Why do I have to pay alternative minimum tax?

Claudia Buck for the SacBee writes:  Question: "Question about Alternative Minimum Tax. 

I have never qualified for this in past years. This year I retired and sold my house which I had to reportCapital Gains on. Do I have to pay Alternative Minimum Tax just because the Capital Gains pushed me into that tax bracket or is Alternative Minimum Tax only on Income received not including the Capital Gains? (being the Capital Gain is only a one time income?)
Thanks for your help."

Diane
Elk Grove, CA

A: The alternative minimum tax (AMT) is a separate tax calculation that was originally designed to force high income taxpayers taking advantage of certain tax breaks to pay a minimum level of tax. The tax uses two tax rates, 26% on the first $175,000 of "alternative minimum taxable income" and 28%, to any amount over that. Long term capital gain income gets taxed at the same 15% rate (20% for high income taxpayers starting in 2013) as for the regular income tax. IRS Form 6251 is used to calculate the AMT.

Alternative minimum taxable income is similar to taxable income for the regular income tax except certain deductions, such as state income taxes and real estate taxes, are not deductible in calculating it, and certain "tax preference items," such as depreciation expense, are calculated in a different manner resulting in lower deductions for AMT purposes. Personal exemptions are not deductible in calculating alternative minimum taxable income, either.

For 2012 there was a $50,600 exemption amount ($78,750 if married filing a joint return) in calculating alternative minimum taxable income, so most lower and middle income taxpayers are not affected by the AMT. The exemption "phases out" as your income goes up, which has the effect of increasing the tentative AMT. Tentative AMT is calculated by applying the AMT tax rate to your alternative minimum taxable income.

The way the AMT works, if your tentative AMT is higher than your regular income tax, you pay the difference in addition to your regular income tax. In effect, your tentative AMT becomes becomes a floor below which your federal income tax liability cannot fall.

Without seeing your return, my guess is the capital gain income pushed your income up, which, when coupled with reduced AMT deductions (no state income tax deduction, no real estate tax deduction, no personal exemptions) caused your tentative AMT to be higher than your regular tax resulting in your having to pay AMT. If the capital gain income was large enough, it may have caused the AMT exemption amount to be reduced by the phase out, effectively increasing your tentative AMT.

Read more here: http://blogs.sacbee.com/personal-finance-ask-the-experts/2013/08/why-do-i-have-to-pay-alternative-minimum-tax.html#storylink=cpy

An Internet tax? We can’t pay it (Small Businesses View)

Peter Olladart writes: I HAVE a great small business in Tacoma. We sell marine electronics, surveillance cameras and walkie-talkies for police, fire departments and schools. The company has been around since 1965 and has a nice niche in the local market. When the Internet came along, we expanded the business to sell online, which today employs two of the nine people.

In May, the bookkeeper, Pat, came by and said, “Hey, have you seen this article on the Internet tax? They want us to collect sales tax and remit returns for the whole country. The Senate just passed the bill and that’s an impossible amount of work. We can’t afford to do that.”

Those words started my first-ever political activism.

The bill, the so-called Marketplace Fairness Act, would grant states the authority to require online businesses to collect state sales tax from the buyer at the time of transaction regardless of location. This would pretty much end my ability to compete online.

The bill exempts businesses with out-of-state gross receipts of less than $1 million. An exemption that small is absurd. A million dollars in gross receipts sounds like a lot, but in a business with a 9-point profit margin, it’s only enough to keep one person with benefits employed full time.

Under the bill, states would first be required to simplify their sales-tax laws. There is a Streamlined Sales Tax Governing Board for the simplification effort, and it has four full-time staff. Don’t expect much help there. In 13 years, only 22 states have adopted the “simple” rules.

So how simple are the rules? Well, for starters, there are 9,600 tax jurisdictions inside the 45 states that collect sales tax. All these jurisdictions categorize and tax thousands of goods differently at different rates. All have different tax holidays, different rules for wholesalers, retailers and exemptions.

Then there are tax returns. Most states expect you to pay sales tax once a month. That’s 45 returns a month. I received a quote of $35 per return from one of the five Marketplace Fairness Act-anointed software providers to do this using QuickBooks version 9 or above. Do the math; it is nearly $20,000 a year to electronically file the returns. This does not include the work of getting the returns ready and dealing with audits by revenue-starved governments from around the country.

Well, who can afford to do this? The answer is large retailers, like Walmart, Home Depot, Best Buy and Amazon.com, who not coincidentallyare the biggest backers of the bill. Because they are nationwide, they already have to collect sales tax.

To add insult to injury, the bill proponents claim to be looking out for little guys, when in fact their biggest backers were responsible for the demise of many mom-and-pop stores long before the Internet saw the light of day. Lastly, the streamlined sales tax governing board gets a lot of their research provided by the big retailers and tax-software providers who will benefit immensely if the bill passes. This is special interest at its finest.

So what do I do now? By late May, I joined 650 other small business owners from around the country through the eMainStreet Alliance to kill this bill. Thirty of us, including me, traveled to Washington, D.C., to meet with lawmakers.

It was truly a great experience to walk the halls of Congress together for a common cause. I doubted the lawmakers would even listen to me, but they gladly did. Their message back was clear: Big retailers were lobbying hard for the bill and the members wanted the opposition to make their voices heard.

So here I am. This is a bad bill for small business. Please tell your member of Congress to vote no.

MLP ETFs Try to Address Tax Headaches

Tom Lydon for ETF Trends writes: Master limited partnerships provide attractive yields due to the way they operate but come with a number of tax issues. Investors, though, can look at a few MLP exchange traded funds that help limit the tax hassle.

MLPs are publicly traded partnerships known for their “pass-through” feature that help investors generate stable, predictable cash flows, writes Paul Baiocchi for Forbes. Additionally, distributions are largely tax deferred.

Investors, though, are required to pay income taxes in states where the MLP operates and have to report taxes on the K-1 form.

With MLP ETFs, investors won’t have to bother with the K-1 form and will have to fill out the normal form 1099.

However, MLP ETFs that hold more than 25% of their portfolio in MLPs are structured as C-Corporations in order to track an underlying MLP-related index. Due to the C-Corporation structure, they must pay corporate income tax on distributions before passing them to investors. Consequently, MLP ETFs may incur higher fees that would cut into overall performance, leading to an underperformance compared to the underlying benchmark. [A Closer Look at Master Limited Partnership ETFs and ETNs]]

Exchange traded notes, on the other hand, removes the corporate-level taxation problem and better reflects the full performance of the underlying index. The ETN, though, is an unsecured note issued by an underwriting bank and is taxed as ordinary income. [The 411 on MLP ETFs & ETNs]

First trust recently came out with the actively managed First Trust North American Energy Infrastructure Fund (NYSEArca: EMLP), the first RIC-compliant MLP product that doesn’t dilute the tax benefits of holding individual MLPs. However, by limiting MLP holdings to 25%, the ETF includes other energy infrastructure firms with similar characteristics to MLPs.

Additionally, the newer Global X MLP & Energy Infrastructure ETF (NYSEArca: MLPX) also limits holdings of MLPs and includes a basket of energy infrastructure stocks to eliminate the corporate-level taxation associated with C-Corporation ETFs. [Global X’s New MLP ETF Attempts to Avoid Tax Bite]

Cloutex Aims to Enable Full Synchronisation Between All CRM & Systems and Apps

Dmitri Sarle writes:  Most companies end-up using a variety of CRM solutions to manage their businesses. That is to say, there is no one single solution that would cover all aspects of the business reasonably well, so companies are forced to use a number of them. 

For instance you might end-up using Pipedrive for sales, ERPLY for stock management and POS solutions, Mailchimp for sending e-mails, Quickbooks for accounting, etc. The problem is, that all of these have their own database and they do not sync with one another.

What this means is that if one of your clients changes their e-mail address, you will need to manually update this information in all of the CRM’s that you are using. An Estonian startup, Cloutex, is aiming to change that by making a service that would achieve full synchronisation with all of your CRM solutions and update data everywhere, automatically for $19 a month. The real revolution of this idea is that you are not limited to just two systems and only updating new data, you can completely synchronise all data.

In essence, this allows to build a fully synchronised system for all of your CRM needs. This is the kind of stuff large corporations build, spending thousands and even hundreds of thousands on it.

There are of course competitors such as the Y-Combinator backed Zapier that raised over $1.2 million and is basically the “If This Then That” for businesses. However, Soren Hejnfelt co-founder of Cloutex tells us that “what exists in the market right now is an opportunity to link two different services together so that when something happens in one service, you can have that action copy or trigger another action in another service. What we are introducing is full synchronisation capability. In our platform we created an integration hub, which means that instead of connecting two systems, you can theoretically connect an unlimited amount of systems to the hub.”

To achieve this, Cloutex uses a central ‘Master’ database, which is updated from all the services and then pushes the necessary changes back. Cloutex promises that there will be no need for manual synchronisation as it is supposed to be completely scalable and automatic.

The technology uses a Java based synchronisation script, and has an algorithm that took over two years to develop and implement in order to take care of all the possible issues.

For instance Peter Mark, the CEO of Cloutex told us that if a lot of data changes simultaneously, the script would take the changes in batches and would only take 20-30 items per session to update the data.

Hejnfelt added that “If you look at how our system is built, it is not just about the script. First you need to translate all the service providers code into our language. Then we need to create a link between our language and our service API. Then our service API talks to the master database and then it needs to go out to one, two or maybe three other systems on the same hub. So there are a lot of links in there.”

A real-life example comes from their beta-client that was running two different Magento shops in different parts of the world. This meant that he had two separate business entities, with different accountants. So he basically had two Magento databases, two Quickbooks databases, one central Mailchimp database and a central Salesforce solution to monitor all sales, leads and accounts.

So before using Cloutex, he had to manually export Magento databases on a weekly basis and import them into two different Quickbooks accounts and also into Salesforce. Then he would have to add all the e-mails of new clients to the Mailchimp list. This is a lot of work, considering that he was thinking of opening a third shop. Cloutex told us that now all of this is done automatically. 

Peter Mark also told us that they have a very specific target market in sight - small to medium companies. In his own words “Cloutex is not for big enterprises, it is for small and medium ones. They are really looking around to find a solution and to avoid paying thousands of dollars for building their own custom scripts to run synchronisations. This is the pain that we are solving.”

The company received a seed round from Wiser, an Estonian investment company and is currently in the process of closing their next round. You can check out their explainer video below:

Aplos Software First to Offer Cloud-Based Fund Accounting Software Directly Integrated with Financial Institutions

Emerging Cloud technology is bringing new hope of reduced IT costs and increased flexibility, but the nation’s two million nonprofit organizations are just now enjoying the benefits. While there are a variety of online options for business accounting software, only a few companies have developed web-based software to meet the specific fund accounting needs of nonprofit organizations. In 2011, Aplos Software, LLC, debuted its Cloud fund accounting software. Today, Aplos Software announced the software can now securely import transactions directly from financial institutions - the first Cloud-based fund accounting to do so.

“With the power of Cloud technology, a nonprofit of any size can benefit from fast, secure and reliable software designed to meet their needs,” said Tim Goetz, CPA and co-founder of Aplos Software. “By partnering with Yodlee, an industry leader in financial data aggregation, we are helping nonprofits spend less time doing data entry and more time accomplishing their mission.”

The new Bank Integration app for Aplos Accounting will utilize Yodlee to securely connect to financial institutions so users can review and import transactions into their bookkeeping. For organizations with a high volume of transactions, this can be a significant timesaving measure and reduce the likelihood of an error in manual data entry.
An online nonprofit accounting software, Aplos Accounting was designed for nonprofits and churches to easily accomplish fund accounting without the complications and limitations of traditional desktop software. The new Bank Integration app to import transactions will be available for $4.99 per month. Other available apps for Aplos Accounting include Contributions Management, Accounts Payable, Budgeting, Bank Reconciliation and Check Printing.

As a web-based nonprofit software, subscribers can access Aplos Software products from any location or device with an Internet connection, have multiple users with role-based permissions, and enjoy automatic data backup. Aplos Accounting pricing starts at $11.99 per month for the base accounting software for one user. Pricing increases to $35.94 per month for up to five users with all available apps enabled. Nonprofits can register for a 15-day free trial of Aplos Accounting at http://www.aplossoftware.com. 

Online Travel Agencies / Expedia to Priceline Targeted as States Cry for Revenue: Taxes

Tom Gilroy for Bloomberg writes: Expedia Inc. (EXPE), Priceline.com Inc. (PCLN) and online travel companies may face a growing chorus of states raising tax rates on their transactions.

The principal advocacy organization for state legislators is calling on states to consider rules that would require online travel companies to pay hotel occupancy taxes on the full rental price paid by customers, and not simply the wholesale rate they have negotiated with hotels, Bloomberg BNA reported.

State and local governments are increasingly critical of the “merchant model” used by online travel companies, saying it puts local hotels at a disadvantage and hurts revenue collection as municipal budgets shrink. States including New York and North Carolina passed legislation requiring payment on the full room price. In South Carolina and Georgia, state supreme courts ruled taxes were due on the full rate, not the wholesale rate.

Expedia, Orbitz LLC, Travelocity.com LP and Priceline.com have argued for years in lawsuits around the country that the difference between what they agree to pay hotels to list rooms for rent on their websites and what they charge customers is a service fee for “facilitating” the transaction, and thus isn’t subject to occupancy taxes.

The National Conference of State Legislatures committee studied the issue and said last week that states should consider legislation that requires the companies to remit taxes based on the full rental price paid by the user.

The committee also said states should consider legislation requiring the companies to publicly and explicitly display charges and resort fees leading to the final price to the user; and require that taxes, fees and service charges be separately stated instead of bundling them together.

Sending Signal

The recommendation “sends a signal to elected officials in all 50 states that laws need to be clarified to ensure that hotels are not placed at a competitive disadvantage” because identical transactions by online companies have a different tax treatment, said Katherine Lugar, president and chief executive officer of the American Hotel & Lodging Association.

“Fortunately for taxpayers, legislators are beholden to their constituents -- constituents who don’t like new taxes -- not to an NCSL working group,” the online travel companies’ trade group, the Travel Technology Association, said in a statement emailed to BNA.

In addition to saying the “merchant model” shortchanges municipalities of taxes they are owed, many of the cities, counties and states that have sued in the past nine years have complained that the online companies intentionally obfuscate how much tax a customer is paying when renting through one of their websites.

June Ruling

A June ruling by an Illinois Circuit Court judge in a case brought in 2005 by the City of Chicago found that the online companies had breached a duty to taxpayers by such bundling of fees and taxes.

“Defendants, in their sole discretion, mingle hotel accommodations tax and travel service fees into one lump sum,” Judge Robert L. Cepero wrote in his summary judgment order and opinion. “The consumer is never explicitly told how much they are paying for hotel accommodations tax. The comingling shows that the tax collector, the OTCs, insulate themselves from accountability as to the exact amount of tax collected versus the exact amount of taxes due.”

The National Conference of State Legislatures doesn’t tell states what laws to adopt; rather it guides them should they consider legislation in a given area.

The task force, however, can have an impact. The group’s point-of-sale 911 fees legislation model it adopted in 2010 has now been enacted in more than 30 states, and disaster model legislation the task force approved in 2012 will be enacted in more than 15 states by the end of 2013, a task force official told BNA in June.

No Strangers

The online travel companies are no strangers to the corridors of power in state capitals, having lobbied for years for legislation to exempt their “facilitation” fees from occupancy taxes. Missouri did just that in 2010.

Efforts in other states, particularly in hotel-rich Florida, have fallen short, though a number of states have looked at legislation along the lines of the National Conference of State Legislatures resolution and chosen not to adopt it.