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Picking the Moment: Know When It is the Right Time to Switch From QuickBooks?

Kevin Lalor writes: In previous posts, we have noted that over 90% of small business and software startups use QuickBooks for their financial management system. In the beginning, there are many good reasons for companies to choose QuickBooks. However, software startups should realize that just because they start with QuickBooks does not mean that they need to end with it. There is a very real question software startups have to ask themselves: given the complexity of revenue recognition and VSOE compliance, at what point should they consider a QuickBooks replacement? To determine the right time for a change, today we will perform a comparison between QuickBooks and NetSuite, particularly the advanced revenue recognition module.

Courtesy of everyonemakesdecisions.com

In our comparison, we will first look at a compliance area and explain why software companies should be focused on it. We will then review each system and determine its effectiveness in addressing this particular compliance area:

GAAP Compliant Financial Statements – The purpose of GAAP financial statements is to present financial information in a way that it is easily comparable between companies. Investors, bankers, and suppliers are all interested in GAAP compliant financial statements. In addition, as companies grow, more compliance becomes necessary including audit trails, Sarbanes-Oxley, and user segregation.

Courtesy of slideshare.net

System Results - Although QuickBooks can produce financial statements, they are not GAAP compliant unless the company has also purchased additional reporting packages. On the other hand, NetSuite was designed completely with GAAP compliance in mind and GAAP financial statements are part of the standard reporting package.

In addition, QuickBooks does not track audit trails and grants users access to all parts of the system. NetSuite, on the other hand, provides audit trails, limits user access, and provides both the financial and IT information necessary to help companies show external auditors that they are SOX compliant.

Revenue Recognition – For today’s software company, multiple element arrangements are the rule, not the exception. Software companies do not just sell a license anymore. They sell software, hardware, implementation services, and post contract support. According to GAAP revenue recognition rules, each of these elements has to be separated and tracked separately. As they are completed and delivered, the revenue can then be recognized.

Courtesy of zdnet.com

System Results – As we have noted previously, QuickBooks does not track each element within a contract separately. Instead, revenue elements are tracked in a different system or in spreadsheets. On the other hand, NetSuite’s revenue recognition module does not just track each element separately, it automates it. Benefits of automation include increased productivity within the finance group and a faster month end close.

The other benefits of NetSuite revenue recognition module is that it can help companies track and establish VSOE. For software companies, establishing VSOE is the holy grail of revenue recognition compliance. When companies establish VSOE, they can more easily resist sales pricing discounts and they become a more attractive acquisition target.

There is no specific right time for all software companies to switch from QuickBooks to something better. However, if your company needs GAAP compliant financial statements and would like to automate revenue recognition procedures, it is time to switch from QuickBooks. Please contact us if you would like to learn more about NetSuite.

Should I or shouldn't I: A Roth 401(k) conversion

Ray Martin for CBS News writes: Many 401(k) plan service providers are sending announcements to plan participants regarding the availability of Roth 401(k) In-Plan Conversions within their employer's savings plan.

Recent regulations now allow participants to convert some or all of their pre-tax balances within their plan to Roth type savings. Although such a conversion would be immediately taxable, depending on your individual circumstances, this could be beneficial to you over the long-term. Roth type accumulations in your 401(k) account can be a good thing. Roth type funds allow for greater flexibility with regard to your tax strategy down the road in retirement by giving you a source of tax-free funds to withdraw from your account when you need it.

• Is your 401(k) enough?
• 401(k) contribution limit higher in 2013
• How to reduce taxes on IRA payouts

Previously, Roth in-plan conversions were available only if you underwent a "distributable event", meaning you had to become eligible to take a distribution from the plan. Now, if your plan allows, you can convert some or all of the pre-tax 401(k) savings you currently have within your 401(k) plan to Roth 401(k) savings regardless of whether you become eligible to take a distribution.

Roth 401(k) Basics

Roth 401(k) contributions and their potential earnings have a unique advantage: the Roth source money grows tax-deferred and these funds can be withdrawn tax-free if you are at least age 59 1/2 and have had the Roth 401(k) account for at least five years.

But before converting any pre-tax 401(k) savings to Roth 401(k) savings within the Plan, plan participants should carefully consider some important consequences.

Conversion taxes will apply to funds converted from a pre-tax 401(k) to Roth 401(k). In most cases, converting from pre-tax to Roth savings is a taxable event. If you convert, you may be subject to federal, state, and local taxes on all or part of the converted amount. The money that you convert to Roth 401(k) will be taxed in the year you make the conversion. If you have not experienced a distributable event (such as termination of employment) or otherwise become eligible for an in-service withdrawal then you will not have access to use the funds in your plan account to pay the additional taxes due on the conversion. Therefore, you'll have to pay any taxes due with funds from outside the Plan.

If you do have access to your Plan savings due to a distributable event and wish to withdraw money from your 401(k) plan account to pay the conversion tax, you will owe regular income taxes on the withdrawn amount and the conversion tax on the converted amount. If you're younger than age 59 1/2, an additional 10% federal penalty tax will apply to the withdrawal. Because of these drawbacks, I strongly suggest that people considering a Roth in-plan conversion do not go this route.

