How To Avoid Hidden Tax Fees If You Filed An Extension

Alex McAdams for Nerd Wallet / Fox News writes: If you applied for an extension to file your income your taxes, you have until October 15^th. But that deadline is fast approaching. So now is the time to think about the best way to file your taxes.
For most households, that means looking forward to a tax refund. For those who choose to file with a professional tax service, the idea of a Refund Anticipation Check (RAC) may seem like an appealing option: pay nothing now and have the tax preparation fee automatically deducted from your tax refund.  
Buyer beware – an RAC may save you money now, but you’ll pay more later.

Too good to be true?
Refund Anticipation Checks (RACs) are the latest incarnation of a financial product that started back in the 1980s. The idea is simple: a professional tax preparation service helps you prepare your income tax return and submit in to the IRS.  Instead of requiring payment upfront, the preparer agrees to defer the cost of their services.  When your refund arrives, the preparer takes out their preparation fee, plus an additional charge.  You then receive your refund, often on a prepaid card issued through the preparer or an affiliate.
Sound like a great way to delay paying for tax preparation?  Think again.

The best things in life are free
Part of the allure of an RAC is that it delays the cost of filing your taxes, but what if you didn’t have to pay anything at all?  In fact, the IRS provides resources that allow many Americans to file their tax returns for free.  According to the IRS, about 70 percent of tax filers have an Adjusted Gross Income (AGI) of less than $57,000, the critical cutoff to qualify for free filing.  In addition, many free filing programs allow you to file your state taxes as well, making the process even simpler.

The cost of paying late
Even if you don’t qualify or choose not to file for free, a Refund Anticipation Check (RAC) is likely a poor option.  The associated finance charges for an RAC can add up to the equivalent of paying over 300 percent in interest. To understand exactly how much an RAC can cost, let’s look an example.   
John decided to file his taxes through a professional tax preparation service this year. While the costs of an RAC vary, the largest tax preparer in the US charges a finance charge of $24.95 for an RAC issued on a pre-paid card (this is in addition to the cost of preparation).1  If John wants the refund direct deposited or issued as a check, there’s an additional $10 or $20 fee, respectively.  Assuming John takes the check option, he will pay $54.95 in fees to defer paying the cost of his tax preparation.  
The IRS indicates that nine out of 10 refunds are issued within 21 days of receipt, so let’s assume it takes John that long to receive his refund. In addition, the average cost of professional tax preparation is $246 according to the IRS. That means John is paying a $54.95 fee to defer his $246 preparation cost for 21 days, the equivalent of a whopping 388 percent interest rate.
Even if he decides to take his refund on a pre-paid card to save an extra $20, John is still stuck paying $2.50 for every ATM withdrawal and an additional $2.50 per month if the card remains unused for 3 months.
Given the hefty fees involved, John would be much better off paying the tax preparation fee upfront.

Don’t get stuck with RAC fees this tax season:
1. Free is (almost always) best! Take advantage of free programs by checking to see if you qualify for free tax filing through the IRS’s free file program.  
2. Plan ahead for the cost of filing taxes.  Saving just over $5 a day between now and October 15 will more than cover the cost of an average professional tax return.  With a little budgeting, the cost of filing taxes can be made more manageable upfront, saving you the hefty fees associated with an RAC.
3. File early for the fastest refund. While the deferred deadline for tax filing is October 15, families can file their taxes any time between now and then.  Earlier filers tend to receive their refund faster, reducing the financial strain of waiting for your refund.

Intuit QuickBooks Deathwatch 2 / Xero Add-on Updates, Intuit QuickBooks Deathwatch 3

Mike Block at QuickBooks-blog.com writes his Deathwatch 2 installment: Early Intuit surveys showed that those with an add-on were much more loyal and updated QuickBooks many times as often. However, I have been tracking web pages with QuickBooks add-ons links for years. They use pages with QuickBooks and words like interface or link to. My Google search showed these numbers on:
          09/06/10                        Two million
          06/10/11                        Nine million
          12/18/01                        Twenty million
          06/22/13                        Eight million
          09/10/13                        Six (6.07) million
                                                (down 70% in 21 months)
This same search, for Xero add-on links, showed these numbers on:
          September 10, 2013      Two (1.84) million

QuickBooks desktop recently lost 800,000 users (20%), while QuickBooks Online got 600,000 users, for a 200,000 net loss. Xero got 200,000 users starting later. Xero has long grown far faster than growth in QuickBooks Online. Based on current growth, Xero users will exceed QuickBooks Online users in two years. Xero is actually doing much better than this because only QuickBooks Online counts trial users or the separate users of multi-user accounts.

Mike Block at Quickbooks-blog.com writes: Xero Add-on Updates / Deathwatch 3
As announced at the recent Xerocon Dev Day in Sydney and at Xerocon US, Xero’s latest API (Application Programming Interface) updates are stacked with improvements to make Xero add-on integrations a little bit easier. The differences between the Xero and Intuit (QuickBooks) approach are a big reason for my Intuit QuickBooks Deathwatch series.

 The Xero API now supports credit note refunds. This offers more advanced job management, ecommerce and retail integrations with Xero. It adds many additional elements on GET requests, so you can access things like discount rates, batch payment details and tax rate component details.

Default payment terms are now accessible, both at an organisation-wide level and for individual contacts. These defaults are only in the Xero app, but you can to make them options in your developer app.

Xero made the Profit & Loss and Balance Sheet reports more flexible, so you can retrieve them using the standard layout, not a user specified version. This is particularly useful for their growing range of reporting tool partners. Xero also updated the Payroll API with a Settings endpoint, to allow easier setup options when initially connecting to Xero.

Xero developers also can now retrieve expected and planned payment dates for individual invoices, so cashflow management apps can put this data to great use. Bill.com showed us how incredibly fast and easily this managed cash flow at Xerocon US. It used projected collection and payments dates to display cashflow, with a warning line. The then quickly revised a payment date and instantly displayed far better cashflow. 

You can get a summary of the Sydney Dev Day event from the Xero event blog post and API Roadmap. Xero is dedicating a lot of time to make things even easier for developers using the Xero API, so please keep voting to let us know what further improvements you need. 

Much of the material for this post first appeared in API updates for easier integrations in the Xero Blog. Mike Block CPA added this comment on 12 September 2013 #

This is terrific. It is terrific not only for what it does, but of because of the way that Xero keeps confirming that it will be giving users and developers increasingly expanded industry-standard RESTful API access to all our data. Equally important, nothing here or in the future roadmap will make any Xero developer program stop working or cost more.

The contrary Intuit proprietary approach kept showing developers and users that Intuit would always neglect areas of QuickBooks or keep them off limits. This would give Intuit a monopoly stranglehold on payroll or anything else that it wished. Intuit also kept making big API changes, added very expensive fees and dropped key servers. This made developers pay far more, and repeatedly rewrite programs, to keep them working.

That is why the dean of QuickBooks developers recently wrote Demise of the Third Party QuickBooks Developers. It also is why QuickBooks recently lost 70% of the web pages referring to its add-ons. 

Even if Intuit reverses course immediately, it will never overcome the bitterness and damage that its QuickBooks policies did to users and users. These are only a few of the many reasons that I am writing my Intuit QuickBooks Deathwatch series.

There will be much more on it tomorrow.

Everything's Big In Texas But Taxes---Online Tool Compares Yours State-By-State

Robert W. Wood for Forbes writes:  Texas Gov. Rick Perry is at it again, encouraging Americans to pick up stakes and move to Texas. There’s no Texas income tax, he coaxes. Businesses and their employees can live large with no state income tax.

Governor Perry is travelling the country touting the advantages of living in the Lone Star State. First it was California, riling California’s Gov. Jerry Brown with attempts to lure money from the Golden State. Now it’s Maryland. Gov. Rick Perry to visit Maryland with pitch for Texas.

But some comparisons are nuanced. While California taxes are sky high, some other states are harder to call. The online calculator at whynotmove.net allows you to compare your personal tax burden state to state. Texas fares well on income tax, but its sales and property taxes are less attractive. There’s a tax trade-off.

We’re told that Texas Dominates The Best Cities For Good Jobs. It has a favorable regulatory climate for business, more moderate housing and other costs. In a survey of the Best Cities for Good Jobs, Dallas achieved 2.1% job growth in 2012 and is projected to add jobs at a 2.8% rate through 2019.

Houston was projected to have 5-year job growth of 2.6% a year. Austin is even better, ranking No. 2 in the nation with an expected 5-year annual growth rate of 3.9%. And tax rates? If you are Phil Mickelson or Tiger Woods and can live anywhere, a no tax state like Texas, Nevada or Florida must seem pretty alluring.
After Phil Mickelson’s gaffe about taxes, Tiger Woods confessed that the Tiger himself had left California in part over high tax rates. See Tiger Woods admits he left California because of tax rates. Since then, California tax rates have risen significantly, now boasting a top 13.3% rate. Understandably, such changes are causing people to think critically about where to live.

Determining Residency. If you move, it pays to plan ahead and create a good record. Your old state may try to tax you even after you’ve left. Some states have presumptions based on your time there, but most state tax authorities and courts examine many connections. You may be a resident even if you also have substantial connections with another state. Consider such factors as:

• The amount of time in versus out-of-state;
• The location(s) of your spouse and children;
• The location of your principal residence;
• The state that issued your driver’s license;
• Where your vehicles are registered;
• Where you maintain any professional licenses;
• Where you are registered to vote;
• The location of banks where you have accounts;
• The location of doctors, dentists, accountants, and attorneys;
• Where your church, temple, professional associations, social and country clubs are located;
• Where you are employed;
• The location of your real property and investments;
• The location of your business interests;
• Where your children attend school;
• Where you file tax returns;
• If you claim a homeowner’s property tax exemption;
• Any official statements of residency (such as on a federal tax return); and
• Any listings in state directories (phone, professional, etc.).

If you are toying with moving get some good professional advice and don’t assume every tax rule is logical. It isn’t.