Has Xero reached its peak? | A Broker's View

Business Day from Stuff.co.nz writes:  Overview: Xero is a riddle wrapped in a mystery inside an enigma. Its one-year price chart could easily be confused for a cross-section of the South Island, with the flat Canterbury Plains representing most of 2012, before a step up to the foothills in December last year when Xero announced it had raised $60 million from US investors, including PayPal's Peter Thiel.

There was then a swift ascent up the Alps to a peak of $18.90 on July 8 followed by an equally swift drop of 23 per cent in just over a week.

The question investors must now ponder is whether the recent peak represents Mt Cook and whether a descent to the West Coast is on the horizon or do we have further peaks to come?

Pros: It has swiftly gained market leading status in New Zealand and has shown exceptional gains of market share in Australia.

The reputation of the software is matched only by the reputation of the cornerstone investors, including Thiel, chief executive Rod Drury, Sam Morgan (Trade Me) and Craig Winkler (founder of MYOB - one of Xero's major competitors).

The software is part of the burgeoning "software as a service" sector, which is becoming the software delivery method of choice as it allows developers to charge monthly fees as opposed to the traditional one-off sale of a disc.

The company's recurring revenue and customer growth has been very strong (both in excess of 100 per cent for the 2013 financial year).

The company has set its sights on the lucrative American market, setting a preliminary target of 1 million customers.

Cons: Annualised committed monthly revenue for the year ended March 31 was $51.5m or $328 per customer (of which there were 157,000).

Back-of-the-envelope calculations lead us to a recurring revenue of $328m should it reach the 1 million customer mark.

This may not seem like much compared with traditional bricks and mortar companies but overheads and costs can be kept low (once the initial sales and development costs are cut back), meaning there is ample room for profitability.

The tightly held share register and reliance on fickle future revenue forecasts has resulted in a very volatile share price which may be a concern for some.

The risk of another company producing a better product is ever-present in the software industry.

Price performance: The share price appreciated 175 per cent last year and is up over 100 per cent so far this year to recently trade at $16.45 on Thursday.

Investment outlook: It all depends on penetration in the massive US market.  

If the company's vision is realised then current share prices could look very cheap.

Suitable only for risk-tolerant investors prepared for volatility.

Intuit and Xero duel over CPA conferences

Jim Gardner for the San Francisco Business Times writes: Online accounting software company Xero says it has gotten giant competitor Intuit’s attention, perhaps reflected in combative scheduling.

The seven-year-old company founded in New Zealand and only launched in the United States 18 months ago, said it has noticed marketing from Intuit directly targeting its customers. And then, one week after Xero announced its first conference for accounting professionals, Intuit announced its own two-day accounting conference on the same days: Sept. 4 and 5.

“It (Xero’s software) is game-changing software, and I believe Intuit has gotten wind of what we’re doing and is obviously resorting to different tactics because they feel threatened,” said Xero’s U.S. PresidentJamie Sutherland.

Intuit, however, says it’s not true.

Intuit said Xero’s conference has no bearing on Intuit’s event, which is for a small group of influencers, advisers and its own customers.

An Intuit spokesperson said Intuit scheduled its meeting months in advance and sent invites in time to give accounting professionals who are invited two months’ notice.

“This event is timed directly with our recent organization announcement and our desire to share more detail with our influencers. We have our annual accountant training tour making stops in the Bay Area that week, and we’ll be ready to share the annual preview of our upcoming product releases,” said spokesman Chris Repetto.

Intuit is chasing the online accounting market. At its two-day meeting, Intuit will get feedback about features users want to see in QuickBooks Online.

Sutherland said his company has built software for online and mobile — in contrast to Intuit’s Quickbooks accounting software, an adapted enterprise product.

While Xerocon organizers hope to attract 500 to 600 accounting professionals, Intuit is targeting a smaller, more exclusive group of 40 to 50 professionals.

A New Home-Office Write-Off | The IRS is offering taxpayers a simplified home-office deduction, but it might not be your best choice. Here's what you need to know.

Laura Saunders for the Wall St Journal writes: If you are one of the more than four million U.S. taxpayers who work from home, the Internal Revenue Service has a deal for you.

