5 Reasons Small Businesses Win With Online Accounting

L. Gary Boomer, CPA. writes: When Scott Cook founded Intuit 30 years ago, Quicken and QuickBooks soon followed, and a new industry was formed to help emerging small businesses and organizations automate their bookkeeping and accounting.  Today, the Internet and online capabilities are transforming small businesses and how they do their accounting.

Thirty years ago most accounting was done manually, on paper.  QuickBooks transformed accounting for small businesses by moving it from paper to the desktop.  Now we are going through a transformation that allows new players with improved processes to enter the market.  Will Intuit be able to innovate and hold off the new competitors, or will companies like Xero that provide online or cloud accounting for both clients and accountant practices gain significant market share?

No matter what happens, in my opinion the winners of the accounting wars will be accounting firms and their small business clients.  Why? With a collaborative platform, small businesses will be able to focus on their vision and growth, not on accounting.  Accounting firms will be able to capture transactions digitally and provide higher-value CFO and planning services with accurate and timely information.

Here are 5 ways online accounting will benefit small businesses:

1. Improved Cash Flow and Cash Management. Cash is king in any business, but especially in small business.  Today’s online systems connect to financial institutions resulting in less data entry and increased accuracy.  ACH payments and receipts reduce credit card fees and speed up collections.  Invoicing is also automated and collections happen faster through secure email than the obsolete postal service.

2. Focus on Business Growth. Most entrepreneurs prefer to focus on business growth, not on accounting, tax and administrative duties.  Online accounting makes it easier for accounting firms to handle multiple levels of service:

•             Level 1 – Transactional (bookkeeping, tax and reporting)
•             Level 2 – CFO Services (budgeting, cash flow and financing)
•             Level 3 – Planning (Strategic, Succession, and Technology)

3. Data Security and Privacy. Most small businesses use desktop systems and are vulnerable to the lack of backups, viruses and less than acceptable computing practices.  With online accounting, service providers manage the infrastructure and backups.

4. Access to Resources. CPAs are the most trusted business advisor.  With desktop accounting software, it’s difficult for clients and their advisors to collaborate.  Today, not only can accountants and their clients collaborate on transactional data, but the advisor can also offer higher valued services.  Small business clients can use the resources when necessary at a much lower cost than owning and maintaining the systems and related personnel themselves.

5. Mobility. Smartphones and tablets have changed how people access information.  Mobile devices are replacing desktop systems. Online accounting provides access to key information anytime and anywhere.

It is not about the accounting wars, but the transformation of accounting in small business and the access to trusted business advisors.  Small businesses and their accountants are the winners.

How Home Ownership Can Benefit You When You File Your Taxes

Mark Steber for the HuffPo writes: Taxpayers are constantly bombarded by the tax benefits of home ownership, but are often given misleading information including embellishment of benefits and other overlooked areas. I would like to take the time today to clear up some of the confusion around home ownership and its tax implications.

You are often told your mortgage payment will save you money at tax time, but it isn't often explained how and when your payment will save you tax dollars. Your mortgage interest, real estate taxes, and mortgage insurance premiums during the year, as well as any points paid at the time you close on your loan, can all be claimed as an itemized deduction on Schedule A. Itemized deductions are an alternative to the standard deduction for most taxpayers. In order to benefit from itemized deductions, the total of all allowed expenses from your home, as with interest and property taxes, your charitable contributions, select state income or sales and use taxes, certain miscellaneous expenses and some of your medical expenses must exceed the standard deduction amount for your filing status. In 2013, the standard deduction for married filing joint taxpayers is $12,200, $8,950 for head of household filers, and $6,100 for single taxpayers. As you can see, for married taxpayers without a home, it can be difficult to have enough allowed itemized deductions to exceed the standard deduction.

The first year a home is purchased can be a difficult year to itemize (depending on the timing of the purchase) because, the later in the year you buy your house the less interest and real estate taxes you will pay, making your itemized deduction total lower than needed in many cases. So when you buy a home is as important to your tax return as the size of your mortgage loan and other costs when it comes to itemizing. Even if you are unable to itemize in the first year of purchase you most likely will be able to in the second and future years.

Another easily misunderstood tax benefit is claiming a credit for energy efficient home improvements. Yes, if you upgrade your hot water heater, re-insulate your home, add new windows, or even upgrade your central air conditioning to a more energy efficient model you may be able to claim an energy credit for the improvement. The Energy credit has a lifetime total credit maximum of $500. The credit is 30 percent of the cost of qualified energy efficient home improvements with other maximum limitations based on the type of improvement. Contact a tax professional or go to the IRS website before you purchase any potential energy credit item. A few minutes of advice can help you save up to $500 on your taxes.

You may have heard you can claim your closing costs as a deduction the year you buy your home. With the exception of any real estate taxes you prepay for the year, mortgage interest, points, and mortgage insurance premiums paid when you close on your home, there is generally no other deductions you can claim from the closing costs paid when you bought your home. However, those closing expenses you can't deduct may help you reduce or eliminate any taxable gain if you sell your home in the future.

One of the largest tax breaks for a homeowner comes when selling your home. The tax laws allow you to exempt from taxes a gain of up to $250,000 ($500,000 if married filing jointly) when you sell your main home. Keep your closing papers in a safe place and any time you make an improvement keep a copy of the receipt and write what the improvements was on the receipt. You will need to combine many of the costs of buying and selling your home with the sales price and the cost of your improvements over the years, to determine your gain and then apply the exemption limit. While the cost of buying your home may not be deductible, they can certainly help reduce or even completely eliminate the taxes on your gain when you sell your home.

Buying a home is a very big life and tax return event. From being able to include mortgage interest expense, property taxes, and Private Mortgage Insurance and other deductions like charitable donations, medical expenses, and certain other miscellaneous expenses in itemized deductions to excluding from income a gain from a future home sale -- buying a home can put more tax dollars in your pocket. Talking to a tax professional before and after you purchase or sell a home can help you be prepared to make the most of available tax breaks.

The Deduction for State and Local Taxes

BRUCE BARTLETT for the NY Times writes: The federal deduction for state and local taxes, in the tax world often called the Salt deduction, is among the largest in the tax code, reducing federal revenues $77 billion this year: $25 billion for property taxes on owner-occupied homes and $52 billion for state income and other taxes. Conservatives have long had special enmity for this deduction, and it is one that Republicans are likely to include in their tax reform plans.

The Salt deduction is among the oldest in the tax code. The first income tax law enacted 100 years ago this year provided a deduction for all state, county, school and municipal taxes paid within the last year. It is not known why it was adopted, but lawmakers may have felt that it was fundamentally unfair to tax a tax.

A crucial reason that the Salt deduction is on the tax reform radar is that Congressional leaders have promised to maintain the current progressivity of the tax code and also reduce the top income tax rate to 25 percent. This means that they have to go after those deductions that primarily benefit the well-to-do.

As one can see in this table from Congress’s Joint Committee on Taxation, the vast bulk of returns claiming the Salt deduction and the greatest proportion of the dollars deducted are from those with higher incomes. Almost half the dollar amount of the deduction is claimed by those with incomes above $200,000.

Joint Committee on Taxation

This stands to reason, because those with incomes below $30,000 are largely exempt from federal income taxes; the value of all deductions increases the higher one’s tax bracket; tax rates rise with income; and the wealthy are more likely to be homeowners.

Another important factor is that the wealthy are more likely to live in the so-called blue states, those generally governed by Democrats, with big governments and high taxes. The table from the Tax Policy Center lists the top 10 states in terms of claiming the Salt deduction. Texas is the only red state; the rest are blue except for Ohio and Virginia, which are now considered purple – partly red and blue.

Tax Policy Center

The impact of removing the Salt deduction would be to raise the burden of state and local taxes by one’s marginal tax rate. Thus if one is in the 35 percent bracket and paying $10,000 in state and local taxes, the after-tax burden would be $3,500 greater without the deduction. Even if the top rate fell to 25 percent, one would be $2,500 worse off if the Salt deduction were removed.

Not surprisingly, leaders from blue states have long been among the strongest supporters of the Salt deduction. When the Reagan administration suggested curtailing it in the mid-1980s, Gov. Mario Cuomo of New York was thestrongest critic of the idea and helped kill it. He was attacked by the president’s communications director, Patrick Buchanan, as being a “glib, fast-talking lobbyist for a reactionary liberalism that would kill tax reform in its crib.”

Conservatives like Mr. Buchanan have long hated the Salt deduction because they believe it subsidizes liberalism and encourages states to impose higher income tax rates than they would without deductibility. They say it prevents states and localities from using more efficient fees, rather than taxes, to finance activities like trash collection and discourages privatization and the contracting-out of services. Fees paid to governments and private contractors for governmental services are not deductible; only taxes are deductible.

Conservatives also believe that the Salt deduction in effect allows blue states to export some of their tax burden onto the red states. As The Wall Street Journal recently put it in an editorial:

We believe in federalism, and if affluent liberals want to pay 13.3 percent of their income to live in San Francisco, that’s their foolish privilege. But it becomes everyone’s problem if some of that tax burden is effectively borne by residents of Knoxville, Lubbock and Orlando because of the federal tax deduction.

Some conservatives go further and advocate a tax policy explicitly targeting the blue states to punish them for their liberalism, including elimination of the Salt deduction. As Jim Geraghty of National Review Online put it in a Dec. 5, 2012, column:

Since the election, many conservatives have grumbled that they wish there was some way to raise taxes on only the 50.9 percent of Americans who voted for the president in November. This may be the option that comes closest to that.

While those in the blue states will undoubtedly fight any proposal to eliminate or limit the Salt deduction, one thing that should be kept in mind is that the deduction is already sharply limited by the alternative minimum tax, a separate tax system primarily affecting the wealthy that eliminates certain tax preferences, including the Salt deduction. Thus those covered by the A.M.T. have already lost the Salt deduction or had it curtailed, whether they realize it or not.

If tax reform is to be successful, it is important that everyone keep an open mind and not focus too much on any one tax preference. It is possible that other tax changes adopted simultaneously might significantly mitigate the negative effects of a particular tax change viewed in isolation.

Deductions for charitable investment gifts

Karin Price Mueller/The Star-Ledger writes: Q. Recently, you wrote about the option for people who are required to take a mandatory distribution from an IRA to direct the withdrawal to a not-for-profit 501(c)3 in order to avoid paying income tax. I believe you also said the donor could take a deduction for the gift. Others have told me you cannot take the deduction if the income is not earned. Which is it?

A. The tax code can be confusing and complicated, so the Brain is glad you asked.

Melody is referring to what’s known as a qualified charitable distribution, or QCD.

"The good news is that the American Taxpayer Relief Act of 2012 (ATRA) extended the qualified charitable distribution (QCD) through 2013," said Michael Maye, a certified financial planner and certified public accountant with MJM Financial in Berkeley Heights. "A QCD is when an IRA owner over the age of 70.5 years directs an otherwise taxable IRA distribution directly to a qualified charity."

The maximum amount allowed to be excluded from gross income from a QCD per year is $100,000, and it can be used to satisfy any IRA required minimum distributions, or RMDs, Maye said.

Qualified charitable distributions are payments of otherwise taxable amounts by an IRA trustee directly to a qualified public charity, or so-called "50 percent charities," and transfers to private foundations and donor advised funds are not allowed, said Gail Rosen, a Martinsville-based certified public accountant.

She said the rule cannot be used for distributions from SEP accounts, SIMPLE accounts, or qualified retirement plan accounts.

So what can and cannot be deducted in this case?

For tax purposes, the IRA distribution on a QCD is excluded from the donor’s income, May said. Likewise, the QCD is not allowed to claim a charitable deduction on Schedule A as an itemized deduction.

"This make sense from a tax perspective because an individual who makes a QCD has already received a tax benefit by not having to report an IRA RMD as income," Maye said. "In essence, someone who has made a QCD has already gotten a tax benefit from doing so."

Rosen said the fact that qualified charitable distributions are not included in the donor’s adjusted gross income (AGI) lowers the odds that he or she will be affected by various other unfavorable AGI-based tax provisions. Among them are a reduction of the threshold for deducting medical expenses, reducing taxes on the donor’s Social Security benefits, and reducing the threshold AGI so can qualify for phase-out of the $25,000 rental real estate exception to the passive loss rules and other income related tax deductions and income limits that rely on total AGI as a guideline.

Swizznet Offers Short-Term Leasing Option for QuickBooks Enterprise Solutions

 Swizznet, the premier QuickBooks® hosting and online accounting solution provider, today announced a new, month-to-month leasing option for Intuit's QuickBooks Enterprise 13.0, America's best-selling small business accounting software. By offering a leasing option, Swizznet gives small- to medium-size business customers (SMBs) an affordable solution for adding temporary or short-term QuickBooks users to its subscription without incurring the full licensing and annual support fees. 

Swizznet's cost-saving solution enables accounting firms and other SMBs to add individual QuickBooks Enterprise Solutions users in 30-day increments during high volume periods, such as tax season, without severely impacting the bottom line. And, since the leasing option is paired with Swizznet's industry-leading application hosting service, customers and their clients have an anytime/anywhere secure platform for accessing and sharing documents and data via any computer or mobile device. 

"Combining a QuickBooks lease with the power of Swizznet's cloud hosting is a terrific option for business owners that have fluctuating staff levels or who don't have the upfront capital to purchase the Enterprise licenses," said Kristin Callan, COO, Swizznet. "Plus, with Swizznet, you never have to worry about software updates -- you and your staff are always using the latest version. Leasing is also an attractive alternative to QuickBooks' standard five-user packs for those businesses needing to add just a single user."

Swizznet's QuickBooks hosting and cloud computing solution delivers a complete virtual office without the cost of maintaining a network. Utilizing industry-leading Citrix technology, users get the benefits of a robust network without the required investment, including unlimited data storage. It's a reliable way to collaborate and share sensitive accounting information and other documents with an internal bookkeeping team or remote consultants.

A few of the convenient features of Intuit's QuickBooks Enterprise 13.0:

• business data at a glance
• report customization
• automatic tracking of taxable deductions
• sales order fulfillment track sheets
• inventory stock status
• customer profiles
• automatic conversions (i.e., U.S. Dollars to Euros)
• batched timesheets

QuickBooks Enterprise, hosted by Swizznet, is just $114.99 per user, per month. For more information, call1-888-SWIZZ-IT (1.888-794-9948).

Tax Planning for Small Business Owners

Richard Lipton, CPA writes: Tax planning is the process of looking at various tax options in order to determine when, whether, and how to conduct business and personal transactions to reduce or eliminate tax liability.

Many small business owners ignore tax planning. They don't even think about their taxes until it's time to meet with their accountants, but tax planning is an ongoing process and good tax advice is a valuable commodity. It is to your benefit to review your income and expenses monthly and meet with your CPA or tax advisor quarterly to analyze how you can take full advantage of the provisions, credits and deductions that are legally available to you.

Although tax avoidance planning is legal, tax evasion - the reduction of tax through deceit, subterfuge, or concealment - is not. Frequently what sets tax evasion apart from tax avoidance is the IRS's finding that there was fraudulent intent on the part of the business owner. The following are four of the areas most commonly focused on by IRS examiners as pointing to possible fraud:

•    Failure to report substantial amounts of income such as a shareholder's failure to report dividends or a storeowner's failure to report a portion of the daily business receipts.
•    Claims for fictitious or improper deductions on a return such as a sales representative's substantial overstatement of travel expenses or a taxpayer's claim of a large deduction for charitable contributions when no verification exists.
•    Accounting irregularities such as a business's failure to keep adequate records or a discrepancy between amounts reported on a corporation's return and amounts reported on its financial statements.
•    Improper allocation of income to a related taxpayer who is in a lower tax bracket such as where a corporation makes distributions to the controlling shareholder's children.

Tax Planning Strategies
Countless tax planning strategies are available to small business owners. Some are aimed at the owner's individual tax situation, and some at the business itself, but regardless of how simple or how complex a tax strategy is, it will be based on structuring the strategy to accomplish one or more of these often overlapping goals:

•    Reducing the amount of taxable income
•    Lowering your tax rate
•    Controlling the time when the tax must be paid
•    Claiming any available tax credits
•    Controlling the effects of the Alternative Minimum Tax
•    Avoiding the most common tax planning mistakes

In order to plan effectively, you'll need to estimate your personal and business income for the next few years. This is necessary because many tax planning strategies will save tax dollars at one income level, but will create a larger tax bill at other income levels. You will want to avoid having the "right" tax plan made "wrong" by erroneous income projections. Once you know what your approximate income will be, you can then take the next step: estimating your tax bracket.

The effort to come up with crystal-ball estimates may be difficult and by its very nature will be inexact. On the other hand, you should already be projecting your sales revenues, income, and cash flow for general business planning purposes. The better your estimates, the better the odds that your tax planning efforts will succeed.

The Oddest Items People Tried to List as Tax Deductions (Click To View) / From a daughter's wedding to tattoos, people tried to list some very odd items for tax deductions this year, according to a TurboTax report.

Highlights of Cloud Accounting Apps

Nick Gholkar writes:. Major accounting firms face problems on a grand scale. It can be difficult to keep track of properties that are constantly shifting. Many accountants are looking for a way to make their job easier. That is why several companies have released accounting applications that utilize cloud software.

An article on www.zdnet.com lists a few companies' attempts to take advantage of cloud software to help with accounting. Cloud software allows for information to be shared across digital networks. This will help firms keep track of their properties from multiple locations.

Nick Gholkar explains the first app is named after its parent company, FinancialForce.com. Based out of San Francisco, the company is focused on innovating accounting software and integrating it with custom relationship management records. Larger businesses with a higher amount of assets will find better use from this application.

The next app is called FreeAgent and is directed towards lone accountants who work independently. This app provides simplified assistance with bookkeeping and invoice records. FreeAgent works well with PayPal and has a program in it that calculates and converts various countries' currencies.

Intacct is based out of San Jose, California, and has existed for roughly 14 years. Approximately 6,000 businesses use this company's software for their accounting needs. Intacct has software that manages various departments of a company including inventory, vendor relations, and financial reporting. Fast-growing companies can find the most benefit from this application.

Kashoo is a mobile application created in Vancouver. As of late spring of 2013, there are over 100,000 users. Firms can access Kashoo via their smartphone or tablet.

Monchilla derives its success from its simplicity. Thousands of businesses have been using this application since its inception in 2012. Monchilla offers a complete payroll component for tracking employees' assets. The application is compatible to other digital services such as Intuit QuickBooks.

Outright was created by two former Intuit employees who were looking to organize their financial data for their own startups. Outright is one of the top hits on Google Apps Marketplace with over 200,000 customers. GoDaddy purchased the company in 2012 and uses it to help manage small business assets.

The last two applications are focused more towards smaller accounting firms. Rhino Accounting can be integrated with Google Apps' accounting module for convenience and can recognize Google Contact lists. Wave Accounting is a free application that is great for small companies who want basic accounting features like payroll management.

"Accounting is becoming so much easier in the 21st century," says Nick Gholkar. "This new technology is simplifying the fund management process, which leads to a more efficient workplace. Cloud software is underestimated for the convenience it provides. Accountants can use cloud applications to share information across multiple databases. It's a revolutionary way to store and transfer vital data."