Saturday, August 3, 2013

Why tax planning and financial planning are two different things

K. Ramalingam from NDTV writes: It really hurts to see a significant part of the salary get deducted towards tax. So the obvious question in everyone's mind is: How do I reduce my tax?

Every year we are forced to invest in something that reduces our tax liability. It may be NSC, PPF, ULIP, etc.
Tax planning: A new perspective
These tax saving investments are at times taken based on advice from colleagues or friends. Generally investors tick the scheme if it helps to reduce tax liability.

Apart from reducing tax, there are some other questions to be asked.

  • What is the risk involved?
  • Are the returns from the scheme taxable?
  • Do I need to make investment in this scheme every year or just a one-time investment?
  • Does it support my financial goals?
  • Apart from tax saving investments is there anything to be considered in tax planning?
Tax planning in your financial planning:
Tax planning is also a part of your overall financial planning. When tax planning is done in your financial planning, it plans tax in a much broader perspective.

1. Tax saving investments:
This is the most obvious one. In order to reduce the tax liability, where you need to invest will be answered here. This deals with the investments under section 80C. Also it covers section 80D and the housing loan interest for tax saving purpose.

When these tax saving investments are made or selected based on your financial plan, these schemes will not only save your tax, they will also help you achieve your life financial goals like children's future need or retirement plan.

Also, the tax saving investment scheme selected may change every year depending on the requirement of the financial plan.

If in a particular year, you have more exposure in equity, then the financial planner may recommend you to invest in PPF. In another year, if you have less exposure in equity, he may ask you to invest in mutual fund ELSS.

Tax planning will be different from year to year and person to person.

2. Salary structure:
Nowadays, employers provide some flexibility in structuring the salary of their employees. Sixty-seventy per cent of the salary will be given under the predetermined heads. For the remaining part of the salary, employers will give you some flexibility. That is, you will be allowed to claim that portion of your salary under allowance A or allowance B or allowance C, or as a combination of allowances A, B and C.
If your employers provide such flexibility then share the details with your financial planner. He will be able to tell you in what way you structure your salary that is going to be beneficial in reducing your overall tax burden.

3. Superannuation scheme:
Your employer may introduce some superannuation scheme with some special tax benefits in which you contribute an X amount and your employer will also contribute an equivalent amount.

When your employer introduces any such schemes, if you share the details with your financial planner, he will study the scheme and let you know whether it is a good scheme or not.

If it is a good scheme, then is it suitable to you or not? If it is suitable for you then how much can you contribute towards the scheme?

Many employees are clueless what to do when the employer introduces such schemes. If you opt to do your tax plan in sync with your financial plan then all these problems will be solved.

4. ESOP:
When employers allot some of their shares to their employees by way of employee stock option plan (ESOP), they generally announce some packages. That is, the employee will get X number of shares free and Y number of shares can be allotted at a subsidized rate.

Also, there will be some lock-in period for these shares. After the lock-in period the shares can be transferred to your demat account or the employers can sell those shares and give you the money.

Again, if you share these ESOP package details to your financial planner, he will be able to tell you in what way you claim your ESOP then that is going to be tax advantageous to you. Also, he will check in what way these ESOP will help you achieve your life financial goals.

Last words:
From the financial planning point of view, tax planning has got much broader perspective. Generally tax planning will be done as a part of financial planning.

Tax planning is covered under financial planning. But tax filing is not covered in financial planning. However, financial planner may do that tax filing service also with an additional charge.
Posted on 9:02 AM | Categories:

TSheets Pro | Added Benefits For Intuit QuickBooks ProAdvisors

From T Sheets we read: Intuit Accountants are pushing a new initiative, #YourVoiceMatters, where ProAdvisors can recommend new features and Intuit will listen. So far Pros have been extended the option to choose a monthly payment plan for QuickBooks ProAdvisor membership and the ability to add a splash of color in QB Accountant 2013. It appears customers’ big ideas are flooding in and, the great news is, Intuit has been frequently responding by adding new features. 

Alternatively, Intuitive Accountant recently posted an article on Intuit’s decision to remove “connected services” from the standard ProAdvisor benefit package such as “QuickBooks for Windows Mobile Companion” and “Intuit Data Protect” as of September 9, 2013. Translation: if ProAdvisors want to continue using these services, they’ll have to pony up a couple Ben Franklin’s each year. William “Bill” Murphy used this illustration in his blog this week:
QuickBooks ProAdvisor Benefits
This might show benefits to ProAdvisors dwindling down to a sip but here at TSheets – we don’t know about you – but we’re ready to get our drink on! We’ve been working our tails off to become the ultimate ‘ProAdvisor benefit connoisseurs’ and not only fill up Pros’ glasses to the brim, we want the benefits spilling over to their clients and to their client’s clients!
Recently introduced at Scaling New Heights 2013 and now for the first time to ProAdvisors everywhere, we give you our TSHEETS PRO benefit package. We don’t want to stain your cocktail napkin, but… the benefits offered in this program start with:
  • a free TSheets subscription
  • commission on referrals
  • discounted pricing for clients
  • dedicated support and training
Posted on 9:02 AM | Categories:

American venture capital firm Sequoia Capital investing in Chennai-based (India) accounting software provider Reach Accountant

Anand Rai for TechCircle India writes:   Chennai-based accounting software firm Reach Process Outsourcing Ltd, which runs the portal Reachaccountant.com, is raising its first institutional round of funding from venture capital firm Sequoia Capital (Sequoia Capital is an American venture capital firm located in Menlo Park, California, United States Sequoia's diverse portfolio includes companies in energy, financial, health care, mobile and technology sectors.), sources close to the development informed Techcircle.in/VCCircle. For more details of the transaction click here.