Starting in 2013, the agency is offering taxpayers a simplified home-office deduction. "This common-sense option will simplify record-keeping for many small-business owners and make it easier to claim this deduction," says Faris Fink, commissioner of the IRS's small-business and self-employed division.

It is a striking shift. Until now, all taxpayers taking the home-office write-off had to fill out Form 8829, which has 43 lines and requires complex tracking of multiple expenses, including those for repairs and utilities.

The new option "is good for my clients who hate record-keeping," says Gina Jones of Delhi, La., who prepares returns for farmers, doctors, an arborist and a decorator.

The change also is a bit of a blessing for a write-off long seen as audit bait. "I always explain to clients that they need proper proof, because the deduction could cause scrutiny," says Don Zidik, a certified public accountant at McGladrey LLP in Boston.

There are caveats, of course. The simplified deduction has a cap of $1,500, while the average home office write-off was $2,600 in 2010, the latest year for which data are available. The new method has a lower cap in part because it allows the taxpayer to take a full write-off for mortgage interest and property taxes on Schedule A, Itemized Deductions. Under the complex method, those deductions are split between Schedule A and the small-business tax forms.

The simplified write-off also imposes a one-size-fits-all value of $5 a square foot for home offices, which will likely make the option a nonstarter for taxpayers in pricier urban and suburban areas. Asked how many of his clients would choose the new option, New York CPA Jonathan Horn says, "Zero."

The IRS still is taking comments on the simplified deduction, and a spokesman says the agency could make changes to future versions. For now, taxpayers with home offices can choose between the methods. (For more information, see IRS Publication 587, Business Use of Your Home.)

Here's what you need to know about both.

• To be eligible for a deduction at all, a home office must be used "regularly and exclusively" as a place of business. "That means no toys, exercise equipment, or beds for guests," Mr. Zidik says. (There are special rules for in-home day-care providers.) Often the home office also needs to be the principal place of business, unless it is a free-standing structure like a studio or barn.

Employees, as opposed to the self-employed, can qualify for the deduction if their home office is used for the convenience of their employer—as it could be for a salesman who works far from company headquarters. But employees can't take the write-off if they rent part of their home to their employer for business use.

• Taxpayers using the traditional method need first to figure what percentage of the total property the office accounts for. Then they deduct that percentage of mortgage interest, utility costs, property taxes and other expenses (such as insurance or repairs) from their business income.

Self-employed taxpayers put that deduction on Schedule C, or Schedule F for farmers. The rest of their mortgage-interest and property-tax deductions remain on Schedule A.

In addition, there is an annual depreciation write-off for 1/39th of the office's value. This must be tracked over the years, and the total of all depreciation deductions is supposed to be taxed when the property is sold.

What if the business shows a loss? Then this version of the home-office deduction carries forward to shelter future profits.

• The new simplified deduction is different. Taxpayers are allowed to deduct $5 a square foot for up to 300 square feet of office space, for a maximum deduction of $1,500. Mortgage interest and property taxes don't have to be allocated to different forms and are fully deductible on Schedule A.

Other home-office costs such as insurance aren't deductible, but neither do they have to be tracked. There also isn't any depreciation to be recaptured when the property is sold.

Business expenses unrelated to the home, such as for advertising, equipment and supplies, remain fully deductible.

If the taxpayer uses the simplified deduction and the business shows a loss, however, this write-off can't be carried forward to future years. And if the business turns a profit, then a deduction carried forward from earlier years can't be used.

Taxpayers are allowed to switch back and forth between methods from year to year, but record-keeping issues remain: All depreciation is supposed to be tracked and taxed when the property is sold.

For now, McGladrey's Mr. Zidik says, "We'll probably figure the deduction both ways and use the higher one."

Eliminating Tax Debts in Bankruptcy | Most taxes can't be eliminated in bankruptcy, but some can.

From Nolo Press we read: You may hear radio commercials offering the hope of eliminating tax debts in bankruptcy. But it's not as simple as it sounds. Most tax debts can't be wiped out in bankruptcy -- you'll continue to owe them at the end of a Chapter 7 bankruptcy case, or you'll have to repay them in full in a Chapter 13 bankruptcy repayment plan.

If you need to discharge tax debts, Chapter 7 bankruptcy will probably be the better option -- but only if your debts qualify for discharge (see below) and you are eligible for Chapter 7 bankruptcy (see the articles in Chapter 7 Bankruptcy Eligibility Rules). 

When You Can Discharge a Tax Debt

You can discharge (wipe out) debts for federal income taxes in Chapter 7 bankruptcy only if all of the following conditions are true:

• The taxes are income taxes. Taxes other than income, such as payroll taxes or fraud penalties, can never be eliminated in bankruptcy.
• You did not commit fraud or willful evasion. If you filed a fraudulent tax return or otherwise willfully attempted to evade paying taxes, such as using a false Social Security number on your tax return, bankruptcy can't help.
• The debt is at least three years old. To eliminate a tax debt, the tax return must have been originally due at least three years before you filed for bankruptcy.
• You filed a tax return. You must have filed a tax return for the debt you wish to discharge at least two years before filing for bankruptcy.
• You pass the "240-day rule." The income tax debt must have been assessed by the IRS at least 240 days before you file your bankruptcy petition, or must not have been assessed yet. (This time limit may be extended if the IRS suspended collection activity because of an offer in compromise or a previous bankruptcy filing.)

To learn more, check out Nolo's articles, Tax Debts in Chapter 7 Bankruptcy and Tax Debts in Chapter 13 Bankruptcy.

You Can't Discharge a Federal Tax Lien

If your taxes qualify for discharge in a Chapter 7 bankruptcy case, your victory may be bittersweet. This is because bankruptcy will not wipe out prior recorded tax liens. A Chapter 7 bankruptcy will wipe out your personal obligation to pay the debt, and prevent the IRS from going after your bank account or wages, but if the IRS recorded a tax lien on your property before you file for bankruptcy, the lien will remain on the property. In effect, this means you'll have to pay off the tax lien in order to sell the property.

Roth IRA Conversion: Tax-Smart Money Move Surges in Popularity

Dan Caplinger for DailyFinance writes: Five years ago, many Americans watched their retirement savings get crushed by the stock market's meltdown in the wake of the financial crisis. Now that stocks have come back, most investors are faring a whole lot better, and it's showing up in their average retirement account balances.

But one even more encouraging sign is that many investors are taking a key step toward shoring up their retirement finances in a tax-smart way.

The Skinny on Saving for Retirement

Fidelity Investments reported on Wednesday that the average balance across the 7 million individual retirement accounts it oversees hit $81,100 as of the end of 2012 -- its highest level in five years.

More impressively, that balance represents a 53 percent jump from the average balance at the end of 2008, and age groups in or near retirement saw even greater gains of 70 percent to 81 percent from 2008 levels. Average IRA contributions were up 3.1 percent over the past year, and that combined with the market's strong performance have pushed balances up.

But the most surprising news from the Fidelity report was the big surge in Roth IRA conversions at the end of 2012. Fidelity reported 52 percent more Roth conversions in the last month of 2012 than it saw in December 2011. Overall for the year, conversions rose 12 percent.

Why Converting Was Smart

The move toward Roth conversions is consistent with some other tax strategies that gained popularity at the end of last year.

With tax rates scheduled to rise at the beginning of 2013, taxpayers found themselves in the unusual position of wanting to increase their taxable income for 2012, taking the hit while rates were low in order to avoid a bigger tax bill in future years.

Roth conversions provided an easy way for taxpayers to accomplish that goal and lock in tax savings for the rest of their lives.

Under the rules governing Roth conversions, the money you convert gets counted as taxable income for the year of the conversion. But once it's in the Roth, you don't have to pay taxes on the income or gains from investments within the account, even when you take withdrawals during retirement.

Roth conversions have been an option for 15 years, but the appeal dramatically expanded in 2010, when previous income limits on conversions disappeared. Yet during normal tax years, accelerating income didn't make as much sense as it did last year, and so taxpayers haven't always taken full advantage of the Roth opportunity.

