"Who Xero is and what challenges they have in the U.S. market" / Xero Accounting Software

Seth Fineberg for AccountingToday writes: I am choosing this week to focus on yet another warrior in the growing cloud accounting battle that you may or may not have heard of, but after attending its first U.S. partner conference I have a better sense of who Xero is and what challenges they have in the U.S. market.

But why should they matter to the average accountant and how do I know they’ll still be around in a few years? Right now these are the questions any firm looking to expand their services with a cloud offering is asking and at the company made an attempt at answering them at their recent Xerocon event.

First off, the company’s name starts with an ‘X’ and is supposed to be synonymous with zero-entry accounting, among other things. They’ve had a physical presence here in the U.S. for about two years now, but they’re not exactly a start-up or a ‘foreign’ company these days, in fact I’d consider them fairly global.

Granted, the company started several years ago in New Zealand, and now claims to have over 500 employees in its home base as well as Australia, the UK, and the U.S, as well as 200K+ users and 7,400 accountant partners. So that’s the basic DNA and with the amount of planned marketing and attendance at trade and industry events you’ll be hearing about them before long.

Xero recognizes that here in the U.S. in particular, it needs to do a better job of branding and letting accountants know who they are and why they matter. CEO and co-founder Rod Drury even said as much in his keynote, but what was more telling is what he said their greatest challenge is, and it’s a pretty big one: “it isn’t building software, it’s transforming the accounting profession,” said Drury.

So right now anyone that knows who Xero is has become well aware that the company has its crosshairs dead set at Intuit and QuickBooks in particular. This is despite the fact there are easily a dozen or so companies right now playing in the exact same space as Xero – being cloud accounting software.

But as for its designated arch enemy, Xero believes it has a product that can perform enough of the key functions small businesses and accountants use QuickBooks for and is more collaborative, easier to use, scalable, and more intuitive.

Xero realizes it does not have nearly the money, user base, or awareness that QuickBooks has behind it in the U.S., but from a product perspective there are several enhancements that it rolled out to aid in that battle.

The two strongest offerings -- I felt -- were when it unveiled its own integrated payroll product for Xero users as well as the ability to provision accounting feeds to online banking as well as batch payment uploads. Bank feeds were available in New Zealand and Xero is beginning to roll out the capabilities in the U.S. market, announcing today that City National Bank in Los Angeles is working with Xero to integrate its online banking site for small-business customers with Xero's technology.

Overall, Xero – like the growing number of small business-focused cloud accounting players – has to do a lot of work to not only cause a serious disruption to QuickBooks, but sway the minds of accountants and the businesses they advise.

One thing Xero does have on its side though is timing. Right now more than ever, accountants are giving very serious thought (and some action, but mostly thought) to how they can evolve and better serve their clients. There’s increased pressure to do so on all fronts: from their clients, their competitors, the press, and even messaging from their own state societies and the AICPA itself. The message of “change” is everywhere and Xero knows it, and if they remain laser focused on not just trying to overthrow QuickBooks, but on the needs – the specific needs – of accountants and CPAs, they may just stand a chance but it’s a tough road. Attempting to transform the accounting profession or even pry practitioners and the businesses advised by them away from what they know -- regardless of how often they may complain about the familiar – is a steep hill to climb.

You see, if you’ve watched any nature programs – particularly those focused on life in the savannahs of Africa – you will have an understanding of the accountant’s behavior. I’m referring specifically to how wildebeest cross a river, one they need to cross because not only is their food and watering holes on the other side, but there are thousands pushing behind them moving towards the same goal. The problem is, not only don’t they know how deep the river is, but there are often crocodiles lurking in the water that would love nothing more than a wildebeest lunch.

What happens is that a few hundred of the thousands marching towards this river stand there for a while, until a few make a move, then more do and the rest follow and hope to make it.

In short, accountants are by nature cautious and their moves measured. Pressure helps to make a move, some are more into taking risks than others but eventually they all do get there – just as they did with the PC, so it will go with the cloud/mobile or whatever else you want to call the next technology revolution. Some just may be in a better position to eat or drink than the rest once they arrive. I think Xero is hoping to change enough minds in the profession to get enough of the heard to follow and make a difference.

Why You Shouldn't Wait to Contribute to a Roth IRA

Robert Ciura | for The Fool.com writes: While most investors rely on their 401(k) to save for retirement, the Roth IRA represents a great tool for retirement investing as well. And yet the Roth IRA is woefully ignored by many. The Roth IRA is a great tool for retirement planning, and every year an individual goes without contributing to one is a lost year.

Here's what you stand to gain from a Roth IRA, along with a few stocks that are ideal for the Roth.

Reap the Roth's rewardsThe beauty of a Roth IRA is simple: the opportunity to reap decades of completely tax-free returns. Provided you follow the Roth's rules, all dividends and capital gains are tax-free. Plus, whereas the traditional IRA requires participants to take required minimum distributions upon reaching age 70 and a half, there are no required withdrawals with a Roth.

Of course, nothing is perfect. The downside of a Roth is that you can't deduct your annual contributions from your income taxes, as you can with a traditional IRA.

However, the long-term rewards handily outweigh the short-term costs. Historically, the stock market's long-term average return stands around 10%. Imagine the benefits of decades' worth of tax-free capital gains and reinvested dividends that a Roth IRA can provide.

Speaking of dividends...On the subject of dividends, it's been well-stated that those quarterly payouts really add up over long periods of time. According to Standard & Poor's, from December 1926 to December 2012, dividends accounted for 34% of the market's total return.

Reinvesting dividends, whereby you use each distribution to buy more shares of a stock, makes the results even more impressive. That's because reinvesting dividends allows compounding interest to work its magic.

Without dividends, the S&P 500 price return index, with a value of one point on Jan. 1, 1930, would have grown to 66.48 by the end of 2012. During the same time period, a total-return index with dividends reinvested would have finished at a value of 1,832.45. In short, the Standard & Poor's report shows that during that time frame, an investor who reinvested dividends would have reaped nearly 30 times the gains of one who did not.

Investing ideas for the Roth IRAOf course, no discussion of the tantalizing benefits of the Roth IRA would be complete without some investing ideas.

If dividend-paying stocks are in focus, then there's no denying the merits of dividend stalwarts like Procter & Gamble (NYSE: PG  ) and McDonald's (NYSE: MCD  ) . These two blue-chip stocks are both Dow Jones industrial average components and represent the best of what dividend stocks can offer.

Earlier this year, P&G increased its dividend by 7%. 2013 marks the 123rd year in a row of consecutive dividend payments since the company's incorporation in 1890. Furthermore, P&G has increased its dividend for 57 years in a row and now yields 3%.

Meanwhile, McDonald's has increased its dividend every year since its very first dividend payment in 1976. At recent prices, McDonald's yields 3.3% and has delivered five years in a row of strong double-digit percentage increases to its distribution.

If picking individual stocks isn't your preferred method of investing, there are many excellent dividend-focused funds to choose from. In particular, the Vanguard Dividend Appreciation ETF (NYSEMKT: VIG  ) is a low-cost exchange-traded fund that seeks to invest in stocks with a long track record of increasing dividends over time.

The Vanguard Dividend Appreciation ETF counts P&G and McDonald's among its top-10 holdings, along with several other high-quality blue-chip dividend-raisers.

At its current levels, the ETF yields slightly more than 2% -- about on par with the yield on the broader stock market. However, by focusing on the market's highest-quality dividend stocks, this fund should provide greater dividend growth over time than the overall market.

Enjoy decades of tax-free returns with a Roth IRAIf you own dividend stocks in a taxable account, you'll have to fork over 15% of those distributions in taxes every year.

If you fill your Roth with high-quality dividend stocks and low-cost ETFs such as these, you'll reap the rewards of tax-free compounding for decades. In short, the Roth IRA quite simply offers one of the best ways to enjoy many years of tax-free gains.

Investors looking to save for retirement and escape the greedy claws of Uncle Sam: Do yourself a huge favor by opening a Roth IRA.

A Closing Window For Some Same-Sex Couples To File 2012 Tax Returns

Roberton Williams for Forbes writes: Last week’s IRS ruling on same-sex marriages received a lot of attention. Going forward, a same-sex married couple must file federal income tax returns as married, regardless of whether the state where they live recognizes their marriage. In addition, same-sex couples may—but don’t have to—file amended returns for some earlier years to recoup any extra taxes they paid because they had to file as individuals.

But most reports on the ruling have missed an important detail: the IRS will begin applying the new rule on September 16. That gives same-sex couples who haven’t yet filed their 2012 tax returns just a few more days to file as individuals if they choose to do so. For some, that could mean a much smaller tax bill.

At issue are marriage penalties, the additional income tax some couples have to pay because they must file their federal tax returns as married. Because tax parameters aren’t proportionately higher for couples than for singles—for example, higher tax brackets for joint filers apply at less than twice the income as for individuals and phase-in and phase-out ranges don’t start at double the income level—some couples pay more income tax than if they were single. That’s most likely to be the case if spouses have similar incomes.

For example, if both spouses earn $100,000, have no children, take the standard deduction, and have no other income, their 2012 tax bill filing jointly would be $38,319. If they could file individual returns, each would pay $18,731 in income tax. The total—$37,462—would be $857 less than what they’d pay as a couple. They pay a marriage penalty.

Of course, many couples pay less tax than they would if they were single and thus get a marriage bonus. If one spouse earned all of the hypothetical couple’s $200,000 income and the other earned nothing, filing jointly would save them nearly $9,000, a hefty marriage bonus.

It’s not always obvious whether a couple will pay more or less tax because they are married. You can get an idea of the difference between filing jointly or as individuals using the Tax Policy Center’s Marriage Bonus and Penalty Calculator. But one warning: the calculator cannot take account of every tax situation—you’ll have to complete and compare joint and single tax returns to find the exact bonus or penalty. Of course, the same rules will soon apply to both same-sex and heterosexual couples.

For a few more days, however, same-sex couples who were legally married last December 31 and who haven’t yet filed their 2012 tax returns can avoid marriage penalties one last time by filing individually. If you’re in that situation, you could save a lot of money if you get your 2012 tax return in soon.

Disclaimer: the Tax Policy Center doesn’t give tax advice.  If you have any doubts about how the new tax laws would affect you, consult a real tax advisor.

What shall I do when my accountant failed to file the tax return extension?

From Yahoo we read, "We received the penalty notice from IRS, stating we have a penalty for filing my partnership tax return late(3 months after the deadline). But my accountant was supposed to file the extension. We contacted her and she admitted she forgot to do so. She dropped an email to IRS to ask for a waive then.

About one month later, we receive another notice from IRS about the intent to seize our property becasue we did not pay the penalty.

My accountant said this is two different system from IRS and we can just ignore the 2nd notice. The penalty will be waived. But we just could not wait until they seize our property. Plus we are still applying for the permanet residents, we are afraid this will have negative impact on our status.

What shall we do now? I tried to contact IRS, but nobody answers the phone"
Answer:  Your partnership tax return is an "information tax return." A partnership does not pay tax. Rather. the Form 1065 generates a Schedule K-1P for each partner. It is the Schedule K-1P that each partner uses when preparing their personal tax return. 

As you have learned the penalty for failure to file a partnership tax return on a timely basis results in severe and eye opening consequences. The IRS literature is full of examples of what is an acceptable reason for late filing and the basis for a determination to waive any penalties and fees. That literature is very clear that a "busy accountant" is not an acceptable reason. I would not have used that reason.

When you say that your accountant contacted the IRS I am presuming that your accountant is a CPA (Certified Public Accountant). Under IRS Circular 230 such a person is considered enrolled to practice before the IRS.

The IRS notices that you have received have specific contact telephone numbers. Using those numbers would get you to the correct office and would tend to expedite person-to-person resolution if that is needed. While you are apparently using a CPA I hope that you are receiving a copy of the IRS letters involved with this situation. If you are using a CPA that person may be receiving a copy as well (if you signed a power of attorney).

If you need to contact the IRS try the 1-800-829-1040 number. It is an automated number and not very fast. When a live agent comes on the line simply state that you need referral to the office in Cincinnati, OH concerning partnership tax returns.

My suggestions are:

- pay the filing penalties (unless you can work out a one-time waiver)

- respond in writing to the notice of intent to seize assets (written communications to any government letters of such nature is always well advised) (my philosophy is to document all contact with the government)

- do not be unduly alarmed or concerned about your residency status. Officially, one branch of the government is not supposed to get information from another (specifically tax information). While you may have to prove your worthiness for the next step in your resident status you should have no concern so long as you just get the situation corrected with the IRS. Filed is filed, doesn't matter it was late...

- I would have fired the CPA and taken my business elsewhere. There is no excuse for late filing - period. In life there are always "reasons" but there are no excuses when it comes to being professional and handling the affairs of clients.

- depending on where you reside you may have a local IRS office in your city. Take your situation and all your documents to an agent there for a one-on-one. This would save mountains of paperwork and interminable telephone referrals (these can be very frustrating).

Source(s):

IRS website: www.IRS.gov
IRS Federal Form 1065
IRS Circular 230

Easing Taxes With Donations / Strong returns in the stock market and higher tax rates this year for top earners can be a painful combination.

Karen Blumenthal for the Wall St Journal writes: For investors, 2013 has been a mixed blessing.

The broad stock market is up 16% year-to-date—but a number of new and higher taxes threaten to take a bigger bite out of gains.

The tax changes affect higher earners and include higher tax brackets and capital-gains rates, a Medicare surtax on investment income and new limits on deductions.

If you are thinking about locking in gains now, you also should consider the tax consequences. There aren't many ways around them. Selling your losers can offset gains, though two healthy years of market returns might not have left many weeds in your investment garden.

Instead, this might be the year for higher earners to think about being generous as a way of saving on taxes, either by donating appreciated investments directly to charity, giving them away as gifts or making contributions to a so-called donor-advised fund.

The tax-law changes affecting investors come in several flavors.

Individuals earning more than $200,000 and couples earning more than $250,000 might pay a Medicare surtax of 3.8% on at least some investment income, such as dividends, interest and capital gains on assets held at least a year.

In addition, individuals earning more than $250,000 and couples earning more than $300,000 could see their itemized deductions reduced. For instance, a couple with $400,000 in adjusted gross income and $50,000 in itemized deductions would see their total deductions reduced by 3% of the amount of their income that exceeds $300,000, or $3,000.

Finally, high earners—individuals with $400,000 or more in income and couples with $450,000 or more—won't only move to a higher tax bracket but also will pay close to 25% in taxes on long-term capital gains after surtaxes, up from 15% previously.

Giving away appreciated investments allows taxpayers to avoid the capital-gains tax altogether while also getting a tax deduction of up to 30% of their adjusted gross income. It also can save on state taxes, even in states where charitable deductions aren't allowed.

Here are some options.

Be charitable. You can donate appreciated assets directly to a charity if it is equipped to accept it. If you want to make several donations or you aren't yet sure where you want the funds to go, contributing to a donor-advised fund might make more sense.

Donations to such funds rise tax-free in the fund until donors specify charities, sometimes years later.

Last year, donors rushed to open new accounts in anticipation of tax-law changes, and the interest has continued. Schwab Charitable, a nonprofit donor-advised fund provider sponsored by Charles Schwab, SCHW -1.19% says it opened about 3,000 accounts in the first seven months of this year, up 20% from a year ago. Contributions to Schwab funds more than doubled during the period, to $471.4 million, while grants to charities were up 21%.

Kim Laughton, president of Schwab Charitable, attributes the gains to concerns about tax changes as well as greater awareness of the funds, which can be opened with a minimum contribution of $5,000 and can make grants as small as $50.

Though donors can only recommend where the money goes, the funds generally fulfill the request. Fidelity Charitable, a nonprofit fund provider sponsored by Fidelity Investments, will make donations to any legitimate charity.

It declines fewer than 2% of requests because an organization doesn't meet federal charitable standards. For example, more than 40,000 organizations claim to support veterans. Sarah Libbey, president of Fidelity Charitable, says the firm is researching how best to assess those charities' qualifications.

Both the Schwab and Fidelity funds charge annual fees of 0.6%, or $60 per $10,000 invested, with a minimum annual fee of $100.

Charitable donations—and the tax break—can be particularly helpful for those saddled with a long-term investment that has underperformed in recent years but has a large accumulated gain.

Jerry Lynch, a Fairfield, N.J., certified financial planner, says it also is a helpful strategy when the client has lost the original paperwork and can't determine the "cost basis," or what was paid for the investment.

Addressing required distributions. Investors 70½ and older this year can give up to $100,000 directly to charities from their individual retirement accounts, an efficient way to fulfill their required minimum distributions without having to withdraw taxable income.

Making gifts. A single person can give up to $14,000 per recipient this year without running into gift-tax issues, while a couple can give up to $28,000.

If you already were planning to make gifts to family members or others, you can give appreciated stock to those who are in the 10% or 15% tax brackets—individuals with income up to $36,250 and couples up to $72,500. Recipients inherit the giver's cost basis, but in those tax brackets, they don't pay tax on long-term capital gains.

Still, be aware that children through age 23 who are full-time students and listed as dependents on their parents' tax returns might have to pay taxes on some investment income at their parents' rates, a provision known as the "kiddie tax."

Another issue to consider: If the appreciated assets are inherited through an estate, the cost basis steps up to the value on the day of death. Given that $5.25 million is excluded from an estate's taxes, "it may make sense to wait," says Beth Kaufman, an estate lawyer at Caplin & Drysdale in Washington.

Tax Planning Strategies for Doing Business Abroad

Aronson Tax Advisory writes: These days, many emerging businesses find themselves doing business abroad. Technology has drastically changed the traditional business model, enabling even a small business to operate globally.  Many companies often ask whether they should operate through their existing U.S. business (i.e., operate as an incorporated “branch”) or operate through a separate organized foreign entity.

Quite often, we see many business owners set up an elaborate foreign-based structure that is ultimately unnecessary and, in the end, will not accomplish the tax objectives promised. For example, setting up a company offshore with no substance (i.e., employees working abroad, physical location, and local officers responsible for the day-to-day operations) is a recipe for faulty tax planning that will be scrutinized and penalized by the IRS.

When conducting cross-border tax planning, you should think in terms of simplicity, transparency, and pass-through income treatment of losses and foreign tax credits, if profitable. The bottom line, with respect to small business international tax planning, is that the monies earned oversea will be repatriated to the U.S.; thus, you want to incorporate the most efficient tax structure that will combine the pass-through of foreign source income, loss, credits with applicable U.S. tax law.

From a business perspective you always want to strive for operating a legal structure that it is not too complicated to administrate and that provides you with maximum limited liability protection. When it comes to liability protection and insulating your business and individual assets, you want to make sure that you are not being penny wise and pound foolish by operating as a branch in a foreign country where your U.S. sourced assets are directly exposed.

Under current U.S. tax law there is a list of entity types by country that are per se associations (i.e., must taxed as a C corporation) and cannot be converted to pass-through status (i.e., disregarded entity if 100% owned by your business enterprise or a partnership, if only partially owned). The process of converting a qualified foreign organized entity to a pass-through entity status for U.S. tax reporting purposes is often referred to as “checking the box” and it requires the filing of IRS Form 8832 on a timely basis. Please note that there are procedures to cure late elections and other issues, which are beyond the scope of this blog.

Planning point to consider for existing, foreign-organized entities that are financially insolvent: If you are currently operating abroad through a wholly-owned, foreign-organized C corporation that is owned by a U.S. C corporation and is financially insolvent with large unused foreign net operating losses financed with the U.S. parent equity and/or intercompany debt, there is a way to generate an ordinary deduction for the unpaid debt/equity for U.S. tax purposes at the parent company level by checking the box regulation and claiming a worthless security loss and/or bad debt expense. The long-term benefit of this tax planning technique is that, for foreign reporting purposes, the entity will continue to operate as before.  However, for U.S. tax reporting purposes, it has become a disregarded tax reporting entity and it should create a better combination of overall worldwide taxable income (loss).

Estate Planners Turn Focus to Income Tax

Arden Dale for the Wall St Journal writes: New tax rules for 2013 are turning estate planning on its head. Instead of an emphasis on avoiding the estate tax, many plans now focus on trimming income taxes.

Top income-tax rates have risen to more than 43% for some people, while the federal estate tax affects fewer people because of a $5.25 million individual exemption for estates, up from $1 million in 2003.

For couples, that means an estate must be worth more than $10.5 million to face a federal tax, and that threshold rises a little every year.

Some trusts that used to be key in planning around the estate tax now are out of favor. Among them: qualified personal residence trusts, which are used to transfer ownership of a home to a family member, and credit shelter trusts, which hold an estate for a second spouse after the first has died.

"These trusts may no longer make sense for people if they are never going to have $5.25 million," says Leslie Thompson, an adviser at Spectrum Management Group in Indianapolis, which oversees about $450 million.

Dismantling Trusts

Still, Ms. Thompson doesn't believe people should rush to dismantle their trusts if they have more than $3.5 million in assets, as President Barack Obama has proposed shrinking the exemption back to that level. Many states also have lower thresholds for taxing estates, and the trusts can help protect assets from creditors.

Jay Messing, senior director of wealth planning at Wells Fargo Private Bank, sometimes recommends that wealthy parents make intrafamily loans to children who are in lower income brackets. The Internal Revenue Service sets the rates for these loans, and they are very low now. Any income the children receive from investing the money will be taxed at their lower rate.

The children "can take the full amount you've given them, and invest that in a diversified portfolio," says Mr. Messing, who is based in Summit, N.J.

In the past, he might have recommended that these parents give the money to the children, either directly or via a trust, to reduce the size of their estate and ensure they slipped under the estate-tax exemption.

With the exemption now so high, that wasn't necessary. They could keep ownership of their wealth, and simply lend it out for a time.

Mr. Messing says he emphasizes income-tax planning even for couples with a net worth that exceeds $10.5 million. With tax rates higher, it is important for anyone with substantial income, he says.

A New Role for Roth IRAs

Michael C. Foltz, a wealth manager at Balasa Dinverno Foltz in Itasca, Ill., which has about $2.1 billion under management, sees a bigger role for tax-deferred retirement accounts.

"Roth IRAs and 401(k)s will become more important in income-tax planning and estate plans overall," he says, noting that the new 3.8% investment tax to be imposed on high earners this year as part of the Affordable Care Act doesn't apply to distributions from these accounts.

In some ways, income-tax planning is less complex than estate planning through the use of vehicles like trusts. And it can be easier for advisers to convince clients of the benefits.

Jeff Feldman, a planner at Rochester Financial Services in Pittsford, N.Y., which manages some $125 million, notes that use of trusts can obligate clients to give up direct control of a chunk of their wealth.

"When you have to explain that, it's a hard sell," he says.