I am generally not a fan of Roth in-plan conversions. First, because the amount you convert will be added to your taxable income, this additional income could cause more of your income to be taxed in a higher income tax bracket. It's hard to justify when large balances are involved.

Second, you cannot undo a Roth In-Plan Conversion. Unlike a traditional conversion to a Roth IRA, a Roth in-plan conversion cannot be unwound. So if after the conversion, the value of your account falls, you will still owe taxes on the full and higher value of your account that was converted.

As I mentioned, Roth 401(k) money can be very valuable in retirement. If your 401(k) plan offers Roth type contributions, then consider making Roth contributions instead of pre-tax contributions to gradually build up some Roth type funds in your 401(k) plan. But a Roth in-plan conversion requires careful consideration due to the sudden tax consequences. If this is something you are considering, then consult a tax advisor before you take action.

NFL Players Can Save A Fortune With Tax Decisions

Kurt Badenhausen for Forbes writes: The NFL regular season kicks off Thursday night with the Super Bowl champion Baltimore Ravens visiting the Denver Broncos. The game features high-priced quarterbacks Joe Flacco and Peyton Manning, as well as rookies making the NFL minimum salary of $405,000. As far as jock taxes go, football players have the easiest tax returns among the four major sports because they play the fewest games–so they have the fewest number of returns (typically filing in 10-15 states and cities). But this does not mean tax planning for a football player is simple.

NFL general managers are constantly trying to restructure player contracts to serve teams’ needs while remaining under the salary cap. The byproduct of this wrangling is a string of ever-growing signing bonuses. This year Aaron Rodgersreceived $35 million in his new contract, while Flacco nabbed $29 million.

From a tax perspective, Tony Romo had the most interesting contract restructuring this offseason. As part of his contract extension, his agent and the Cowboys reshuffled his compensation agreement to pay him a signing bonus of $10 million plus a base of $1.5 million instead of the $11.5 million base he was due this season. On paper this looks like no big deal from Romo’s standpoint. After all, he is making $11.5 million either way. Actually, he is making a lot more, after taxes, under the new agreement.

Signing bonuses are generally taxable only in a player’s home state, provided contract language meets certain criteria. So under Romo’s contract, states the Cowboys visit in 2013 are taxing him based on $1.5 million of income instead of $11.5 million. The Cowboys do their players a great disservice by hosting training camp in California, where personal income tax rates are 13.3% for top earners.  But allocating a heavy portion of a player’s salary to a signing bonus becomes an even greater tax savings for players on the Cowboys who play and live in tax-free Texas. All told, the contract restructuring will save Romo nearly $300,000 in state taxes with $213,000 savings in California alone.

Aside from saving tax dollars on a player’s signing bonus, planning residency can save money utilizing reciprocity agreements between states. Flacco received a $29 million signing bonus this offseason and has a base pay of $1 million in 2013, as part of his new six-year, $120.6 million deal. Pennsylvania is an hour drive from Baltimore and close to where Flacco grew up, and currently resides, in New Jersey. Pennsylvania also has the lowest rate among the three states at 3.07%. Jersey’s rate is 8.97% and Maryland’s is 5.5% in addition to local rates, which run as high as 3.2%. Pennsylvania has a reciprocity agreement with Maryland and Ohio, which is home to two of the Ravens’ division rivals. Had Flacco set up residency in Pennsylvania instead of New Jersey, he could have saved over $1.7 million in state taxes in 2013 alone. Of course there is the personal element, and saving some tax dollars might not be worth moving further from family and friends.

Football is rare in that players get a week off during the season. The bye week is designed to give players a break and allow them to recover from the persistent aches and pains the long season produces. It can also be used as a tax-planning opportunity. Jared Allen of the Minnesota Vikings will make $14.3 million in base pay this year, second only to Peyton Manning’s $15 million base, according to salary database Spotrac.com. Minnesota boasts the NFL’s second highest tax rate at 9.85%. Allen resides in Arizona, whose top rate is 4.54%. If he goes home to Arizona during the bye week to work out, recover or get massage treatments instead of using the team’s facility in Minnesota, it will save him more than $33,000 in state taxes.

XERO / What we learned at Xerocon: It’s all about the solutions

David Markus for SmartCompany Australia  writes: I was sure that at Xerocon I would meet lots of people who were excited about cloud technology, so I was surprised by what I learned talking to hundreds of people who are running accounting and bookkeeping businesses based on Xero, the cloud solution that is growing at huge rates.

The people from Xero are talking up the cloud as a place to do business. The Xero partners are all about the cloud and creating applications and cloud integrations in powerful ways, but the kicker for me was that the bookkeepers were not too sure about cloud and other cloud solutions – they really did not seem too fussed about the technology.

What matters to the people signing up the clients is that the tools just work and that it makes their life easy. They kind of get that it looks after the backup for them, but they don’t do much to backup other systems as the perception is that by being in small business they have so much risk that a bit more risk with data is normal. The sense that they could spend a bit of money to reduce risk was actually unpleasant for them.

So Xero is not having massive success because it is in the cloud and that is what people want; it is having massive success because it has software that makes life easy for people, because it is easy and pleasant to use.

It is also because there is no barrier to entry for a new bookkeeping business or accounting practice to get on board and get subscribers signing up. Part of the brilliance of the offering is that the software and support for the bookkeepers and accountants is free. So a start-up bookkeeper who has done a six-week course to get certified can start adding clients to their portfolio and sign the new clients up to Xero for a low monthly subscription fee without investing in anything more than a cheap PC with a web browser.

The fact that is stunning is that 40% of Xero’s 75,000 clients did not previously use accounting software. So it is not that Xero is stealing market share from larger established markets, it is creating its own new markets from the newest and smallest businesses in the western world by reducing the barrier to entry for its product. The potential for this to grow exponentially on a global stage is tremendous.

There are so many business opportunities in this model that are sensational, bookkeepers can take themselves from employee to business owner in one step at almost no cost, the integrators who offer practice management solutions for the accountants are able to do well helping these growing bookkeepers to structure their growing businesses, the HR software people can team up to sell their solutions through this channel and so many other service providers and software providers can jump on board.

The interesting point is that the channel and the end clients are not necessarily tech savvy. They are simply consumers of technology who have grabbed a great tool because it works and have then been introduced to a world of integrated solutions. Selling to this audience is not about technology it is purely about the function the solution provides and how it makes people feel. Giving them a feeling of control, safety and capability is all important. Removing the barrier of cost which brings negative sentiments of pain, fear and inadequacy are key to the success of this business model.

No wonder the model has thrived in tough business times over the past five years. What can the rest of us learn from this success about making technology easy to access, empowering to use and above all else, functional for the people who use it?

In a country like Australia where there are now over two million businesses where the majority of them turnover less than $200,000 per annum, building these pain-free on-ramps to technology and services is essential to the health of our economy.

For the IT industry, the job ahead is to make the technology go away, make the devices in our hands stable powerful and connected to tools that are simple enablers for the way we want to live and work. We need to stop scaring people into protecting their data and simply help them to use safer systems.

How will these sentiments scale up into the SME and mid-market segment?

Staying in the 15% (or Lower) Tax Bracket

Bob Carlson for Investing Daily writes: Most retirement tax planning and tax discussions have the wrong focus. They look at marginal tax rates, or the tax rate on the next dollar of ordinary income earned. If you’re married and earning $50,000 annually, for example, your next dollar will be taxed at the 15% rate.

That’s a fine approach during the working years of most people. For retired people, some self-employed people, and a few other taxpayers, that’s the wrong approach. Different types of income are taxed at different rates. In retirement, you also might have control over when income is received and what type of income it is. These factors can make your tax planning much more effective.

A better approach is to focus on your effective tax rate. This is the percentage of all your sources of income that is paid in income taxes. Many retirees can structure their income so that the effective tax rate is much lower than during their working years and than the effective tax rate on someone earning the same amount in salary.

A savvy retiree can keep the tax rate around 15% without taking a drop in income by making adjustments in investments, retirement plan withdrawals, and other income sources.

Take a look at the important factors. For married couples filing jointly, ordinary and earned income are taxed at the 15% rate until taxable income exceeds $72,500 in 2013. (For single taxpayers the ceiling is $36,250.) Qualified dividends and long-term capital gains are taxed at the 20% rate, regardless of their amount. (Long-term capital gains on collectibles, including precious metals, are taxed at a maximum 28% rate.) For taxpayers in the 15% or lower marginal tax bracket, long-term capital gains and dividends are taxed at 0%. In the 25% and 35% tax brackets, long-term capital gains and qualified dividends face only a 15% rate.

Social Security benefits are tax free until adjusted gross income reaches $32,000 for a married couple filing jointly or $25,000 for a single taxpayer. Distributions from Roth IRAs and interest from state and local bonds generally are tax-free.

Don’t forget those rates are on taxable income. Before getting there, you have exclusions, exemptions, and deductions. You reduce gross income by personal and dependent exemptions. Then, you have either the standard deduction amount or your itemized expense deductions, such as state and local property and income taxes, medical expenses, and charitable contributions. You also might qualify for tax credits, such as the foreign tax credit on foreign investments.

Now, let’s look at how you can use these features of the tax code to minimize your effective tax rate.

* Wait to take Social Security benefits. We discussed strategies for beginning Social Security benefits in past visits. As a general rule, delaying the benefits not only increases the amount of benefits but also increases your tax-exempt income.

* Defer traditional IRA distributions until you have to take them after age 70½. As we’ve discussed in the past, your nest egg lasts longer when taxable accounts are spent first.

If you’re relatively young consider the opposite, emptying your traditional IRA early.

* Make charitable contributions from your IRA. For 2013, the special tax treatment of charitable contributions from IRAs still applies. You must be over age 70½, and the charitable contribution must be made directly from the IRA to the charity. You don’t receive a deduction, but the distribution isn’t included in gross income. This can be used only up to $100,000 for the year.

* Seek tax-advantaged income in taxable investment accounts. Consider receiving some of your income from stocks or mutual funds that pay qualified dividends. Most U.S. corporate dividends qualify (though real estate investment trust distributions don’t) and many foreign corporate dividends are qualified.