We tried contacting the company for a confirmation of the development, but Robin Moses, founder and CEO, Reach Accountant, declined to comment. We also contacted Sequoia Capital and are awaiting an official response from the firm.
Reach Accountant had earlier (February 2012) raised an undisclosed amount in angel funding from Rajan Anandan and Rehan Yar Khan. As part of the investment, Anandan had joined the board of the company. The firm was incubated by The Morpheus.

The company had earlier told Techcircle.in/VCCircle that it broke even in 2011; it was looking to raise a Series A round.

Started as Reach Tax in 2007, an online tax preparation service, the company rebranded to Reachaccountant.com, an online accounting software-as-a service (SaaS) application, in April 2010. The company is the brainchild of Moses, who had sold off his food and distribution business, and was looking to start something new, when he hit upon the idea of creating an application that could replace accountants and the daily hassles related to it.

Targeting small and medium businesses (SMBs) that file tax returns electronically in India, the company provides services related to indirect tax, which includes monthly tax deducted at source (TDS), value added tax (VAT), sales tax and daily accounting and billing. Simply put, Reach Accountant is a combination of accounting software, an account manager, an accountant, a payroll manager and a chartered accountant.

As of July last year, the company had managed to acquire 1,000 subscribers. According to information displayed on the site, this number has now increased to 12,854. While the company is headquartered in Chennai, it has sales centres in Bangalore and Hyderabad.

Sequoia Capital, which invests in both early stage ventures as well as participates in growth capital PE deals in the country, had early this year co-invested in Dexetra Software Solutions Pvt Ltd, a mobile applications startup. In the same month, XinLab Inc., which operates under the brand Vuclip, acquired Mumbai- and Toronto-based mobile video streaming startup Jigsee in an all-stock deal, while early investors Sequoia and Indian Angel Network (IAN) swapped stake to become shareholders of VC-backed Vuclip. In another deal, it also co-invested in Bright Lifecare which runs e-com firm Healthkartplus.com.

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Posted on 9:02 AM | Categories:

Gay or Straight, We're All Getting Screwed by the Estate Tax

Marina Olson for PolicyMic writes: We all know the old quip about death and taxes. Windsor v. United States, for all the focus on equality and morality, was fundamentally an issue about death and taxes. When Thea Spyer died in 2009, she left her wife, Edith Windsor, her estate. Windsor’s legal status as spouse, however, was not recognized by the federal government, because Section III of DOMA defined marriage as “a legal union between one man and one woman.” This lack of legal recognition forced on Windsor $363,053 in federal estate taxes, a tax some refer to as the “death tax.” Windsor challenged the definition of marriage presented by DOMA, and on Tuesday, June 25, 2013, won a historic Supreme Court ruling.

Yet there is a prior injustice which, in lieu of the Supreme Court’s ruling, many have overlooked: the estate tax, the original impetus for Windsor’s lawsuit. The federal government, after taxing income, property, and goods while the deceased live, unjustly penalizes the descendants by taxing it again after death.

The estate tax is applied to the deceased’s taxable estate, derived after certain exemptions are applied to the gross estate. Only in the case of the surviving spouse is this exemption unlimited. If a descendant is not the spouse of the deceased, they will owe a certain percentage of federal taxes on the non-exempted part of the estate. If a child inherits their parents’ $6 million estate, the first $5 million is exempted from the estate tax, but they owe a tax of $300,000 on the last $1 million. When Windsor claimed her inheritance from Spyer, these taxes applied to the estate, without exemption. Windsor responded by challenging the definition of “marriage” employed by the federal government. While her challenge resulted in victory for same-sex couples, the tax which impelled that challenge still stands.

The federal estate tax remains a fundamental problem in our tax code: a problem that affects children, siblings, relatives, friends, gay individuals, straight individuals — anyone who is not married and finds themselves a survivor of the deceased. That certain exemptions exist does not make this tax, as such, a just tax. If DOMA can be overruled on the basis of justice, even though such an overruling only affects a small minority of citizens, that logic must be carried over to those who stand to inherit an estate valuing more that $5 million, most particularly if they are only a small minority of the population. Justice is a hard line — it is measured by ideals, not statistical quantities.
Sen. John Thune (R-S.D.) and Rep. Kevin Brady (R-Texas), with their  proposal of the Death Tax Repeal Act of 2013, hope to insert that sense of justice into our tax code.

Thune and Brady proposed this act primarily because estates are not comprised only of liquid assets. Inheriting a valuable estate which primarily consists of fixed assets is a dangerous situation for the non-spousal survivor. Brady highlighted this problem when arguing that “the Death Tax remains the number one reason family owned farms and businesses don’t survive to the next generation.” While this bill has been endorsed by traditionally conservative entities, such as the American Farm Bureau Federation, it would positively effect liberals and conservatives alike.

Eventually, some children of same-sex spouses will one day inherit estates exceeding that $5 million mark, and they will join the children of heterosexual spouses in asking the terrifying question upon their parents’ death: How do I save the estate my parents have spent a lifetime building when it consists of fixed assets?

Rep. Kristi Noem (R-S.D.), at age 21, was hit with the brutal force of the death tax when her father died unexpectedly. “I was shocked when I got a bill from the federal government that said because a tragedy happened to my family, I now owed them thousands of dollars. For 10 years I paid on a loan to pay the federal government what I owed them and it made it very difficult for our family business to survive.”

Noem echoes Windsor’s account of her own experience as Spyer’s survivor, which provided the catalyst for her challenge to  DOMA’s definition of marriage. “In the midst of my grief I realized that the federal government was treating us as strangers, and it meant paying a humongous estate tax.”
Death is a tragedy which befalls every family. The federal government insists on compounding that grief by laying further claim to the estate, an estate which was taxed during the deceased’s life. This fiduciary travesty transcends the distinctions of “gay” or “straight.”

Financial success in life should not result in a penalty in death. People spend their lives building an estate that they hope to leave to their families, friends, or anyone else they so choose. The federal government places an excessive burden on the survivors of the deceased when they enforce this death tax. There are legitimate times and places for taxes. Death is not one of them. If the government has decided to respect the individual’s choice in love, let the government respect the individual’s choice in death as well.
Posted on 9:02 AM | Categories:

Eight Tips for Taxpayers Who Owe Taxes


While most taxpayers get a refund from the IRS when they file their taxes, some do not. The IRS offers several payment options for those who owe taxes. Here are eight tips for those who owe federal taxes.

1. Tax bill payments.  If you get a bill from the IRS this summer, you should pay it as soon as possible to save money. You can pay by check, money order, cashier’s check or cash. If you cannot pay it all, consider getting a loan to pay the bill in full. The interest rate for a loan may be less than the interest and penalties the IRS must charge by law.

2. Electronic Funds Transfer.  It’s easy to pay your tax bill by electronic funds transfer. Just visit IRS.gov and use the Electronic Federal Tax Payment System. You may also use EFTPS to pay your taxes by phone at 800-555-4477.  

3. Credit or debit card payments.  You can also pay your tax bill with a credit or debit card. Even though the card company may charge an extra fee for a tax payment, the costs of using a credit or debit card may be less than the cost of an IRS payment plan. To pay by credit or debit card, contact one of the processing companies listed at IRS.gov.

4. More time to pay.  You may qualify for a short-term agreement to pay your taxes. This may apply if you can fully pay your taxes in 120 days or less. You can request it through the Online Payment Agreement application at IRS.gov. You may also call the IRS at the number listed on the last notice you received. If you can’t find the notice, call 800-829-1040 for help. There is generally no set-up fee for a short-term agreement.

5. Installment Agreement.  If you can’t pay in full at one time and can’t get a loan, you may want to apply for a monthly payment plan. If you owe $50,000 or less, you can apply using the IRS Online Payment Agreement application. It’s quick and easy. If approved, IRS will notify you immediately. You can arrange to make your payments by direct debit. This type of payment plan helps avoid missed payments and may help avoid a tax lien that would damage your credit.
Taxpayers may also apply using IRS Form 9465, Installment Agreement Request. If you owe more than $50,000, you must also complete Form 433F, Collection Information Statement. For approved payment plans the one-time user fee is $105 for standard and payroll deduction agreements. The direct debit agreement fee is $52. The fee is $43 if your income is below a certain level.

6. Offer in Compromise.  The IRS Offer-in-Compromise program allows you to settle your tax debt for less than the full amount you owe. An OIC may be an option if you can't fully pay your taxes through an installment agreement or other payment alternative. The IRS may accept an OIC if the amount offered represents the most IRS can expect to collect within a reasonable time. Use the OIC Pre-Qualifier tool to see if you may be eligible before you apply. The tool will also direct you to other options if an OIC is not right for you.

7. Fresh Start.  If you’re struggling to pay your taxes, the IRS Fresh Start initiative may help you. Fresh Start makes it easier for individual and small business taxpayers to pay back taxes and avoid tax liens.

8. Check withholding. You may be able to avoid owing taxes in future years by increasing the taxes your employer withholds from your pay. To do this, file a revised Form W-4, Employee’s Withholding Allowance Certificate, with your employer. The IRS Withholding Calculator tool at IRS.gov can help you fill out a new W-4.

For more information about payment options or IRS's Fresh Start program, visit IRS.gov. Also, see Publications 594, The IRS Collection Process, and 966, Electronic Choices to Pay All Your Federal Taxes, for more information. Get publications and forms at IRS.gov or by calling 800-TAX-FORM (800-829-3676).
Posted on 9:02 AM | Categories: