Signs That You Are About to Get Audited (Infographic) by the IRS

Kathleen Davis for Entrepreneur writes: Getting audited might be one of Americans' biggest fears, but what are the odds your turn will come up next? According to data compiled by the accounting resources directory, Best Online Accounting Degree.org, there were about 1.5 million audits conducted on taxes filed in 2011. That may sound like a lot, but consider that of the total 141 million returns filed that year, only 1 percent of people were actually audited.
High earners may have more to worry about, according to the data: 8.4 percent of individuals who made over $1 million a year were audited. On the bright side, the risk of being audited is lower for small-business owners. S corps and partnerships were audited only 0.4 percent of the time.
For more on signs that you might be audited, check out the infographic below.

More ways to earn tax-free income / 4 other instances when Uncle Sam (the IRS) doesn’t get a cut

Bill Bischoff for MarketWatch writes: There are still ways to earn income that is federal-income-tax-free. With the tax increases that took effect at the beginning of this year, opportunities to collect tax-free income are more valuable than ever. This story is the second of our two-part series on some of the best ones. (For the first installment, see How to earn tax-free income (really).)

Tax-Free Section 529 Accounts

The biggest advantage of 529 college savings plans is they are allowed to accumulate earnings free of any federal income tax. When the account beneficiary (typically your child or grandchild) reaches college age, tax-free withdrawals can be taken to cover higher education expenses. State income tax breaks are often available too.

Contributions to a 529 account will also reduce your taxable estate (if you’re worried about that), because they are treated as gifts to the account beneficiary. Contributions in 2013 are eligible for the $14,000 annual federal gift tax exclusion. Contributions up to that amount won’t diminish your unified federal gift and estate tax exemption ($5.25 million for 2013). If you’re feeling really generous, you can make a larger lump-sum contribution and spread it over five years for gift tax purposes. That allows you to immediately benefit from five years’ worth of annual gift tax exclusions while jump starting the beneficiary’s college fund.

Example: If you’re unmarried, you can make a 2013 lump-sum contribution of up to $70,000 (5 x $14,000) to a Section 529 account set up for a child, grandchild or any other person you want to help. If you’re married, you and your spouse can together contribute up to $140,000 (2 x $70,000). Lump-sum contributions up to these amounts won’t diminish your $5.25 million unified federal gift and estate tax exemption. If you want to help several children or grandchildren, you can run the 529 account contribution drill for each one.

Tax-Free Coverdell Education Savings Accounts

If you’re not such a high roller, you have the option of contributing up to $2,000 annually to a Coverdell Education Savings Account (CESA) set up for a beneficiary (typically your child or grandchild) who hasn't yet reached age 18. A CESA is an account set up by a “responsible person,” which means you, to function exclusively as an education savings vehicle for the designated account beneficiary.

CESA earnings are allowed to accumulate federal-income-tax-free. Then tax-free withdrawals can be taken to pay for the beneficiary’s college tuition, fees, books, supplies, and room and board. If you have several beneficiaries in mind, you can contribute up to $2,000 annually to separate CESAs set up for each one.

Here’s the only catch: your right to make CESA contributions is phased out between modified adjusted gross income (MAGI) of $95,000 and $110,000 or between $190,000 and $220,000 if you’re a married joint filer. This restriction can often be circumvented by enlisting someone who is unaffected. For example, you can give the contribution dollars to another trustworthy adult who can open up the CESA as the “responsible person” and make the contribution on behalf of your beneficiary. However, when the “responsible person” is someone other than yourself, you lose any control over the account. Keep that in mind.

Tax-Free Capital Gains and Dividends

The federal income-tax rate on long-term capital gains and qualified dividends is still 0% when they fall within the 10% or 15% tax brackets. In fact, the 0% rate is now permanent rather than temporary (until further notice). The surprising truth is you can have a healthy income and still be within the 15% bracket and thus eligible for the 0% rate on some or all of your long-term gains and dividends.

• Say you’re a married joint filer with two dependent kids. You claim the standard deduction. For 2013, you could have up to $100,300 of adjusted gross income—including long-term gains and dividends—and still be within the 15% rate bracket.
• Say you are divorced and file as a head of household. You have two dependent kids and claim the standard deduction. For 2013, you could have up to $69,250 of adjusted gross income—including long-term gains and dividends—and still be within the 15% bracket.
• Say you are unmarried with no kids. You claim the standard deduction. For 2013, you could have up to $46,250 of adjusted gross income—including long-term gains and dividends—and still be within the 15% bracket.
  • If you itemize deductions, your adjusted gross income—including capital gains and dividends—could be even higher, and your taxable income would still be within the 15% bracket.
  Tax-Free Small Business Stock Gains
  Qualified Small Business Corporations (QSBCs) are a special category of corporation, the stock of which can potentially qualify for gain exclusion breaks. The hot news is that QSBC shares issued between now and year-end are eligible for a juicy 100% gain exclusion if you hold shares for over five years before selling. Here’s the abbreviated story on tax-favored QSBC stock.
  General 50% Exclusion:
  Under the general gain exclusion rule, QSBC shareholders are potentially eligible to exclude from taxation up to 50% of their gains on sale of QSBC stock.
  Special 100% Exclusion:
  Recent legislation created an unbeatable 100% gain exclusion for sales of QSBC shares issued between 9/28/10 and 12/31/13. That translates into a 0% federal income-tax rate on gains when QSBC shares are sold down the road.
  Key Point: The gain exclusion percentage is scheduled to drop back to the normal 50% level for shares issued after this year.
  More-Than-Five-Year Holding Period Requirement:
  The gain exclusion breaks are only allowed for QSBC stock that you’ve held for more than five years. Consult your tax pro if you’re considering a stock investment that might be eligible for the QSBC gain exclusion deal. 

Hawaii Startup Launches Cloud Accounting Site Cheqbook to Compete with QuickBooks (Video Included)

Could Maui become known as the home of the world's best surf, beaches, wind, and the most popular accounting software for small businesses?

A team of Maui entrepreneurs have launched the cloud-based accounting site Cheqbook.com, which solves cloud accounting's categorization accuracy challenges while delivering a smart online accounting service for small businesses. 

It has caught the attention of Silicon Valley and was recently awarded 1st runner up during Startup World's Hawaii conference. Held in conjunction with Mai Tai Global (an annual Maui gathering of the tech world's top entrepreneurs, innovators and athletes), Startup World is a global competition looking for the world's best tech start ups. 

Doug Levin, Cheqbook CEO and partner at Levin & Hu, Hawaii's largest CPA firm outside of Honolulu, announced, "After years of struggling with accounting systems, we're proud to offer this service to small businesses. Cheqbook provides modern accounting tools to better manage business health and while saving precious time." 

Cheqbook has been under development for the past two years and was conceived, in part, to address user frustrations with QuickBooks Pro and the way it handled categorization. "Our system actually saves businesses time by automatically connecting to bank and credit accounts and downloading and categorizing transactions," explains Levin. "Cheqbook remembers how transactions are categorized by businesses, and also uses crowd sourced data for categorizing algorithms, an advantage not seen in current accounting systems." 

Cheqbook is a complete accounting package that handles tasks such as general ledger, invoicing, bill pay, balance sheet reporting, separating business and personal expenses, reconciliations, and more. Because the software is cloud-based, businesses can gain access to their finances anywhere, anytime, from most Internet devices including your tablet/mobile device's browser. 

Cheqbook is currently offering users a 30 day free trial and anyone that also signs up a friend will get an additional month free. For more information go to www.cheqbook.com.

NEW IRS FACT SHEET: Tips for Employers Who Outsource Payroll Duties

Charles Rettig for Forbes writes: Employers often outsource their payroll and related tax duties to third-party payers such as payroll service providers (PSP) and reporting agents (RA). Third-party payers can help employers assure filing deadlines and deposit requirements are satisfied while also streamlining their business operations by collecting and timely depositing payroll taxes on the employer’s behalf and filing required payroll tax returns with state and federal authorities.

Depending on the facts and circumstances, and the type of third-party arrangement, an employer who uses a third party to perform Federal employment tax functions on its behalf may remain solely liable for Federal employment taxes, or may become jointly and severally liable for such taxes.

Employers may designate or enter into an agreement with a third party in which the third party agrees to take over some or all of the employer’s Federal employment tax withholding, reporting and payment responsibilities and obligations. Common third party arrangements include:

• Payroll Service Provider (PSP)
• Reporting Agent (RAF)
• Section 3504 Agent

A PSP or RA provides payroll services for one or more employers, using each client’s (employer’s) employer identification number (EIN) to file separate returns (generally e-file only) on the client’s behalf and is generally authorized by submission of IRS Form 8655 (Reporting Agent Authorization). A reporting agent may also deposit and pay taxes on the client’s behalf. Form 8655 authorizes the reporting agent to (1). File and sign certain tax returns, electronically where required by Revenue Procedure 2012-32; (2). Make federal tax deposits (FTDs) and other federal tax payments (FTPs), including using the Electronic Federal Tax Payment System ( EFTPS); (3). Submit FTD and FTP information, including to EFTPS; and (4). Receive duplicate copies of official notices, correspondence, deposit requirements, transcripts or certain other information. A reporting agent can withdraw their authorities by filing a statement with the IRS or by using the delete process. The receipt of a new Form 8655 revokes a prior reporting agent authorization beginning with the period indicated on the new Form 8655.

In contrast, a Section 3504 Agent can be authorized by submission of IRS Form 2678 (Employer/Payer Appointment of Agent) to act as the employer, assuming liability along with the employer for the employer’s Social Security, Medicare and federal income tax withholding responsibilities. An agent appointed under Form 2678 files aggregate returns (e-file or paper) using the agent’s EIN.

An overview of differences between the duties and obligations of agents, reporting agents and payroll service providers is available at the Third Party Arrangement Chart ( http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Third-Party-Arrangement-Chart). The IRS maintains a Reporting Agent File (RAF) database that contains reporting agent and taxpayer/client records in their Ogden Campus.

The vast majority of payroll services provide an almost invaluable service to employers. However, there are instances where a payroll service has received the contributions from the employer but, for various reasons, failed to pay such contributions over to the government leaving the employer liable to satisfy such amounts, again. Also, if the employer-entity is unable to satisfy such liabilities again, the individuals within the entity having responsibility for making sure withheld amounts are actually paid over to the government might become personally liable for such withheld amounts pursuant to Internal Revenue Code section 6672. Examples of successful criminal prosecutions during 2013 of unscrupulous payroll service providers are set forth at http://www.irs.gov/uac/Examples-of-Employment-Tax-Investigations-Fiscal-Year-2013.

Employers who outsource their payroll function, like employers who handle their own payroll duties, remain legally responsible for any and all payroll taxes determined to be due. This includes any federal income taxes withheld as well as both the employer and employee’s share of social security and Medicare taxes, even if the employer forwards tax amounts to a Payroll Service Provider (PSP) or Reporting Agent (RA) to make the required deposits or payments.

The IRS just released a new Fact Sheet (FS-2013-9, July 2013) setting forth the following steps employers can follow to protect themselves from unscrupulous third-party payers:

• Enroll in the Electronic Federal Tax Payment System and make sure the PSP or RA uses EFTPS to make tax deposits. Available free from the Treasury Department, EFTPS gives employers safe and easy online access to their payment history when deposits are made under their Employer Identification Number, enabling them to monitor whether their third-party payer is properly carrying out their tax deposit responsibilities. It also gives them the option of making any missed deposits themselves, as well as paying other individual and business taxes electronically, either online or by phone. To enroll or for more information, call toll-free 800-555-4477 or visit www.eftps.gov.

• Refrain from substituting the third-party’s address for the employer’s address. Though employers are allowed to and have the option of making or agreeing to such a change, the IRS recommends that employer’s continue to use their own address as the address on record with the tax agency. Doing so ensures that the employer will continue to receive bills, notices and other account-related correspondence from the IRS. It also gives employers a way to monitor the third-party payer and easily spot any improper diversion of funds.

• Contact the IRS about any bills or notices and do so as soon as possible. This is especially important if it involves a payment that the employer believes was made or should have been made by a third-party payer. Call the number on the bill, write to the IRS office that sent the bill, contact the IRS business tax hotline at 800-829-4933 or visit a local IRS office. See Receiving a Bill from the IRS http://www.irs.gov/Businesses/Small-Businesses-%26-Self-Employed/Receiving-a-Bill-From-the-IRS for more information.

• Employers using a reporting agent should be aware of the special rules that apply to RAs. Among other things, reporting agents are generally required to use EFTPS and file payroll tax returns electronically. They are also required to provide employers with a written statement detailing the employer’s responsibilities including a reminder that the employer, not the reporting agent, is still legally required to timely file returns and pay any tax due. This statement must be provided upon entering into a contract with the employer and at least quarterly after that.

• Become familiar with the tax due dates that apply to employers. See Employment Tax Reporting and Deposit Due Dates (http://www.irs.gov/Businesses/Small-Businesses-%26-Self-Employed/Employment-Tax-Due-Dates ), and use the Small Business Tax Calendar (http://www.irs.gov/Businesses/Small-Businesses-%26-Self-Employed/Tax-Calendar-for-Small-Businesses-and-Self-Employed-(Publication-1518) to keep track of these key dates.

iShares: Four Reasons to Like Muni Bonds / Tax Benefit, Anyone? Munis are unique investment vehicles in that they are generally exempt from federal and, in some cases, state taxes. No other financial assets can make the same claim.

iShares for ETF Trends writes: I’ve been in the business for many years, since the 1980s in fact, and it’s been fascinating to see the evolution of the municipal asset class from a once specialized (and some have said “sleepy”) investment alternative to a widely recognized fixed income vehicle — one that is in demand and highly prized for potential income generation.
Why are investors seeking more and more munis? I’d say there are four main factors, which I will cover here in my 30,000-foot view of Muniland. In future posts, I’ll delve more deeply into these and other topics, and I also look forward to hearing from you with any questions you’d like me to answer when it comes to muni bonds.

1. Tax Benefit, Anyone? Munis are unique investment vehicles in that they are generally exempt from federal and, in some cases, state taxes. No other financial assets can make the same claim. This also means munis are among the only assets to increase in value when tax rates rise, as they have since the fiscal cliff deal was negotiated at the start of the year. Now, under normal circumstances, munis will generally offer lower yields than Treasuries before taxes, and then make up for them on an after-tax basis. However, in today’s low-rate environment, we’re seeing munis outyield Treasuries before taxes … and that just sweetens the deal.

2. Munis Care for the Community. OK, I’ll admit that may sound a bit melodramatic. But here’s the thing: Municipal bonds are issued by state and local governments to fund the construction of schools, roads, bridges, hospitals, housing projects … the list goes on and on. So, by investing in municipal bonds, you’re able to support projects intended to build and bolster the communities in which you live and work, and there’s a certain satisfaction in that. You can support the construction of a much-needed medical facility or local firehouse while earning income on the bonds issued to fund it. I’d call that a win-win.


3. High Quality … Talk of municipal defaults makes for provocative headlines, but the truth is that defaults are quite rare, even in the wake of the Great Recession. I’ll discuss the recent developments in troubled Detroit in a future post, and we offer overarching views in State of the States and Local Governments, but ultimately, the data is telling. Moody’s conducts comprehensive analyses of municipal and corporate bond defaults and has consistently found municipal bond defaults to be infrequent and isolated events. The credit rating agency counted only 71 muni bond defaults over the period 1970-2011 compared to more than 1,800 corporate bond defaults over the same timeframe.* Moody’s data further shows that relative to corporate bonds, municipals have proved much safer and provided higher recovery values. This is partly because state and local governments have tacit social, economic and political motivations to continue providing facilities and services to their stakeholders.

4. … Generally Lower Volatility. It’s not that munis don’t experience the highs and lows of the financial markets. In fact, we saw this in dramatic fashion in late May and June. But history shows us this is the exception rather than the rule. Typically, munis’ response to market-moving events is much more muted than that other fixed income assets. This intrinsic cushion has made for a relatively smoother ride for muni investors over the long term.
The municipal bond market has evolved considerably over the years. It weathered major tax reform changes in 1986, and the loss of big investors in the aftermath. Between the 1990s and 2000s, it saw the rise and fall of municipal bond insurers. Five years after the 2008 credit crisis, it has completed its transition from an interest-rate-based market to one driven more by credit events. Although I doubt I’ve seen it all, I have lived and invested through enough to know that I still like what I see today.

LinguaNext Enables QuickBooks to Operate in Spanish

LinguaPack for QuickBooks Software Translates Screens, Accounting Functionality, Check Print Outs and Reports; Supports All Desktop and Online Versions

LinguaNext^™, the market leader in enterprise application language management, today announced LinguaPack^™ for QuickBooks, which automatically translates both desktop and online versions of QuickBooks into Spanish. LinguaPack for QuickBooks intercepts screens, files, check print outs and reports, and then automatically presents them to the user in Spanish. It does not make any changes to the QuickBooks application, source code or database.

“Given the number of Hispanic-owned businesses in the United States and around the world, we were surprised to learn that QuickBooks is not available in Spanish”

According to the US Census Bureau’s latest report the number of Hispanic-owned businesses in the United States increased by 43.7 percent to 2.3 million. They generated $345.2 billion in sales in 2007, up 55.5 percent compared with 2002. Since the majority of Hispanic-owned companies have fewer than 100 employees they rely on small business accounting programs, but the market leading QuickBooks application is not available in Spanish. With LinguaPack for QuickBooks, these businesses can now operate QuickBooks in their native language and retain all its functionality. 
“Given the number of Hispanic-owned businesses in the United States and around the world, we were surprised to learn that QuickBooks is not available in Spanish,” said Jagdish Sahasrabudhe, CEO of LinguaNext. “For the first time, LinguaPack for QuickBooks enables business owners and their employees whose first language is Spanish to use QuickBooks in their native tongue. Because LinguaNext’s innovative technology creates a “skin” on top of QuickBooks, companies can continue using their existing application and databases. They don’t have to make any changes to QuickBooks or learn a new interface.” 

LinguaPack for QuickBooks
LinguaNext has developed a completely new and transparent approach that enables both desktop and online versions of QuickBooks to be localized into Spanish without making any changes to the application code or database. Using patent pending Applntercept™ technology, LinguaPack for QuickBooks transforms the output of QuickBooks before it can be seen on a display and report printouts. LinguaPack for QuickBooks maintains the full functionality of QuickBooks versions and:

• Translates all QuickBooks screens, including the user interface and accounting functionality, as well as all check and report print outs into Spanish
• Does not require any complex configuration or setup – simply download and install the software, then launch QuickBooks in Spanish with a single click

Future LinguaPacks
LinguaPack for QuickBooks is the first of many pre-built language packs for small-medium business (SMB) applications that LinguaNext will introduce in the future. Additional versions of these quick to install and deploy programs are planned for leading SMB accounting, ERP and CRM applications. 

Availability and Pricing
A 15 day free trial of LinguaPack for QuickBooks is available for immediate download at www.linguapack.net. A single user license is $69.99 USD. For information on joining the LinguaNext reseller program please visit: http://goo.gl/qOOsD
 
About LinguaNext
LinguaNext transforms the way global corporations address multi-language and local language support for their information technology systems. With a roster of over 60 large enterprise customers including 25 of the Forbes Global 2000 and a deployed base of over 1 million end users, LinguaNext is emerging as the de facto standard for adding new language capabilities to any application. The company enables any enterprise, mobile or cloud software system to work in any language, seamlessly and with zero changes to the underlying application code. To learn more visit www.linguanext.net