Should You Convert?

The most important consideration in deciding whether to convert to a Roth is whether your current tax rate is higher or lower than the taxes you'll pay in retirement.

If you're in a very low bracket now, converting essentially lets you lock in your current tax rates, so you avoid having to pay potentially higher taxes after you retire.

By contrast, if you're in a top bracket, then it becomes much more of a gamble on future rates, as you're betting that paying more than 40 percent in taxes now will be a better deal than what you'll pay in retirement when you take withdrawals from a traditional retirement account.

Another factor, though, is whether you have money outside your retirement account to pay the extra taxes you'll incur. Taking money out of your IRA to pay those taxes makes converting much less attractive, as it incurs a 10 percent penalty and reduces the long-term benefits of the conversion.

It Might Not Be Too Late

With tax rates now at higher levels for many taxpayers, the Roth conversion opportunity that presented itself late last year is now over. But that doesn't mean converting is a bad idea.

FreshBooks Mobile Apps Review – On-the-Go Accounting Services

GetApp writes: The business world is moving faster than ever before, and busy professionals are increasingly looking for digital tools that can keep up with their nonstop lifestyles. The FreshBooks mobile apps bring all the tools that business owners expect from their financial management and accounting platforms into the cloud, making it possible for executives, managers and freelancers to track time, create invoices, and check balances from any place at any time. In this FreshBooks Mobile Apps review, I will test out the cloud accounting application on the iPhone and iPad. Throughout my review I will pay close attention to the specific tools most likely to be used by business travelers, including expense tracking, time tracking, receipt scanning, and mobile invoice creation.

About FreshBooks Mobile Apps Introduced in late 2012, FreshBooks mobile apps give small business owners with iPhones and iPads a way to manage their accounting needs when they’re on-the-go. The mobile applications sync automatically with FreshBooks’ existing web application, ensuring a seamless transition both inside and outside the office. Although FreshBooks was built primarily to help service-based small businesses save time on billing, the mobile application is ideal for professionals in a variety of industries who want to run their businesses on the go. 

Main Functionality of the FreshBooks Mobile Apps When developing its mobile apps, FreshBooks aimed to create a platform that supported clients throughout the accounting lifecycle. When a business traveler hits the road on the way to a client meeting, for example, he typically needs to save travel receipts to use in billings and reimbursements. From there, the user needs to track how long he spent working on specific projects, and then create and send invoices based on the number of billable hours. FreshBooks mobile apps provide solutions for all of these needs. Users in service-related industries can send invoices to clients before they have even left the job site instantly find out if invoices have been viewed. The FreshBooks mobile app allows users to accept online payments, and it syncs automatically with the company’s web-based platform to ensure colleagues working inside the office are on the same page as any executives working on the road.

Benefits of Using FreshBooks Mobile Apps FreshBooks’ mobile apps offer many of the same tools as the company’s cloud-based platform, but with added features that make the system more applicable for people working outside the office. For example, the platform’s expense tracking feature allows users to photograph receipts using their iPhones or iPads. These receipts are then automatically entered into the FreshBooks system, and attached to expense sheets for reimbursement and tax purposes. Business travelers can even rebill expenses to their clients from within the mobile app.

The Basics: What Does the Interface Look Like? Click the “Expenses” button on the FreshBooks home screen, and then open up the mobile app’s camera to begin scanning your business receipts. Once you’ve taken a picture, you can process the expense by manually typing in the value, the category, the client or vendor, and the date. If you want to rebill the expense, you can add the expense to an invoice, and send that invoice to the client in just a few quick clicks.  

Use the app’s time tracking feature to keep an accurate record of how much time you’ve spent working on individual projects. Hit the timer’s “Start” button the moment your brainstorming meeting begins, and add notes as a reminder of what was discussed or completed during that particular meeting. FreshBooks makes it easy to convert your timer records into billable hours, which can be seamlessly included on your next client invoice.

