Thursday, August 15, 2013

Tips for Retired Boomers Looking for a Tax Professional

Casey Dowd for Fox Business writes: As boomers enter retirement, they leave behind the annoying alarm clock, rush-hour commutes, stressful deadlines and annoying co-workers. But one thing they can’t avoid is Uncle Sam.

Boomers’ tax obligations can get even more complicated when in retirement, so it is important to choose a knowledgeable tax professional or agency to work with. After all, according to the IRS, tax payers are legally responsible for their tax return, even if it is prepared by someone else.

Jill Franks, certified public accountant and principal at Rehmann, offered the following tips for choosing a tax preparer in retirement:

Boomer: What’s the best way to evaluate a tax preparer’s qualifications and professional history? What should we be looking for when selecting to work with professionals?

Franks: In general, your best choice for a tax preparer is a certified public accountant (CPA) or enrolled agent (EA). Both of these designations require annual continuing education in both their field of practice and ethics in order to maintain the certification.
In addition, most states now require formal background checks before issuing a license. While you can check with the respective governing board for any issues or complaints against a tax preparer, you will more likely learn more from client references, family, friends and business associates who may have worked with this individual previously.

Good sources for tax preparer recommendations are your attorney and your investment broker or advisor. These professionals have usually worked with many of the local tax preparers and can often make a recommendation for a tax preparer who would be suitable for your needs. In addition, these professionals often need to work together, especially when it comes to dealing with estate planning issues.

It’s important that both spouses are comfortable working with the tax preparer (and attorney and investment advisor) – not just the spouse who handles the finances. We all have stories to tell of the "financial" spouse dying first, leaving the "non-financial" spouse with the job of having to suddenly learn about the finances, the taxes, the estate plan, and the investments. It certainly helps a lot to have some level of comfort and trust with the professionals who have been involved previously.

Boomer: What should clients expect to pay in service fees when working with a tax professional?

Franks: This is a difficult question to answer because the fees are based on the complexity of the tax return and where a person is located. For example, a simple return in one locale might run $200 to $300, while that same return would cost $500 to $600 in another locale. Call several tax preparation offices in your town to get an average cost. Larger firms will generally cost more, but they also have a much deeper bench of experience and technical expertise, as well as a protocol for preparing and reviewing the tax return to help minimize any preparer mistakes.

Boomer: Do professional tax preparers e-file tax returns?

Franks: Yes, professional tax preparers e-file most tax returns now – at least those that can be e-filed. We still run into the occasional federal return that can’t be e-filed because it contains a form that hasn’t been authorized for e-filing yet, but the IRS continues to add more of these forms to the authorized list. We also occasionally run into state or city returns that can’t be e-filed. In addition to e-filing, we recommend direct deposit for refunds. This can speed up your tax refund dramatically – to less than 2 weeks in most cases.

Boomer: Would you recommend online tax return programs?

Franks: The online tax return preparation programs work fine for very simple tax returns (maybe just a W-2 and a 1099-INT for bank interest). The biggest problem with these programs is that they are usually in a question/answer format which requires an understanding of tax law that not everyone has. A prime example of this is when Junior, who is away at college, hurriedly files his tax return to get his refund using an online tax program and claims himself as a dependent. Then when his parents file their tax return, claiming Junior as a dependent, it gets rejected by the IRS because their dependent has already been claimed on another return. Then someone (a professional tax preparer) has to sort out who is actually qualified to take Junior as a dependent, and also the best way to file the returns to maximize his educational credits.

Boomer: Is there support offered to handle abusive tax preparers or suspected tax fraud?

Franks: Any complaints against a tax preparer should be made to the state governing board for a licensed professional and/or to the IRS. For a non-licensed tax preparer, all complaints should go directly to the IRS. Both the state governing boards and the IRS have websites which give information on filing a complaint or reporting suspected tax fraud.
Posted on 7:57 AM | Categories:

Understanding MLP Taxation / The tax implications of investing in master limited partnerships.

Matthew Coffina for Morningstar writes:  Master limited partnerships, or MLPs, can be an attractive alternative for investors seeking current yield and income growth. However, MLPs have different tax circumstances than common stocks, and you would be well advised to understand the tax implications before investing in MLPs. What follows is my best attempt to explain the key tax considerations. Please note that none of this is intended as tax advice, nor is it meant to be a comprehensive discussion. Please consult a tax professional for any questions about your personal situation.

The reason that master limited partnerships exist is to avoid paying corporate income taxes. Most publicly traded companies are organized as C corporations, named after their subchapter in the U.S. Internal Revenue Code. C corporations are treated as separate legal entities and have to pay corporate income taxes (generally 35% in the U.S., plus state taxes). Any dividends that C corporations pay to their owners (shareholders) are taxed again, as personal income. Until 2003, dividends were taxed at the ordinary income tax rate. 

The Bush-era tax cuts reduced the maximum tax rate faced by U.S. shareholders on qualified dividends to 15% as a way to mitigate the double taxation of corporate income and to equalize the treatment of dividends and capital gains. Subsequent legislation raised the maximum dividend tax rate for those in the highest income bracket to 20% starting this year.
Partnerships are different, in that they are not considered separate entities from their owners for tax purposes. Instead of paying corporate income taxes, MLPs pass their tax liability through to unitholders (ownership interests in MLPs are called "units" rather than "shares"). At tax season, investors receive a Schedule K-1 for each MLP owned, which informs them of their share of the MLP's profits. 


Importantly, investors owe taxes solely on their share of an MLP's taxable income each year, which is only indirectly related to cash distributions. The cash distributions themselves are treated as a return of capital for tax purposes, which reduces the investor's cost basis. In most cases, MLPs can use depreciation (a noncash expense) to reduce reported net income below the level of cash that is actually available to be paid out as distributions. Effectively, a portion of the cash distributions benefit from a deferral of taxes, as only the amount of taxable income is taxed (at the ordinary income tax rate, not the qualified dividend rate). Of course, there's a catch--any deferral of tax is recaptured when the units are sold.


I will illustrate with a highly simplified example. Say I buy 10 units of an MLP with a unit price of $100, for a total outlay of $1,000. I hold for just over one year and then sell my units for $105, for a 5% capital gain. During the year, the MLP pays me a 5% distribution, so $50 total. I am allocated taxable income of $25. The difference between the cash distribution and the allocated taxable income is due to depreciation and treated as a return of capital. Let's assume I'm in the 25% tax bracket.


So, what do I owe in taxes? The $50 distribution I received is not taxed directly. Instead, I owe 25% tax on my $25 share of taxable income, or $6.25. I also owe taxes on my $50 capital gain. Since I held for just over a year, I am eligible for the 15% maximum tax rate on long-term capital gains, so I owe an additional $7.50. Lastly, my cost basis has been reduced by the $25 of excess depreciation. This portion is treated as a recapture of past depreciation deductions and is not eligible for the preferential long-term capital gains tax rate. Instead, I have to pay tax at my 25% ordinary rate, for an additional $6.25 outlay. 


In this example, my pretax return was $100, or 10%--the 5% distribution plus the 5% capital gain. My total tax bill was $20 (=$6.25+$7.50+$6.25). My effective tax rate was 20%--$20 in taxes divided by my $100 pretax return. Note that this is above the 15% rate that applies to most long-term capital gains and qualified dividends in the U.S. (except for investors in the top tax bracket). However, there is a significant tax advantage to MLPs that my one-year example doesn't account for. The tax on capital gains and recaptured depreciation can be deferred as long as I don't sell my units. This is one of the reasons why it generally doesn't make sense to own MLPs in a tax-deferred account such as a 401(k) or IRA. The MLP already has an embedded tax deferral.


The other and far more important reason not to own MLPs in a tax-deferred account is that the Internal Revenue Service only exempts such accounts from $1,000 in "unrelated business taxable income," or UBTI. If your retirement account is allocated more than $1,000 in UBTI from all sources, you will have to file an entirely separate tax return (Form 990-T) on behalf of the account and pay taxes on any amount above $1,000, generally at a rate above your personal tax rate. Not only would this be a huge drag on performance, but it also would introduce a lot of unnecessary complexity. For this reason, we usually recommend investors keep any MLP investments in a taxable account.


The other big potential problem with MLP taxation comes from state-level taxes. Many MLPs operate across multiple states, and if you generate enough income in those states, there is a risk that you could be expected to file tax returns for each of them. The good news is that states generally allow you to forgo filing a return as long as your income in that state is below certain minimum thresholds. Since allocated taxable income tends to be a fraction of cash distributions, and that taxable income is often spread across multiple states, we usually don't have to worry about this. However, if you plan to make a large investment in MLPs, this is an issue worth investigating in advance.


As a general rule, it is almost impossible to determine what your taxes are going to be ahead of time with an MLP or to try to track the relevant information on your own. Fortunately, MLPs tell you everything you need to know on the Schedule K-1. However, this can add directly to your tax preparation costs if you use an accountant, or it will involve some extra steps in TurboTax or similar software if you do your own taxes.


The upside is that the extra tax complication scares many other investors away, which creates opportunities for those of us willing to do the paperwork. Morningstar StockInvestor has done exceedingly well with its MLP investments, including current holdings  Energy Transfer Equity (ETE) and  Enterprise Products Partners (EPD). I expect MLPs to remain a part of our strategy for the foreseeable future, as few other areas of the market offer the same combination of mid-single-digit yields, distribution safety, and growth ahead of inflation.
Posted on 7:57 AM | Categories:

First look: Sage 50 Accounts 2014 ‘VAT edition’

John Stokdyk for AccountingWeb UK  writes: 
Now in its umpteeth year, the 2014 upgrade for Sage's flagship UK desktop accounting package has been released to the market branded as “the VAT edition”. John Stokdyk explores the new features in the latest release.
Sage 50 Accounts has grown into such a distinctive package that you have to feel sympathy for the product development team when it comes to dreaming up features for new releases. To help this process, the company maintains meticulous records on support calls and wishlist requests and devotes a lot of time to product research.
During this year’s round, the company found that 56% of its customers had concerns about getting their VAT returns wrong and this finding drove the development of new VAT tools for the 2014 edition.
The new Manage VAT module steps you very briskly through the process of preparing a return, identifying and reconciling transactions and making any necessary adjustments very efficiently (see screenshot above). You enter the dates for which you want to prepare the return and Sage 50 will give you all the open transactions, along with notifications where they have not been updated or other issues have arisen. Reconciliation reports are available and tools to make adjustments if needed, but if your transactions are in order, you can click a button to reconcile them to the return (as shown above), click another to close them and a third button to file the return.
New stock management features
The other area that seems to have received the most attention in Sage 50 Accounts 2014 is stock management. The program has been equipped with a opening and closing stock wizard. It includes a spreadsheet-like grid if you want to conduct your own stock take, plus a facility to import an Excel or .CSV file. As part of the year end routine, a new tool lets you remove stock transactions and records, or clear stock on an individual product. If you then want to work out the closing stock value for the P&L, you can do this by hand, or you can click the stock wizard’s Calculate button to generate the value from your previous stock activity:
Sage 50 Accounts 2014 Stock management wizard
Multicurrency
Sage 50 Accounts will also make life easier for companies that trade overseas. A Foreign Trader set-up wizard comes as standard with the Professional edition of Sage 50 Accounts, and is available as an optional extra for cheaper versions. The routine lets you define the relevant currency for customer, supplier and bank transactions, based on current exchange rates. This means you can record the correct values and print the invoices and orders in the correct currency.
Charity tools
For charity users, Sage 50 Accounts 2014 can record and track donations under the Gift Aid Small Donations Scheme (GASDS) and will produce a Gift Aid and submission reports that can be filed electronically with HMRC.
Housekeeping
Serveral new tools also streamline the data management tools, including change your financial year option, which might help if you switch accounting dates, or if transactions are accidentally processed in the wrong year. For data maintenance, more tools are now available for users to archive their data at any time - not just during the year-end routine - and to run data checks, and reindex and compress the data if needed. This was an issue that the Sage 50 Accounts discussion group debated a few years ago.
Help confusions
All of these features are welcome, and obviously speak to the needs of existing users. But for someone like me returning to Sage 50 Accounts after a few years away the help system is a bit hit and miss. The information is in there, if you look but Sage appears not to be sure whether help should be delivered within the application or online help. Some answers are delivered by Sage Accounts Help within the application, while hitting the F1 key or other links such as the button within the VAT Manager launch a browser and take you off to a Sage helpdesk website (which containd the same information). Another help menu option promises webinars, so you can end up with 2-3 help windows open at once if you’re hunting for an obscure answer.
The YouTube videos were a bit on the irritating/simplistic side, but if you persevere through the “key feature” series you can find useful tutorials about using the application’s new tools.
The big question: Is it worth upgrading?
This is the question we ask every year of Sage Accounts 50. Sage customers who go for the priority Sagecover or monthly subscription options will be entitled to move already, but we know there are still lots of businesses and accountants who don’t want to follow the forced march along Sage’s upgrade path.
If you are a stock-based business trading overseas, Sage 50 Accounts 2014 is now a mature mid-market accounting package and a respectable rival to some more expensive options. And it has the advantage of working in a way that many users are familiar with.
AccountingWEB member ghewitt  injected a dose of cynicism to the discussion of the new version in our Sage 50 Accounts discussion group, by saying the upgrade worth talking about would be if Sage migrated to the SQL Server database. “Most of the updates I have encountered meant re-writing the Excel sheets I have created because it says “wrong data source” or some such when I refresh. Also the reports always seem to have a problem. There is only so much you can do before it just becomes updates for updates sake’.”
Sage 50 Accounts 2014
Target market Small and medium size businesses and their accountants. With generations of accountants having learned how to use it, Sage 50 Accounts remains the UK's most popular application, but is coming under pressure from simpler, cheaper cloud alternatives. Features added in the past few years make it an increasingly functional program for larger firms.
Cost From £619 for the basic one-person edition to £6,565 for a two-user edition with unlimited companies. The software and support can also be paid for with monthly subscriptions starting from £50/month.
Sage 50 Accounts 2014 - VAT return module
Strengths
● It's Sage 50 - having been taught how to use it, most accountants can find their way around it.
● Fast and easy to set up new companies, with comprehensive wizards and help routines
● Wide range of functionality to meet the needs of most businesses: customers/supplier records, purchase/sales orders, project accounts, Excel exports and flexible reporting tools (many upgraded in past few versions)
● Some basic CRM elements, including an in-application diary to schedule accounting tasks
 Mobile app allows for remote access to accounting records
● Enhanced Manage VAT module introduced for 2014 edition, along with new stock, multicurrency, charity and housekeeping tools
Weaknesses
● Runs on proprietary Sage database, which can throw up occasional data index and storage issues
● While interface has improved with a central dashboard and task bars in recent years, it still carries hints of its 20th century heritage
● While comprehensive and readily accessible, Help information is divided between in-application and online archives
● Prices for high-spec multi-user, multi-company editions can run into the thousands.
For more info, visit www.sage.co.uk/sage-50-accounts
Comments

Locutus's picture
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"The VAT Edition"    2 thanks

Locutus PM |  | Permalink
Everything that you describe for preparing the VAT Return sounds exactly the same as for the previous 10 + years of versions, albeit that the screen layout is now slightly different.
I left the Sage Accountants Club earlier this year, as many of my clients are going in the direction of the cloud.
In my view Sage needs a proper cloud version (not the cut down SageOne or the Online50 hosted version of desktop Sage). They also need the ability to import bank data via an automated feed that several of the cloud systems now do.
In my 12 years of being a Sage Accountants Club member, not much changed in the annual updates. Good to see I won't be missing too much with the 2014 version.

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"The VAT Edition"    2 thanks

njpandya PM |  | Permalink
I used to work with mid-tier accounting firm and currently working in industry. I agree to the above comments. I can reasonably say that I have used Sage in Practice, Manufacturing, industry and most of all sorts of  business type one can imagine except Solicitor accounting.
What I found little funny about Sage is just by adding some shiny, bit catchy dashboards they charge nearly a fortune of amount for being a club member. But I my humble opinion it's time to go SQL with cloud version. Now, the best thing I noticed about Sage is their support is remarkable and worth if you are a Sage fanatic.


Witch-Queen's picture
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'The VAT Edition'    3 thanks

Witch-Queen PM |  | Permalink
Although most of you know me as what might be described as a 'Sage fanatic', I totally agree with the two posts above.
Not much has changed since the layout changed in V12. The only change that made life easier was the ability to put the Bank rec and other list windows in order, which came in on V16 (I think)
The Verification part of the new VAT return is a nice touch, IF the user understands what they are looking at, but I can see this causing a lot of questions.
Most of the questions I get from people all over the country about VAT are not about how to run a return, they are about what the T codes mean and how and when to use them. Especially where EC sales/purchases are involved.
I am part of the Sage Usability & Design Panel and about a year ago I was asked to look at a possible new design for V20 (which I did not like) but nothing I was shown at that time has happened.
Every year it's just a few new bells and whistles that people may look at once but never use.
In my opinion there has been no point upgrading since V16 (2010)
Karen

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Sage upgrade

Myshkin PM |  | Permalink
I think if anyone has any shares in the Sage group out there they need to sell them fast if this is all they can come up with.  Blackberry here we come.

There is so much that needs fixing!  How about grown up drill down like every other product on the market for a start?  How about proper exports to Excel that Quickbooks have had for years?  How about being able to amend reports without paying a fortune to 3rd party developers or needing a degree in computer studies?  I could go on all day as could all the other intelligent users out there.
But then I guess all the things we need would mean Sage going over to SQL which they have tried to do in the past and failed.  They just weren't up to it.

Si_Woodhams's picture
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@ Myskin

Si_Woodhams PM |  | Permalink
There are drill down reports - been there since 2012.
And you dont need a degree or 3rd party to amend reports - it is fairly straight forward.
Excel exports - have you not looked at the latest version - you can export anything you want to excel?!

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Sage upgrade    1 thanks

Myshkin PM |  | Permalink
The drill down is hopeless - have you ever used TAS?  
Amending reports is very far from being straightforward - I started with Fortran in the sixties and have been involved in software ever since.  Have you ever used Quickbooks?

And the Excel exports are hopeless - have you ever seen Quickbook exports?

Sage is only rated because there are so many people out there who have never used anything else.

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Sage upgrade

njpandya PM |  | Permalink
This can happen if consumer like me to begin with are ready to embrace an understand much better & user friendly products. I really liked some of the above comments made above providing much insight to the way Sage is approaching today's accountancy market. Looking from 360 degree one thing is sure Sage fundamental belief has been acquire new company & grow but seldom focus on the main product.
Hope Sage largest shareholder gets the point we are trying to make!!


Locutus's picture
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Sage is in the wrong business    1 thanks

Locutus PM |  | Permalink
Sorry for turning this into an anti-Sage rant ... but I've been using it since 1998 and in a decade and a half their flagship product has hardly changed.
I've always felt Sage is in the wrong business as it is more of a marketing company than a software company, since so little seems to go into product development.
The improvement of the bank rec facility 5 or 6 years ago was useful, the recent-ish addition of drill down facility on reports is clunky, as is the report designer (which I'm not sure has ever been upgraded). There are a few minor Internet bells and whistles bolted on, but it has really been 15 years of minor incremental updates.
Sage Accounts 50 as it is now, is really a product of the 1990s. Something I know for certain - they will have to make some substantial updates in the next 15 years, or end up the same way as the likes of Kodak.

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Sage L50 I like it    1 thanks

sarah douglas PM |  | Permalink
Hi Yes I know there are those who do not like Sage.
What accountants need to remember is that the package is been used by business who use every module and use sage for analysis, Stock system, database, credit control, project costing.  It is not made with just accountants in mind.
Sage is actually very good at completing those analysis when entering original source document.  It is unfair to say those who like sage have never used anything else and this is simply not the case.  As I said in another post cloud is no where near ready for entering large volumes of data.   I still recommend Sage to my clients as I still think it is one of the best on the market.  
I pride myself in keeping up to date and trying new software out.  Not all my clients are on Sage because it would not suit them but there are plenty that is perfect for. The work  sage have done on the stock system over the last few versions has been a vast improvement . The fact is my clients run very good businesses and if a package was not correct they would tell you quickly.
I like cloud softwares but like I have said before Sage is for a whole business and not just the accountants .  This is why I believe Sage will still sell.  One item I do notice with my clients is that some of the cloud systems do not deal with floating liabilities and Assets very well for the balance sheet when you are presenting the balance sheet to clients .
In relation to pricing it is important to let your accountant manager know if you are not selling because of price and they do work with you on this one. Also my clients do feed back that they are impressed with Sage Cover if they have it.   It is up to everyone to decide what is right for them as all software programs have good points and bad points and I think Sage is a bit like Marmite - those who love or hate it .  
Whether you want to upgrade it up to anyone but so far I have had a good response from my clients on the demos.  Just to clarify I do not sell Sage for a commission or any gain.
Sarah Douglas Douglas Accountancy and Bookkeeping Services Glasgow                                                                                          

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v2014    1 thanks

johndon68 PM |  | Permalink

@Witch-Queen - In my opinion there has been no point upgrading since V16 (2010)
Hope you are well :)  Not sure I'd agree on that one, 2012 brought massive speed improvements over previous versions which were, in some instances, improved again in 2013...

@Myshkin - How about being able to amend reports without paying a fortune to 3rd party developers
3rd party developers get no better access to reports than end users, there is nothing they can do with Reports than anyone else...

@Myshkin - Sage going over to SQL which they have tried to do in the past and failed.  They just weren't up to it
I guess we will never know the real reason why they pulled the MySQL version but the disappointing thing is that they actually did appear to be up to - I saw it running with 30+ users entering invoices all at the same time into the same database that already had over one million records in it and the program didn't beak a sweat…  

I'd certainly agree that Sage appear to be struggling for new features although one that is in v2014 that is new and hasn't got much of a mention is that it is now possible to process foreign currency transactions if you are on VAT Cash Accounting which doesn't sound like much but has required a huge amount of development work.

John

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Speed Issues

sarah douglas PM |  | Permalink
Hi John Don.   I would agree that there were huge differences in speed.    I have 2013 on a 64bit machine 8GB and it is superfast.  I also have 2012 and 2013 on a 3GB and 32bit and there was a huge difference in the speed.   I have a lot of clients who us the 3rd party adds ons through Sage and this can make a huge difference to a business.Sarah Douglas Douglas Accountancy and Bookkeeping Services Glasgow

carnmores's picture
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QB 2014 arrives September

carnmores PM |  | Permalink
and you can now migrate sage files thru  ledgerscope (and a charge) to QB online , something to think about...........
Posted on 7:57 AM | Categories: