widely discussed over the past year. Marissa Mayer’s assumption as Yahoo CEO while pregnant and controversial no-work-from-home policy, as well as the popularity of Sheryl Sandberg’s Lean In have caused people in the tech community, as well as across the business world, to consider more closely how our society deals with working mothers. It can be difficult to rejoin the workforce after taking time off, but many parents feel strongly about being at home with their kids. Koh said that many companies are adopting progressive policies that are flexible on the surface, but there is still a stigma associated with taking advantage of that flexibility. Change has to come from the top, and also from startups developing innovative solutions to this problem.

BackOps is based in San Francisco.

The Experts: The Biggest 401(k) Mistakes to Avoid

Journal Reports for the Wall St Journal writes: What is the biggest mistake people make with their 401(k)s? The Wall Street Journal put this question to The Experts, an exclusive group of industry and academic thought leaders who engage in in-depth online discussions of topics from the print Report. This question relates to a recent article about how IRA payments may avoid state income tax and formed the basis of a discussion in The Experts stream on July 11.

Carl Wiens

The Experts will discuss topics raised in this month's Investing in Funds & ETFs Report and other Wall Street Journal Reports. Find the finance Experts stream, watch recent interactive videos and explore a host of other exciting online content at WSJ.com/WealthReport.

Also be sure to watch investment adviser Tom Brakke(@researchpuzzler), blogger Mike Piper (@michaelrpiper) and University of California, Berkeley, Professor Terrance Odean in an interactive video chat that aired on July 8 in which they  discussed strategies for coping with market volatility.

Terrance Odean: Don't Hold On to Your Own Company's Stock

What is the biggest mistake people make with their 401(k)s? Buying and holding their employer's stock in a 401(k). If your company gives you stock, by all means take it. But sell it soon after you are allowed to do so. If your company does great, you may regret not having loaded up on its stock, but not as much as you will regret losing your life savings along with your job if your company folds (as happened to some Enron employees who had 100% of their 401(k) plan invested in Enron stock).

Terrance Odean is the Rudd Family Foundation professor and chairman of the finance group at Haas School of Business, University of California, Berkeley.

Manisha Thakor: Act According to Your Age

The biggest mistake I see with 401(k)s is being too conservative in their investment approach when they are young and too aggressive with their investment approach when older.

It's understandable. When you first start investing in a 401k the $50, $100 or more that you are contributing a pay period feels like a huge bite out of your paycheck. Thus a natural tendency is to want to protect that hard-earned money. Yet because this money is intended not to be accessed until you are at least 59½ years old, your early years are exactly the ones where you should be taking the most risk. When a person is in their 20s, 30s and early 40s I like to see them as close to 100% in equities as they can stomach in their 401(k).

Conversely, I notice individuals in their late 40s and into their 50s often panicking that they did not save enough early on, so they try to make up for lost time by increasing the aggressiveness of their portfolio holdings. A better option would be to save more and plan to work a wee bit longer. The compound effect of those two activities, statistically speaking, will give you greater odds of getting where you want to go versus swinging for the fences with a hyperaggressive allocation when you don't have the years to make up for a significant loss of principal.

Manisha Thakor (@ManishaThakor) is founder and chief executive of Santa Fe, N.M.-based MoneyZen Wealth Management LLC.

Sheryl Garrett: Stop the Excuses and Save More

There are many common mistakes we see; however, I'd have to say that the biggest one is lack of sufficient savings. If you haven't been saving at least 10% of your gross income since your 20s, you're probably not saving enough for retirement.

Some people fear that the market is too volatile or risky for them to invest. Others argue that they just can't afford to save or save much right now. Well folks, it rarely gets any better. If you can't afford to save for your future now, what's going to change? When you're in the accumulation phase, volatility can work to your advantage. Time becomes your enemy as the power of compound interest can't work for you.

Start or increase your savings rate by 2%. You'll hardly notice it. After three to six months, bump it up another 2%. Over time, you'll get your savings rate up to the place it needs to be. Give yourself some time, but be persistent.

Sheryl Garrett (@SherylGarrett) is founder of the Garrett Planning Network Inc.

Tom Brakke: Different Features, Different Pitfalls to Avoid

It really depends on the features of a particular 401(k) plan. Some people put too much into their company stock, for example. Borrowing against the plan can inhibit the building of a long-term nest egg. Often, people invest in too many different investments, usually based upon past performance figures. All of those approaches are problematic.

The right strategy will depend on the available options in the plan, which are determined by the plan sponsor rather than the investor. Too often, the options have fees that are too high. A simple, cheap index-fund approach is probably the best for most people, but many plan sponsors don't provide that alternative. That's unfortunate.

Tom Brakke (@researchpuzzler) is a consultant, writer and investment adviser who specializes in the analysis of investment decision making and the communication of investment ideas.

George Papadopoulos: Maximize Contributions as Early as Possible

With so many potential mistakes to choose from, it is no easy task to pick the biggest: undercontributing, not signing up for the plan because "we cannot afford it" (you cannot afford to not afford it!), picking high-cost funds (sometimes the fund lineup does not have any low-cost funds), not diversifying, not rebalancing at least once a year, borrowing from the plan to pay off other debts, not rolling over the plan to an IRA after switching jobs, and on it goes. If I must pick one, I think the biggest mistake is not maximizing contributions at the earliest possible time to take full advantage of the compounding and tax savings.

George Papadopoulos (@feeonlyplanner) is a fee-only wealth manager in Novi, Mich., serving affluent individuals and families.

Christian Magoon: Apathy Is Not the Answer

401(k)s are often treated as second-class citizens by investors when it comes to monitoring performance, fees and asset allocation. This might be explained by the fairly painless contributions that workers make to 401(k)s or the mind set that accessing 401(k) funds is years, if not decades, away. Whatever the case, many investors allow apathy to be the primary investment strategy in these retirement engines. Sadly, for many workers 401(k) assets will be the primary source of income in their golden years.

Christian Magoon (@ChristianMagoon) is founder and chief executive of YieldShares, an income-focused ETF sponsor.

Rafael Pardo: Capture the Full Benefits of Your Employer's Matching Contribution

People often make the mistake of failing to contribute the amount required to trigger the maximum amount of matching contributions that their employer will make to their 401(k) retirement accounts. Many employers will match an employee's 401(k) contributions up to a certain percentage of the employee's regular salary in stepwise increments. For example, consider an employer whose retirement plan provides that the employer will match up to 5% of the employee's regular salary in the following manner: By matching with a 2.5% contribution for the first 2.5% of regular salary contributed by the employee and by matching with another 2.5% contribution for the second 2.5% of regular salary contributed by the employee. Based on this example, an employee who contributes 2% of regular salary would fail to trigger any matching contribution by the employer. And an employee who contributes 4% of regular salary would trigger only a 2.5% matching contribution by the employer. By failing to contribute more, both employees end up leaving a significant amount of money on the table: As I've previously written in this column, harnessing the power of compounding is critical to having sufficient retirement savings. If you don't capitalize on the full extent of your employer's matching contribution, you make the journey toward retirement security more of an uphill climb than it needs to be.

Rafael Pardo (@bankruptcyprof) is the Robert T. Thompson Professor of Law at Emory University, where he specializes in bankruptcy and commercial law.

Greg McBride: What Seems Safe Is Risky

People don't save enough and don't invest aggressively enough in their retirement savings. Investing too conservatively compounds the problem of not saving enough because the meager savings will not grow into a sufficient nest egg when hunkering down in conservative, low-return investments. Over the long haul, what is considered safe—cash and bonds—is actually quite risky, while what is considered risky—equities—is actually a much safer bet to get you to your long-range financial goals. Especially for young people, it is urgent to harness the power of compounding provided by higher return investments. But even those on the cusp of retirement may need this money to last a quarter century or more, so a healthy allocation to equities is warranted.

Greg McBride (@BankrateGreg) is a senior financial analyst and vice president for Bankrate.com, providing analysis and advice on personal finance.

Michelle Perry Higgins: Hands Off That Account!

What is the biggest mistake people make with their 401(k)s? Tapping into their funds today, thinking they won't need them tomorrow. I've seen so many people try to rationalize that pulling out retirement funds to meet immediate pressing needs is OK. I completely understand how challenging it is for Americans to pay their bills on a monthly basis. Everything from the mortgage to their children's sports activities is a drain on finances, and that makes things difficult. It can sometimes be easy to justify present wants as being more important than future needs. However, you must make your retirement savings a priority and don't procrastinate in adding to your 401(k) account. Most importantly, do not withdraw your retirement savings until you are well into your golden years. If you can do that, I promise that you will thank me later.

Michelle Perry Higgins (@RetirementMPH) is a financial planner and principal at California Financial Advisors.

Matt Hougan: The Secret's In the Saving

Mistake 1: Not saving enough.

Mistake 2: Being too conservative (you probably need more equity exposure than you think).

Mistake 3: Having a concentrated position in company stock. (Your job is tied to the company's success; isn't that enough?)

Mistake 4: Did I mention not saving enough? That's really the only mistake that matters.

Matt Hougan (@Matt_Hougan) is president of ETF analytics and global head of editorial for IndexUniverse LLC.

Charles Rotblut: No Second-Guessing

There is a large amount of evidence showing that people do not manage their 401(k) plans in a disciplined manner. Rather, they choose funds at the time they start the plan and then panic and sell those funds when they see a 401(k) statement during the midst of a bear market. Compounding matters is that many people do not even truly understand what they are investing in.

The reality is that with a little effort and discipline, a person with even nominal knowledge of investing can significantly increase the long-term performance of his 401(k) plan. Using an asset-allocation model from a reputable source (such as the one we have on AAII.com) can help you determine which asset classes you should be invested in. Then pick the lowest-cost funds for each asset class. Once a year, review your allocations and adjust your portfolio back to target if each fund's allocation has strayed five percentage points or more off target (e.g., your target large-cap stock allocation is 30%, but large-cap stocks now only account for 24% of your portfolio's value).

Alternatively, you can buy a target-date fund maturing near the year you turn 65 or 70. This fund handles all of the allocation decisions for you and is meant to be held into retirement. It may be more costly, but it requires less effort on your part.

Most importantly, do not second-guess your choices, especially during a bear market. The average holding period for a mutual fund is less than four years, according to research firm DALBAR. This short holding period causes the average equity-fund investor to realize a return about half of what they would have earned if they had just stayed invested and not second-guessed their decisions.

Charles Rotblut (@charlesrotblut) is a vice president with the American Association of Individual Investors.

Rick Ferri: Diversification Isn't Always the Answer

Oddly, 401(k) participants can be hurt by overdiversification. If a 401(k) plan has index funds, then they are the only investments needed in each asset class. If a plan doesn't have index funds, plan participants shouldn't overdiversify among several actively managed mutual funds within each asset class because this strategy actually lowers the probability for success.

In "A Case for Index Fund Portfolios," a newly released white paper I co-wrote, we show that a portfolio holding one actively managed fund in each asset class has a low probability of outperforming a similar portfolio holding only index funds. The odds get worse when an investor selects two or more actively managed funds in each asset class, which is often the case with participants in 401(k) plans. People do this because they believe they are diversifying their holdings, but this strategy actually lowers their probability for success.

The strategy with the highest probability for success is a portfolio of all index funds. However, if you don't have index funds in a 401(k) and must select from actively managed funds, then pick one actively managed fund per asset class and hope for the best.

Rick Ferri is founder of Portfolio Solutions LLC and the author of six books on low-cost index-fund and ETF investing. His blog is RickFerri.com.

Guarding Your "Tax" Identity From Being Stolen

Carole B. Sheffield for Anderson Kill & Olick, P.C. writes: Summer is upon us and the 2013 tax season is a distant memory — for most of us, including our estate planning and tax clients here at Anderson Kill. Yet, in 2012 I learned firsthand why the 2012 tax season might continue indefinitely, thanks to the successful efforts of a tax identity thief who fraudulently claimed our son's 2011 tax refund.

The stolen refund was truly an eye-opener because there were no conventional clues. On the contrary, it was a rejected, electronically "e-filed" IRS Form 1040 personal income tax return that triggered an eight-month journey into the unknown with the IRS to resolve our son's refund fraud case.

Our son was and is not alone. Tax identity theft is on the rise. Little has been written on the topic from the victim's perspective. Thus, the purpose of this article is to share the details of the IRS tax fraud resolution process — and to warn clients how to protect themselves from identity theft.

Tax Identity Theft Defined and Discovered

Tax identity theft occurs when someone illegally uses a taxpayer's name and Social Security number to fraudulently claim a refund. The actual filed tax return appears authentic, except that the attached Form W-2 is entirely falsified and the reported wage and withheld tax data are completely fabricated.

The typical scammer e-files early in the tax season, before the unsuspecting victim may have even received the required W-2 and 1099 forms. Then, when the victim files, the legitimate tax return is rejected by the IRS because the system shows that a return has already been filed. In the meantime, the fraudulent refund has been deposited to the thief's prepaid credit or debit card.

Scope of Tax Refund Fraud and Cost

Tax authorities consistently report the same trend — tax identity theft has been rising significantly since 2008. From 2008 to partial year 2012, tax identity theft cases increased by more than 650 percent.

Tax year 2011 offers the most comprehensive statistical picture. The IRS processed about 145 million returns in 2011 and of those returns filed, approximately 1.5 million returns were confirmed tax identity theft victims, representing a cost in stolen refunds of more than $5.2 billion.

Reporting Tax Identity Theft

If you find yourself a possible tax identity theft victim, act quickly and report your case to the IRS. On the IRS website (www.irs.gov), under "Taxpayer Guide to Identity Theft," the IRS provides critical reporting steps. You should file Form 14039, Identity Theft Affidavit, and contemporaneously:

• If you receive a notice or letter from the IRS, respond immediately to the name and number found in the notice or letter.
• If you suspect you are a victim of tax identity theft, as with our son's rejected e-filed return, or if you have conclusive evidence of tax refund fraud, immediately call the IRS Identity Protection Specialized Unit (IPSU) at 1-800-908-4490.

Case Opened — Expectations

Once your case is opened with the IPSU, expect regular IRS correspondence about every 45 days to provide a status update of its "research" necessary to complete your matter. The number of letters you receive depends on the success of the IRS in nabbing the perpetrator. It is the IRS's refund policy for tax identity victims that the IRS does not issue refunds until the alleged fraudster has been identified. In our son's case he received two such letters before his refund was electronically deposited into his bank account, without notice from the IRS.

Case Closed — Expectations

Hooray! The tax refund was received, with interest (as required under the Internal Revenue Code). What next? The IRS then wrote in mid-December 2012 to say it had placed an identity theft indicator on our son's account for his protection. Also, in late December the IRS assigned a unique six-digit IP PIN, or identity protection personal identification number, to ensure the IRS that his 2012 filed return would be "really from you."

Caution: The IP PIN was not easily found in the notice. In fact, early in this process an IRS agent warned me that the IP PIN would arrive "buried" in a notice. This was true. The IP PIN was found in an unassuming separate sentence nestled in the midst of the entire notice — it was difficult to find.

A final notice from the IRS, dated December 31, 2012, officially confirmed the tax fraud for much needed closure and advised that the notice be kept with our son's tax records.

Guard Your Tax Identity — Indefinitely

The IRS never told us how our son's tax identity was stolen. However, the IRS agent indicated that computer "hacking" into our son's place of employment was a strong possibility. The following tips are recommended to protect your tax identity from theft:

• Never carry your Social Security card or any documents containing your Social Security number or individual taxpayer identification number on them.
• Check your financial information online, frequently.
• Review your credit reports annually (Equifax, Experian and TransUnion).
• Keep personal information stored in your home securely.
• Maintain personal computer protection by using firewalls and anti-spam/virus software, updating security patches, changing your Internet account passwords often, and recording and keeping them in a secure location.
• Protect financial information by shredding documents before discarding them.
• Respond to genuine IRS correspondence promptly; however, do not click on links or open attachments from emails claiming to be from the IRS.
• Never give personal information over the phone, through the mail or on the Internet unless you have initiated the contact or you know the party.

Should you learn that you are a tax identity victim, please stay calm — the government stands behind you as a taxpayer and Anderson Kill is available to guide you through the resolution process.

How Not To Blow A Financial Windfall

Erik Carter for Forbes writes: Have you ever received a windfall of money and had no idea what to do with it? Actually, I’m sure you had lots of ideas of how to spend it but you may have felt conflicted about the best way to make the money work for you in the long run. Should you pay down debt, add to savings, or invest it and where?

This may not seem like much of a problem to have but according to the National Endowment for Financial Education, as many as 70% of Americans who will receive a sudden windfall will lose it all within a few years. Even worse, it can cause you to feel richer than you are and develop habits of overspending that can be hard to break once the windfall is gone. Even a seemingly one-time splurge like a luxury car will continue to cost you in higher maintenance and insurance bills long after the initial car purchase. So whether your windfall is from a prize, a tax refund, a bonus, a sale of a home, or an inheritance, here are some things to consider:

Do you have enough emergency savings?

Your first priority should be to have some money set aside in case of an emergency. Start with at least $1k in the bank to cover routine emergencies like car and home repairs. Ideally, you’ll want to build up enough savings to cover necessary expenses like your rent or mortgage, car payment, utility bills, and groceries for at least 3-6 months in case you’re ever in between jobs for that long. To be on the safe side, you may even want enough to cover 6-12 months. This money should be kept somewhere safe and accessible like a bank account or money market fund, not invested in anything risky.

Are you maxing the match in your employer’s retirement plan?

If not, you’re leaving free money on the table and there are not a lot of other places I know where you can get a 50-100% guaranteed return on your money. If your windfall is a bonus, you should be able to increase your retirement plan contributions for that paycheck. If not, you generally can’t write a check from your windfall to your 401(k) but there is a roundabout way of getting the money in there by temporarily increasing your retirement plan contributions and using the windfall to cover the shortfall in your paycheck.

Do you have any high interest debt?

The next priority should be paying off high interest debt like credit cards or payday loans. That’s because if the interest rate is over 6-8%, it’s more than you can reasonably expect to earn by investing that money instead. (You can use this Debt Blaster calculator to see how much interest you can save and how much sooner you can be debt free by putting extra money towards your debt, starting with the highest interest balances.) On the other hand, lower interest debt like mortgages, car loans, and many student loans can be considered good debt because you can typically earn more in the long run by investing the money than you would save in interest by paying those debts off sooner. Of course, there’s also the emotional factor of how you feel about being debt-free vs. having a larger nest egg.

Do you have access to a health savings account?

If you have a qualified high-deductible health insurance plan, this year you can contribute up to $3,250 for a single person or $6,450 for a family plus an additional $1k in either case if you’re over age 55. This money has the double tax benefit of going in pre-tax and coming out tax-free if used for qualified health care expenses. Unlike flexible spending accounts, anything you don’t use can be rolled over for a future year and can eventually be withdrawn after age 65 for any reason without a penalty (otherwise you have to pay taxes plus a 20% penalty for non-qualified withdrawals before age 65). Given the fact that you’re almost certain to have health care costs in retirement, there’s actually a good argument to try to cover your health care costs out-of-pocket and let your health savings account grow tax-free, especially if you’re allowed to invest the account in mutual funds for the long run. After all, you wouldn’t withdraw money early from your retirement accounts if there was no penalty, would you? Speaking of retirement…

Are you on track for retirement?

If you’re not sure, see if your employer or retirement plan provider has a tool like Financial Engines to help you project your retirement income or you can use our simple retirement plan estimator. If you need to save more, we already discussed how you can use a windfall to contribute more to your 401(k). You can also contribute up to $5,500 this year (plus another $1k if you’re over age 50) to a traditional or Roth IRA. The former may be tax-deductible and grows tax-deferred while the latter provides no tax benefit now but grows to be tax-free after age 59 1/2 as long as you’ve had the account open for at least 5 years. They can also be used penalty-free for education expenses or for up to $10k of costs related to a first-time home purchase.

Roth IRAs have an additional little-known benefit in that the sum of your contributions can be withdrawn tax and penalty free anytime for any reason. That means you can actually use it as part of your emergency fund too. If you do that, just be sure to keep the Roth IRA invested somewhere safe like a bank account or money market fund until you have enough emergency savings outside the account. At that point, you can invest the Roth IRA more aggressively for retirement.

If you earn too much income to contribute to a Roth IRA, there’s actually a backdoor way to get around that by simply contributing to a traditional IRA and then converting it into a Roth IRA since there is no income limit on conversions. The only caveat is that if you have other pre-tax IRAs, you’ll have to pay tax on part of the money you convert. However, you can avoid that as well by first rolling those other IRAs into your employer’s retirement plan.

If you’ve maxed out your retirement accounts but still want to save more for retirement, don’t be afraid of investing in a regular brokerage or mutual fund account too. Since you’ll have to pay taxes on these accounts, you’ll want to use them for your most tax-efficient investments like tax-free municipal bonds, individual stocks, and low turnover stock mutual funds. Stocks and stock funds are taxed at lower capital gains rates as long as you hold them for at least 12 months and you can benefit from their higher volatility by taking the inevitable losses off of your taxes. If you never sell them, they can eventually be passed on to your heirs tax-free. International stocks particularly make sense in taxable accounts since you’ll also be eligible to take the foreign tax credit on taxes paid overseas, which you can’t do in a tax-sheltered retirement account.

Finally, buying a home can also be considered part of your retirement plan. After all, having a paid-off home in retirement means not having to pay for housing, which could otherwise be a significant expense. You can also invest in real estate for rental income or free up the equity in your home by downsizing or taking a reverse mortgage. You can learn more about the steps in buying a home here.

Do you have future education expenses?

Only once you’ve gotten all your other ducks in a row should you set money aside for education expenses. After all, there is no financial aid for retirement. But if all your other needs are taken care of, you can save money that grows tax-free for qualified education expenses in 529 or Coverdell Education Saving accounts. 529 accounts also have estate planning benefits in that you can gift up to 5 years’ worth of annual gift-tax exemptions upfront (a total of $70k per person) without having to file a gift tax return. The money comes out of your estate but you can still control how it’s invested and how and for whom it’s used. You can learn more about these accounts at SavingforCollege.com.

Of course, you can always decide to use at least part of the money to treat yourself. Just be sure to weigh the temporary pleasure that this brings with the longer term satisfaction of having more financial peace of mind. Otherwise, your windfall could end up like this.

If I was Sage I’d be very scared of Xero

Den Howlett for diginomica writes: Valuation of cloud based businesses are notorious for running well ahead of profitability yet the advance in Xero’s stock valuation since the beginning of this year is little short of stratospheric. If I was Sage Software I would be deeply concerned. Here is Xero’s stock chart for 2013 compared to that of Sage:

Compared to Xero, Sage is flatlining. It gets more interesting. Check the following:

Sage Software

Xero

Market capitalisation

£4.2 billion

£1.3 billion

Last reported annual revs

£1.3 bn

£20 million

Cap/revs

3.2x

65x

No of customers

6 million

157,000

Annual value per customer

£216

£127

Xero’s valuation is insane, even by the standards of the most optimistic market analyst and its directors must be under incredible pressure to perform. However, they have something that Sage doesn’t have – a fresh way to approach the market that isn’t encumbered by a set of legacy business models that have to be fed.

Even though Sage recently held an analyst day (PDF) that emphasised its cloud efforts and completed the disposal of a non-core business, the market wasn’t that interested.  But then it doesn’t help itself. Is this image the one you’d want to show as the introduction to your latest strategy?

Where’s the energy? Where is the ‘new’ in showing an image of a person working in a dying industry? Why the re-emphasis on the global brand?

It doesn’t make sense.

Xero by contrast has admirers among its competition. This is what Brad Smith, CEO Intuit said about Xero at the end of 2012.

“I admire them. I think Rod Drury and the team have built a really good company, they have built a very easy and compelling product. We’ve learned some things from Xero that are helping us think differently, which is the highest compliment you can pay to someone who competes in your space.” Alongside and despite its very limited resources, Xero is recognised as the main cloud challenger in the prized US market.

I’ve followed Xero for many years. They, along with others, were always companies I felt are doing things differently enough to make a serious dent in the universe. What I could never have predicted was this level of market cap and especially the growth it has enjoyed since the beginning of the year.

We should not be so surprised. Workday’s market capitalisation is tracking a similar path. The difference for Workday is that its competitors are so much larger than they are today that Workday represents less of a threat in the next few years than Xero does to Sage.

If Xero achieves its near term stated goal of reaching 1.5 million customers then goodness knows what this means for its market cap. If it takes advantage of its outsize market cap to make useful acquisitions then their position gets significant;y stronger. If it uses that same market cap to tap the bond market then it grows its war chest at low or no cost. Whichever way you cut it, Xero has a LOT of options.

I’ve said it before but it is worth repeating. The writing is on the wall for Sage unless it makes radical changes and takes the hit that goes with that.

Xero's clever trick for getting your customers to pay on time

Daniel James for Business IT writes: Want an easier way than printing invoices and tearing off payment slips? Xero's Pay Now feature could be what you're looking for.

One feature of the Xero cloud accounting software that has drawn our attention is the way you can send an electronic invoice with a link your customer can click to make the payment.

That simplifies the payment process for your customers, encourages them to pay promptly, and allows those payments to be automatically recorded in Xero.

As well as your customers being able to pay this way using PayPal and DPS Payment Express, this 'Pay Now' feature has now been enhanced to let your customers pay by credit card too, using an eWAY payment gateway. From the conversations we've had, eWAY seems to be more popular among Australian small businesses than Payment Express, though we haven't actually seen nany firm numbers to back that up.

The advantages of using eWAY over PayPal include:

• businesses normally receive next-day settlement into their bank accounts
• a direct credit card payment gateway has a more 'professional' feel than the consumer-oriented PayPal (business customers may be less inclined than consumers to set up a PayPal account so they can pay via credit card)
• depending on the volume and value of transactions it may be cheaper than PayPal, though you must remember to factor in your bank's charges for the credit card facility. Businesses that are already eWAY clients - typically for their web stores - face no additional setup costs.

One early adopter of Xero/eWAY integration is Rural Business Magazine. Co-owner John Forrest said it took five minutes to set up Xero to handle credit card payments with eWAY, and then "I sent out this month's invoices through Xero at 8am and I started receiving notifications of payment at 9am!"

"It has really simplified the payment process," he added. "I send out the invoice via email in Xero, and the payments come in. Before we had to print the invoice and tear off all the payment slips, now it's online and easier. We get paid faster."

That reasoning also applies to collecting payments via PayPal or Payment Express.

While most small businesses are careful about managing cashflow, we can see that if they knew that a transaction would be on the same credit card statement whether they paid immediately or on the due date, theyd be more likely to pay straight away, especially as the Pay Now link makes it quick and easy to do so. 

After DOMA: Impacts On Tax And Benefits Planning

Sarah M. Johnson, Jennifer Spiegel Berman, Stephanie Zaffos and Harry I. Atlas for Venable write: What Federal benefits should be afforded to same-sex spouses as a result of the Supreme Court's decision?  The Supreme Court's rulings yesterday in United States v. Windsor and Hollingsworth v. Perry will have far-reaching legal implications for same-sex couples in the United States. 

In delivering the opinion of the Court in Windsor, Justice Kennedy stated:   "DOMA undermines both the public and private significance of state-sanctioned same-sex marriages; for it tells those couples, and all the world, that their otherwise valid marriages are unworthy of federal recognition.  This places same-sex couples in an unstable position of being in a second-tier marriage.  The differentiation demeans the couple, whose moral and sexual choices the Constitution protects, ... and whose relationship the State has sought to dignify.  And it humiliates tens of thousands of children now being raised by same-sex couples.  The law in question makes it even more difficult for the children to understand the integrity and closeness of their own family and its concord with other families in their community and in their daily lives. 

The federal statute is invalid, for no legitimate purpose overcomes the purpose and effect to disparage and to injure those whom the State, by its marriage laws, sought to protect in personhood and dignity.  By seeking to displace this protection and treating those persons as living in marriages less respected than others, the federal statute is in violation of the Fifth Amendment."

These words struck down Section 3 of the Defense of Marriage Act ("DOMA"), which defined the word "marriage" at the Federal level to mean only "a legal union between one man and one woman as husband and wife", and the word "spouse" as only "a person of the opposite sex who is a husband or a wife."  Windsor did not address Section 2 of DOMA, which allows states to refuse to recognize a same-sex marriage legally entered into in another state.

The Court dismissed Hollingsworth v. Perry on procedural grounds, stating that the proponents of California's Proposition 8 did not have standing to appeal the lower courts' rulings declaring the proposition unconstitutional.  As a result, the United States District Court's ruling stands, and clears the way for same-sex marriage in California (more below).  If the Court had found that the supporters of Proposition 8 had standing, it would have had an opportunity to rule on the constitutionality of same-sex marriage bans across the country.

The combined holdings mean that those couples who were legally married in California (before Proposition 8 and afterHollingsworth v. Perry), Connecticut, the District of Columbia, Iowa, Maine, Maryland, Massachusetts, New Hampshire, New York, Vermont or Washington (or who will be married in Delaware on or after July 1, or Minnesota or Rhode Island on or after August 1) and reside in one of those states will now be treated as spouses for purposes of over 1,000 Federal laws.

Where a same-sex couple was legally married in one state but now resides in a state that does not recognize same-sex marriage, the couple will not be afforded the benefits of married couples in their state of residence; moreover, as noted by Justice Scalia in his dissent, uncertainty remains as to whether such couple will be considered married for Federal purposes.  It is speculated that action by the executive branch may resolve this uncertainty by applying a uniform, Federal agency-wide definition of "marriage" as being determined by the state of celebration, and not the state of residence.

Implications for Same-Sex Spouses

Here are some of the Federal benefits that should be afforded to same-sex spouses as a result of the Supreme Court's decision in Windsor:

• The ability to pass wealth from one spouse to the other at death without the payment of Federal estate taxes, thanks to the marital deduction, and the ability to inherit the first deceased spouse's unused estate and gift tax exemption.  These changes will have a substantial and favorable impact on the ability to do estate planning for same-sex spouses.
• Deferral of income recognition when a surviving spouse inherits a deceased spouse's IRA or other qualified retirement plan, as the surviving spouse can "roll over" the account to his or her own retirement account, potentially deferring the required dates for distribution.
• The ability for a wealthier spouse to support a less wealthy spouse without the concern of making taxable gifts, as the marital deduction also applies to gifts between spouses.
• Splitting gifts to treat a gift made by one spouse to a third party as having been made one-half by each spouse.
• Simpler Federal income tax returns.  Same-sex spouses may file joint Federal income tax returns, with the resulting "marriage penalty" for spouses who both work and have comparable earnings, and resulting benefits for spouses who have disparate earnings or where one spouse is a homemaker.
• Social Security retirement and death benefits, with the greatest benefit going to those couples where only one spouse has been employed.
• A U.S. citizen spouse should be able to sponsor a non-citizen spouse for legal permanent resident status.
• Military same-sex spouses will be eligible for benefits such as health coverage and housing allowances, as well as the right to be buried together at Arlington National Cemetery.

Because the Windsor ruling holds that DOMA has been unconstitutional since its inception, same-sex spouses should re-examine their past income, gift and estate tax returns where the statute of limitations has not expired.  If filing joint Federal income tax returns would reduce the income tax liability, taxpayers may amend the returns and request a refund.  Like the plaintiff in Windsor, estate tax refunds may be claimed as well.  The flip side is that those same-sex spouses who engaged in sophisticated estate planning to take advantage of the fact that they were not considered spouses at the Federal level (by creating common-law grantor retained income trusts and the like) should immediately revisit their estate plans.

Clients with children or grandchildren who have entered into same-sex marriages should also re-examine their estate plans, as it may be necessary to modify the definitions of "spouse" and "children" or "issue" to ensure the intended beneficiaries will inherit regardless of whether the documents are interpreted in a state that permits same-sex marriage or a state that does not recognize it.

Employee Benefits Implications

The Windsor holding will also have a significant impact on the administration of employee benefit plans for same-sex married couples.  Eligibility for employee benefit plans has historically been the purview of plan sponsors.  However, such plans are generally governed by Federal law, and thus have been prohibited in certain ways from treating same-sex married couples the same as opposite-sex married couples.

With respect to health benefits, this has meant that, although employers may have provided coverage to the same-sex spouses of their employees, such coverage was often not eligible to be paid for on a pre-tax basis.  With the reversal of DOMA, employees with same-sex spouses will now be eligible for the Federal tax advantages applicable to spouses.  Similarly, same-sex spouses will now be afforded rights under COBRA when their coverage under an employer plan terminates.

The decision will also have an impact on retirement plans.  Many legal provisions relating to such plans are tied to the employee's marital status, including notice and distribution rules.  Such plans should now have to recognize any same-sex marriage that is valid under state law for these purposes.

Implications for California Couples

It should be noted that, even though it appears likely that same-sex couples will shortly be able to marry in California, the issue remains complicated.  California Attorney General Kamala Harris has said that every California county must now recognize the right of same-sex couples to legally marry, and that such marriages will resume as soon as the U.S. Ninth Circuit Court of Appeals lifts its stay on the District Court ruling that declares Proposition 8 unconstitutional in California and requires the state to permit same-sex marriage.  The Ninth Circuit has said that it would wait at least 25 days to put the District Court ruling into effect; consequently, Governor Brown has stated that he expects same-sex marriages to resume in California in about 30 days.  However, proponents of Proposition 8 have indicated that they believe the decision in Hollingsworth is only applicable to the two same-sex marriages at issue in that case, and they will continue to seek legal enforcement of Proposition 8.