Also, consider master limited partnerships, which pay a lot of tax-advantaged income in the early years of ownership. The taxable income can climb after a decade or more or when you sell the shares, but the taxes can disappear when you leave the shares to your heirs, who get to increase the tax basis.

For fixed income, consider purchasing tax-exempt bonds instead of corporate bonds or treasury bonds.

* Managed taxable accounts to minimize taxes. Of course, you should avoid taking profits until you’ve held an asset for more than one year, if that makes investment sense, so the sale qualifies as long-term capital gain. Look for assets that have lost value. Sell them to capture the capital loss. It offsets capital gains for the year dollar-for-dollar and up to $3,000 of additional losses offset other income. Any excess losses can be carried forward to future years to be used in the same way.

When you still like the asset, you might be able to re-purchase it. For stocks and other securities you have to wait more than 30 days before repurchasing a substantially identical asset, if you want to deduct the loss now. To stay in that sector or market, instead you can purchase the stock of a competitor or a sector ETF. For mutual funds, you can purchase a fund of a competing mutual fund company that has a similar style or investment approach.

* Capture all your tax benefits. If you have foreign investments that pay taxes, take the foreign tax credit when it’s allowed. Take all the itemized expense deductions you’re permitted to reduce your taxable income.

* Be careful about annuities. I recommend that most people have a portion of their retirement portfolio in immediate annuities. These provide guaranteed income for life. When you purchase them with after-tax money, such as from your taxable accounts, a portion of each distribution will be tax-free for your life expectancy.

But don’t overload your portfolio with annuities. All income and gains distributed from them is ordinary income. Some people are putting a high percentage of their portfolios into annuities with various guarantees and other features. Not only do these features come with high fees, but you’re also converting potential tax-advantaged income such as long-term capital gains into ordinary income.

As always, don’t let the tax code alone dictate your financial strategies. But instead of focusing on income, focus on after-tax income. Be sure that an investment or strategy really is more attractive after considering its after-tax effects.

IRS Rule Leads Restaurants to Rethink Automatic Tips / Gratuities Added for Large Groups Will Be Taxed as Service Charges

Julie Jargon for the Wall St Journal writes: An updated tax rule is causing restaurants to rethink the practice of adding automatic tips to the tabs of large parties.

Starting in January, the Internal Revenue Service will begin classifying those automatic gratuities as service charges—which it treats as regular wages, subject to payroll tax withholding—instead of tips, which restaurants leave up to the employees to report as income.

The change would mean more paperwork and added costs for the restaurants—and a potential financial hit for waiters and waitresses who live on their tips but don't always report them fully.

Darden Restaurants Inc., DRI +1.21% owner of Olive Garden, LongHorn Steakhouse and Red Lobster, has long included automatic 18% tips on the bill for parties of eight or more at its more than 2,100 restaurants, but is experimenting with eliminating them because of the IRS ruling, said a spokesman.

The chain in July stopped automatic tips at 100 restaurants in four cities, where it is testing a new system in which the restaurants include three suggested tip amounts, calculating for the customer the total with a 15%, 18% or 20% tip on all bills, regardless of party size. Diners can opt to tip more or less than the suggested amounts, or to not tip. Depending on how patrons react and how well the new software system works, Darden may switch to such suggested tips at all of its restaurants. A spokesman said the company will decide by year-end.

Texas Roadhouse Inc., which includes a tip of 15% for parties of eight or more at many of its more than 390 restaurants, is planning to phase out automatic gratuities by the end of the year, a spokesman said.

"I think the vast majority of restaurant owners will discontinue the practice," says Denise Wheeler, an employment attorney in Fort Myers, Fla., who represents several restaurant chains.

The change will complicate payroll accounting for restaurants that stick with automatic tips, because they will need to factor those tips into pay, meaning hourly pay rates—could vary day to day depending on how many large parties are served.

Restaurants are required to report to the IRS what its employees report receiving for tips and to pay Medicare and Social Security taxes on those amounts. Restaurants are eligible for an income-tax credit for some or all of those payments, but service charges aren't eligible, according to Marianna Dyson, a payroll tax attorney in Washington, D.C., who represents restaurant chains.

The change comes amid increasing costs and record-keeping requirements for restaurants. In January, restaurants with 50 or more full-time workers will be required to offer health coverage to employees working 30 or more hours a week, though penalties don't begin until 2015.

Restaurants adopted automatic gratuities to help ensure that their servers—whose tips supplement a salary that is often less than the federal minimum wage of $7.25 an hour—weren't stiffed on large tabs. But many servers are likely to support dropping the practice because they don't like the idea of their tips being treated as wages, which requires upfront withholding of federal taxes, and means they won't see that tip money until payday.

"I don't want my tips to be on my paycheck as a wage. I like to get my tips at the end of my shift because I know what I'm getting right away," says Tamie Cordoba, a 54-year-old server at a LongHorn Steakhouse in Jacksonville, Fla.

Ms. Cordoba makes base wages of $4.25 an hour, or $144.50 to $161.50 for her average workweek of 34 to 38 hours. She said she usually makes an additional $500 to $650 a week in tips. Since she never knows exactly how much she will get each week in tips, getting paid at the end of each shift helps her budget, Ms. Cordoba said. "In this industry, that's what we live on. If I had to wait two weeks I don't know how I'd survive."

The Cheesecake Factory Inc. suggests an 18% gratuity for parties of six or more, says a spokeswoman, but "We advise our guests that leaving a gratuity is always discretionary." She said the company is now reviewing its policy.

The IRS ruling was issued in 2012 to clarify and update earlier tax guidance on tips, which didn't spell out how automatic tips were to be treated. Restaurants persuaded the agency to delay implementation until next year.

In a statement, the IRS said it noticed an increase in the use of "auto-gratuities" and that it believed "additional clarification in this area would be in the best interest of tax administration."

The updated rule says the automatic tips are service charges because they aren't voluntary. In a question-and-answer section of the ruling, the IRS provided an example of a restaurant suggesting different tip amounts, and said that practice isn't subject to federal withholdings because the customer is still free to choose whether and how much to tip.

Still, the ruling has caused some confusion. Some restaurants insert an amount on the tip line and then remind guests on the check that they are free to adjust that amount up or down. Ms. Dyson, the payroll tax attorney, said that practice could come under scrutiny from the IRS. "How far can you go before the IRS says that looks like a service charge?" Ms. Dyson says.

401(k) Plans Add More Personalized Advice / Few retirement savers take advantage of the professional advice offered in their 401(k) plans. Advice providers are trying to change that.

Kelly Greene for the Wall St Journal writes: Investment help is available for the taking in many 401(k) retirement-savings plans, yet few employees actually take it.

  In an effort to change that and win more business, big advice providers such asMorningstar Inc. MORN +0.54% and Financial Engines Inc. FNGN +4.35%are trying a new tack: They are adding more personalized, low-cost advice, much of it aimed at investors nearing retirement.

Morningstar, for instance, now offers guidance on how to create an income stream in retirement, a task many near-retirees fear. Financial Engines, meanwhile, has expanded into managing individual retirement accounts since many workers roll their savings into IRAs once they stop working.

While it can be tough persuading workers to pay closer attention to their workplace savings plans, research suggests a little hand-holding would do some of them a lot of good. Indeed, studies have shown that retirement savers who embrace professional help typically end up saving more.

A few years ago, a survey by Charles Schwab Corp. SCHW +3.36% found that 70% of 401(k) account holders doubled their savings rate—to an average of 10% of their pay annually—after getting investment help. Even something as simple as using an online calculator reduces the probability that a lower-income investor will run out of money in retirement by 14 to 18 percentage points, a survey this year by the nonprofit Employee Benefit Research Institute found.

Yet the nonprofit Plan Sponsor Council of America found in its own survey that fewer than one in five workers with access to investment advice via a workplace savings plan was tapping it in 2011.

"The underlying reason for those who didn't take it was without a doubt that they didn't want to pay the cost," says Jack VanDerhei, research director of the Employee Benefit Research Institute.

A Difficult Task

Morningstar is betting it can win more business by focusing on workers who will soon face the mind-blowing task of piecing together a paycheck from fragmented retirement accounts, Social Security payments, annuities, pensions and other savings.

In May, the company revamped its Retirement Manager service, which provides advice and account management to more than 800,000 participants in defined-contribution plans, including a piece called Income Secure. Income Secure now looks at all of the worker's holdings in taxable and tax-deferred accounts, along with Social Security retirement benefits, and outlines how much the worker should pull from each account each year, keeping in mind taxes and the Internal Revenue Service's distribution requirements for tax-deferred accounts.

"The goal is getting the best after-tax return," says David Blanchett, Morningstar's head of retirement research. "It's very personalized."

As part of the overhaul, Morningstar also switched to what it calls a "liability-driven" investment method, meaning it considers investors near or in retirement as having different risks—mainly keeping up with expenses—than younger workers who are still earning a salary. The method also places a higher importance on the risk of inflation, says Jim Smith, Morningstar's vice president for client services.

Within 401(k)s, companies such as Morningstar typically run managed accounts using a computer program that factors in the saver's age, pay, expected retirement date and contributions. Rebalancing and adjustments are done automatically. The cost of Morningstar's managed accounts ranges from 0.2% to 0.9% of assets annually, though some IRA administrators and employers offer it at no cost to savers.

Tools of Engagement

Financial Engines and GuidedChoice Inc., another provider of investment advice, also have added IRA investment advice and account management with the aim of keeping as customers the people who roll their 401(k) balances into IRAs upon retirement. Financial Engines' fees for managing IRA accounts range from 0.45% to 0.75% of assets annually, slightly more than it charges for 401(k)s.

The 401(k)-plan administrators, meanwhile, also are adding services for plan sponsors who are seeking to encourage their workers to pay closer attention to workplace savings accounts.

Last year, Schwab automatically enrolled participants in its low-cost 401(k) product, which features a menu of index mutual funds and costs an average 0.15% annually, in an investment-advisory service provided by GuidedChoice. Though the advice component adds a 0.45% fee, almost 90% of participants in Schwab's product opted to keep it.

Vanguard Group Inc. is trying to get 401(k) investors to save more with tools like a speedometer-like "Boost your savings" dial that shows the person's savings rate and suggests a range of increases. Plan participants can turn the dial to the number they want, and then submit a request to boost their savings rate. From December through May, those who used the dial boosted their savings rate by an average of two percentage points, Vanguard says.

Vanguard also added "retirement-analysis alerts" to prod savers to use one of the two investment-advice services offered in their 401(k) plans. From January through May, 12% of those who responded tried Vanguard's Personal Online Advisor service, which provides a personalized forecast and fund recommendations through Financial Engines. And 6% enrolled in Vanguard's managed-accounts program.

Elsewhere, Guardian Retirement Solutions, a unit of Guardian Life Insurance Co. of America, created a new website in June, 401k.guardianlife.com, with retirement-planning tutorials, calculators and videos. The site also has a questionnaire that helps account holders decide whether they are "do-it-for-me" or "do-it-myself" investors—and points the former toward target-date funds or managed accounts.

And Pensionmark Retirement Group, which works with 750 corporate retirement plans, in May rolled out a Financial Wellness program designed to help workers in those plans make more informed decisions about their future finances. A Personal Financial Portal gives them one place to track spending, create budgets and access workshops to assess whether they're on track to meet their financial goals.

6 ways to cut your income taxes after a windfall

Robert Pagliarini for CBS News writes:  The money you get when coming into sudden wealth, whether through a lawsuit settlement, business sale, entertainment or sports contract, or stock options, can disappear in a hurry if you don't the manage federal and state income taxes correctly. 

For example, let's consider a $20 million lawsuit settlement. After 40 percent is paid to the attorney and up to 54 percent is paid in federal and state taxes, you may be left with closer to $5 million. While still a windfall, you may be able to keep more of the money using the following methods.

1. Create a pension. Don't be discouraged by the paltry IRA or 401(k) contribution limits. A defined-benefit pension can allow you to shield a large sum of money from taxes. A married 45-year-old may be able to shelter up to $320,000, while a married 55-year old may be able to protect up to $530,000. This technique works best when you can contribute funds over multiple years, so splitting your windfall over the course of two years is ideal. This will allow you to contribute the maximum to the pension this year and next. Using a pension to minimize taxes only works if the windfall is earned income (sorry lottery winners).

2. Create a captive insurance company. This is an advanced strategy that requires having the right tax and legal team, but the rewards can be worth the cost. The IRS allows you to deduct up to $1.2 million if done correctly. "A captive insurance company is an attractive structure that can provide a terrific result in terms of risk management, estate and gift tax planning, asset protection planning and income tax planning," said Los Angeles tax attorney Bruce Givner.

3. Use a charitable limited liability company. By using a charitable limited liability company, you may get a deduction of approximately 85 percent of what you contribute. Of course, this only works if you have an interest in giving and have a favorite charity you would like to support. Said Givner, "This is a strategy where the client ends up with an LLC that is full of money that can be used for investment -- including loans for business opportunities -- and the charity receives a steady stream of revenue for its membership interest."

4. Use a charitable lead annuity trust. Structured properly, a so-called CLAT can create a large income tax deduction. These trusts have been around since the 1970s and are popular among the mega-rich. Users contribute money ti a trust and determine a certain amount that will be withdrawn and sent to a charity. The remaining assets come back to you after a certain time period -- the longer the time period, the larger the deduction. For example, a 20-year term may provide you with nearly a 90 percent deduction, while a 10-year term will provide a 47 percent deduction. This is a strategy Givner recommends because "The client gets a large upfront deduction, and then at the end of 10 or 20 years gets all of the assets back, probably at a time when the client will appreciate them even more."

5. Take advantage of tax benefits to farmers. The federal and state governments provide all kinds of tax breaks for real estate investments involving agriculture, whether in avocados, grapes, pistachios or honeybees. Among the celebrities who have capitalized on these tax benefits provided by Congress to farmers are Jon Bon Jovi, Bruce Springsteen and Ted Turner.

6. Buy commercial property. Depreciation is a double-edged sword. When you drive a new car off the lot and you instantly lose 20 percent of its value, depreciation is not your friend. But depreciation can work for you, too. Here's how: Buy a commercial or industrial building and use component depreciation, also called cost-segregation accounting. "Depending upon the building, you may be able to depreciate up to 40 percent of the value of the building within the first five years," Givner said. 

A windfall is worth only as much as you get to keep. While you won't be able to avoid all income tax on your sudden wealth, the strategies above and other methods can minimize your tax exposure. Get the right tax, legal and financial team together to analyze your options before Uncle Sam comes calling.

How to Prepare the S Corporation Income Tax Return

John Dillard writes: Got a new business and want to be sure to select the right entity for your business?  Looking to prepare your tax return for your new S Corporation?  Atlanta CPA Teaches How to Prepare the S Corporation Income Tax Return

A Guide How to Guide to Prepare a K-1

Continuing to unlock the mystery of the practical aspects of preparing a Corporation Income Tax Return is critical to a business owner not only understanding the nuances of how the return works but also its tax consequences.

In our past article we addressed the hypothetical example of ABC Company while presenting its cash based Profit & Loss statement. As a business owner, you are to list all of your valid business expenses to determine the company's net income per the internal books and records. As an S Corporation is a "flow through" entity it does not pay any income taxes at the corporate level but instead these earnings flow down to the owner’s personal return where the profits (loss) are reported and accordingly reflected on the owners own Form 1040. It is there when combined with the other personal income tax issues of the owner that the S Corporation taxable income is determined and paid. In beginning to lift the veil on how to properly prepare a K-1, we have reflected below only the book to tax adjustments of our sample ABC Company to illustrate how the K-1 is prepared. This reconciliation shows how tax preference and adjustment items are reflected on the K-1 (which is a part of the proper filing of Form 1120S/the S Corporation Income Tax Return).

Cash Based Net Income per the Company P & L $ 6,000

Add Meals and Entertainment (fifty percent deductible) 2,000

Add Section 179 Depreciation (a tax preference item)* 10,000

Add Contributions, which are also tax preference item 1,000

Taxable Income per the Return $19,000

*Section 179 Depreciation is limited by tax law to both statutory limits and the amount of profit a business has (i.e., Section 179 Depreciation can be cannot be utilized in a tax year that it creates or there is a loss). Also care should be taken on the personal return to ensure that maximum amounts of Section 179 are not "blindly" reflected as the statutory limits apply at the personal return level, as well. This is usually not a problem with a single owner business, but can be potentially problematic when an individual may have investments in several different business ventures where, when aggregated, the maximums may be a limiting factor. Generally any Section 179 that is not available in a given year to generated a current tax deduction, may be carried forward to future tax years on the returns where there may be no such limiting factors (such as maximums or profits in a roll-forward year).

A K-1 reflects an owners prorated share of the corporations income, deductions etc. If you are the sole owner of an S Corporation then you will reflect the whole of the K-1 items on your personal return. However, if you are in an S Corporation where there is more than one owner, then the K-1 will reflect only your proportional share of the business operating results. 

Thus in the above example if you were an owned sixty percent of an S Corporation, then you would receive $11,400 ($19,000 Taxable Income per the Return (see above example) times your sixty percent ownership) with other owners receiving a K-1 for their respective portions.

A shareholder who receives a K-1 will be responsible for the payment of the applicable income taxes whether or not any of the earnings or profits is distributed. Thus, shareholders should expect to pay taxes on monies when they are made and not when the actual cash profits are distributed and received into the owner’s personal bank account. Unlike an LLC, LLP or Partnership an S Corporation K-1 owner will not be responsible for the payment of self-employment taxes for reported income on a K-1 as monies from an S Corporation are not self-employment income, by tax law definition. Due care, however, should be exercised to always ensure that a reasonable salary is paid to all active owners as required by law. 

The best test of what would constitute a fair salary is what a business would have to pay an independent party for the same services being rendered by a shareholder to the business.

Generally an individual taxpayer will report items on their personal return in the same way that they are reflected on the K-1 and the Corporate Income Tax Return itself; Form 1120S. If you believe a K-1 has been issued to you in error, then you should contact the company's management or CPA, as appropriate, and resolve any conflicting issues and to receive a corrected and amended K-1, if correction is needed. When you are filing your personal return you should not attach the K-1 to your personal return or Form 1040 as the original or amended K-1 returns have already been filed with the corporation return (Form 1120S) as a part of their filing.

When ABC Company prepares the K-1 as part of the return it will list in Section A its Federal Identification Number or EIN and in Section B the full company name and address. In Section D ABC Company will list a taxpayer's identifying number or Social Security number, in Section E the shareholder's name, address, city, state and ZIP code, and in Section F the shareholder's percentage of stock ownership for the tax year. For purposes of our synopsis we will address first the example of ABC Company above and where its attendant items will be reflected on a K-1 and then will then review many of the more frequently used sections of the K-1.

ABC Company and its K-1

-One line 1 and Page 1 of the K-1, ABC Company will reflect the $19,000 of cash based taxable income or profit. Please be reminded that in our example our shareholder is the sole owner of the K-1, otherwise the $19,000 profit would be reduced to the shareholder's prorated portion. Also please note that the amount reported here is not the same as the Cash Based Net Income per the ABC Company's internal books and records. As S Corporation earnings and "certain tax preference items" flow down to the individual personal return they are denoted or the appropriate lines of the K-1 so that each owner will be advised of items and certain tax nuances applicable to their return.

-On line 11 and Page 1 of the K-1, ABC Company will reflect the $10,000 of Section 179 Depreciation that has been claimed on the corporate return will be listed.

Page 2 of the schedule K-1 details not only where certain items will be reflected on the respective shareholder's individual or personal return, but also details many subcategories for the lines and sections listed. For example on Line 12 there are eighteen subcategories which are detailed by a letter and description. If applicable then these subcategories are denoted on page 1 of the return and the appropriate amount listed.

-One line 12 and Page 1 of the return, ABC Company will reflect as subcategory A (or as 12A on the return) the $1,000 of Charitable Contributions.

-On line 16 and Page 1, ABC Company will show the non-deductible portion of Meals & Entertainment (M&E) or $2,000 as per tax law only 50% of domestic M&E to be tax deductible. Line 16 also has several subcategory options and the $2,000 of non-deductible Meals & Entertainment, in our example, will be show as 16C on the face of the K-1.

All of the above items reflect where the items will be recorded on the books for ABC Company for the used illustration. However, there are many more tax preference and non-tax deductible items that are frequently use on the first page of the K-1 and examples of many of those most commonly used are listed below:

-Interest Income will be reflected on line 4 of the K-1 while Ordinary Dividends should be listed on line 5a and any Qualified Dividends listed on 5b.

-Net short-term capital gains (loss) and Net long-term capital gain (loss) would be reflected on line 7 and 8a respectively.

-Any Alternative Minimum Tax (AMT) items will be reflected on line 15 using the appropriate designation of the six subcategories listed.

-Property distributions including those made in cash are to be reflected as 16D on the K-1.

-If an S Corporation owner also has medical insurance paid out of the company on behalf of the owner or dependents, then this amount for a shareholder will be reflected on the Supplemental Information of this return and labeled typically as Owner's Medical Insurance.

Preparing a K-1 is not for the meek, faint-hearted or ill-prepared. However using this information as a guide will do much to shed light on what would otherwise appear to be too daunting of a task. Although just as a doctor cannot write an article and thereby "teach" you to do a major surgery, this article will do much to remove the mystique of preparing a K-1 and give you a broader understanding of a K-1 works, is prepared and intersects with the Corporate Income Tax Return.

Xero and City National Bank Partner to Deliver Unparalleled Financial Management Technology to Small Businesses

Xero, the global leader in online accounting software, and City National Bank, a provider of complete financial services for business owners, today announced that they have joined forces to improve financial management for small businesses (SMBs). Xero and City National Bank customers will soon have the most comprehensive view of their critical financial information with a direct connection between their online accounting and bank data. This marks Xero's inaugural bank partnership in the United States and comes as the company is experiencing record growth with U.S. revenues and customers doubling year-over-year.

Connecting Xero and City National Bank accounts provides reliable overnight delivery of the prior day's bank transactions directly into Xero's intuitive accounting and bookkeeping workflow. This integration provides the most accurate and comprehensive view of a business' finances, and eliminates potential delay or miscalculation due to lag-time, enabling SMBs to make the best decisions about the direction of their business.

"Strong finances are the lifeblood of any business. The direct connection between our accounting applications and bank data will help our clients make better sense of their finances, putting the most up to date financial data into a business-ready context that empowers them, and us, to make the best possible decisions that will drive their business forward," said Ken Coelho, partner-in-charge, RBZ, LLP. "This integration will help inform every aspect of our clients business, from day to day operations to long term business forecasting."

"Managing bank reconciliations and tracking finances can be a daunting task for small business owners," said Jamie Sutherland, President Xero U.S. "Xero is dedicated to bringing online banking and cloud accounting closer together to give small businesses the most accurate picture of their financial health. City National Bank is a great partner for us as we share a commitment to helping SMBs, and we are thrilled to offer the best integration of accurate bank data and accounting solutions."

"City National has a long-standing commitment to serve the most innovative, cutting edge businesses, and make their finances easy to manage so they can focus on growing in creative ways," said James Daley, executive vice president and manager of Treasury Services for City National Bank. "This partnership with Xero puts us in great position to offer our clients an industry leading online accounting software, fully integrated with our comprehensive data."

PENNY CROSMAN For American Banker writes:  In a unique partnership announced Wednesday, City National Bank in Los Angeles is working with the cloud-based accounting software company Xero to integrate its online banking site for small-business customers with Xero's technology. When the connection is complete, the accounting workflow will be tied to real-world transaction data, with the bank account providing a "source of truth."

Small businesses that were customers of both companies asked for the joint product, Xero and bank officials say. Eventually, clients will be able to complete many online banking tasks in their accounting software, something these customers have also asked for.

The Xero software will compare book transactions and bank transactions and help match payments against invoices.

The $27 billion-asset bank is the first U.S. bank to partner with Xero, although the software company does have a partnership with the U.S. account aggregator Yodlee.

Xero was founded in New Zealand, but now has a U.S. headquarters in San Francisco. Its accounting software is created for the Web and competes with QuickBooks online. It has 193,000 small-business customers in 100 countries.

"The U.S. is where our future is," says David Pollock, director of business development at Xero. "We're on track to double our U.S. revenue and customer base year over year."

Pollock says Xero has tried to not replicate desktop accounting software but has designed a simple workflow for browsers and mobile devices, leaving out features that don't apply to the vast majority of users, such as robust inventory management. "Instead of squishing everything into our user interface, we've opened up our back end to the developer community," he says. More than 200 partners have created add-ons for the product, most recently Expensify and Clio.

According to Pollock, the bank's brand will be prominent whenever bank data shows up in the accounting software.

The integration of the bank's online banking site with Xero's software will take place in phases. "As we move forward, we'll be rolling out a real-time provisioning solution," Pollock says.

For now, Xero customers will submit a form to City National, instructing the bank to deliver their monthly statements to Xero, which will make the connection on the back end.