Perhaps the most useful tool for small business owners is FreshBooks’ mobile invoicing feature. Create and send invoices from your iPhone or iPad, and check to see if your invoices are viewed. Invoicing errors can be amended immediately from within the FreshBooks mobile app, and clients can pay online using a payment gateway like Paypal. 

Support Information FreshBooks offers a number of support options for mobile app users, starting with a robust Help Center and FAQ page. For more detailed queries, small business owners can contact FreshBooks’ award-winning support team by phone, between the hours of 9 a.m. and 6 p.m., Monday through Friday. 

Pricing Information FreshBooks’ iOS app is completely free, and it can be synced with existing FreshBooks web-app accounts at no additional cost. Users with more than three active clients, or any additional staff members, will need to update to a paid FreshBooks package to continue using the mobile app.

The Bottom Line The FreshBooks’ mobile app for iPhone and iPad users is an incredibly useful platform for business owners in service-related industries. These applications are easy-to-use, they work virtually anywhere in the world, and save professionals valuable time dealing with basic business accounting tasks. Users can track expenses to make reimbursements and tax deductions much easier.

Taxed or Not: Where to Hold Your Retirement Cash

Ann G. Schnorrenberg for US News World Report writes: When saving for retirement, many people use a combination of tax-deferred and taxable investment accounts. 

But how should you allocate your portfolio between them? Is it better to put high growth assets in the tax-deferred accounts or is it better to put tax inefficient assets in them? The answer may be both, but there are definite strategies to consider when choosing where to hold your savings.

Given the tax-favored treatment of retirement accounts, it’s worth asking why you’d use a non-retirement account at all. One possible could be that you've maximized the annual deferral amount allowed to your retirement plan, but still needs to save more for retirement. This often happens for individuals whose income is above the compensation limit, or those who start saving for retirement later in life.

Another reason someone might choose to use both types of accounts is as insurance against the possibility that they will be paying higher taxes in retirement, since it’s tough to predict where tax rates will be years or decades in the future. Overall, tax levels are generally expected to rise, yet many people will be in a lower bracket upon retirement as their income falls when they stop working. A combined strategy involving both pre-tax and post-tax accounts can provide a hedge against this uncertainty.

So how should you split up your investments? Let’s look at stocks first. Here, some investments benefit more from being in a tax-preferred retirement account than others. Obviously, investments that are highly taxed should be there. For example, if you have to choose, it would be better to put equity investments designed to produce income from dividends in a retirement account while putting growth-oriented assets in a non-retirement account because even though most dividends are qualified and receive favorable tax treatment, the fact that taxes must be paid on them will diminish their growth potential. Similarly, accounts with high turnover should be in retirement accounts while buy-and-hold strategies can be placed in non-retirement accounts. Again, greater turnover generally creates a higher tax bill, and strategies subject to more tax should go into the retirement accounts.

It’s a similar story for bonds. Taxable fixed income assets often belong in retirement accounts because interest income is subject to ordinary income tax rates rather than the lower capital gains tax paid on dividends. More specifically, when analyzing your bond holdings, those with the higher returns should go into the retirement account while those with lower returns can be placed in non-retirement accounts. Obviously, municipal bonds or other tax-free investments should never be put into a retirement account because they are not subject to federal income tax and sometimes are exempt from state taxes as well.

But what about allocating stocks and bonds between accounts? Would it be better to put all equities in the retirement accounts and all fixed income strategies in non-retirement or vice versa? That depends on the particular portfolio, but if the returns are similar for both its stock and bond portions, then a mixed strategy could be fine with both equities and fixed income spread across retirement and non-retirement accounts. But tax efficiency does matter. A portfolio with tax inefficient strategy paired with assets expected to produce lower returns can have as much as a three percent lower total rate of return than a more tax-efficient growth strategy.

But as a rough rule of thumb: Retirement accounts should hold equity assets that pay dividends and have high turnover, as well as fixed income with higher returns. Non-retirement accounts would hold growth equities with low turnover, fixed income with lower returns, and any municipalbonds.

Please keep in mind that this only considers one part of portfolio allocation. Any decision will also have to take into consideration other variables such as risk or liquidity. As always, these decisions should be made in the context of a comprehensive financial plan.