How to Survive an IRS Audit

Jason Alderman for the HuffPo writes:  Few events inspire more dread than an IRS tax audit. Even if you're confident you've accounted for every cent of income and only taken legitimate deductions, it's hard not to worry what a close examination of your tax returns might uncover -- not to mention the hours of time you'll have to spend tracking down old records and receipts.

Here are a few pointers to help allay your fears and better prepare in case you should ever get chosen for the dreaded IRS audit:

There are three basic types of IRS audits: 

• Correspondence audit, which is conducted entirely by mail. You'll receive a letter from the IRS asking for additional information about specific items on your tax return such as income, expenses or itemized deductions. (This is the most common type of audit.)


• Field audit, where an IRS agent comes to your home or business to examine your records and observe where you work firsthand. Requests to transfer the audit to another location, including an IRS office, will be considered but may not be granted.


• Office audit, where you must be interviewed at an IRS office. Be sure to take documentation that supports items under question so you don't waste the auditor's time.

(Note: The IRS will only contact you by mail or telephone to initiate an audit, never by email. If you receive such a scam email, report it to the IRS.)

According to Chris Kollaja, a certified public accountant and partner at A.L. Nella & Company in San Francisco, California, if you're having a correspondence audit and you feel your records are too voluminous to mail, you can request a face-to-face audit.

"You can also ask a representative, such as your accountant, tax preparer or lawyer, to help you prepare for the audit and even attend it in your place, if allowed," says Kollaja. "An experienced tax professional can tell you what to expect, guide your responses and keep the audit on track should you get tongue-tied or start sharing more than is necessary."

Kollaja notes that the chances of being audited are low -- just over 1 percent of all individual tax returns are audited each year, although the odds increase nearly four-fold if your annual income exceeds $200,000. "Sometimes returns are randomly selected for audit, but more often it's because something jumped out in the computer analysis each return receives," he explains.

Common items that might trigger an audit include:

• Taxable income listed on your return doesn't match amounts reported on W-2 or 1099 forms, 401(k) plan or IRA distributions, brokerage accounts, etc.


• Taking above-average charitable deductions relative to your income.


• Deducting business meals, travel and entertainment. The IRS uses occupational codes to measure typical deductions by profession, so significantly exceeding the norm might trigger an audit.


• Claiming the home office deduction. (It's perfectly legal if you qualify; just make sure your records are in order.)


• Failure to report foreign bank account assets.


• Concealing cash income or receipts (tips, large gifts, etc.)


• Engaging in excessive cash transactions over $10,000, which frequently are reported to the IRS by banks, casinos, car dealers and other businesses.


• Complex business or investment transactions.


• Your close relationship to another taxpayer being audited.


• Someone reports suspicious activity by you (the IRS offers a Whistleblower Award).

Kollaja recommends several ways to prepare for and attend an audit:

• Respond to the IRS within the stated deadline -- usually 30 days.


• Gather and organize receipts pertinent to the issues they've identified. This could include statements for credit card, bank, retirement or investment accounts, cancelled checks, W-2 and 1099 forms, cost-basis for property and taxable investments, etc.


• If you won't have all requested information ready in time for the audit, contact your auditor to discuss whether it can proceed anyway, or if they'll agree to postpone it.


• Bring or send only documentation requested in the initial notice. If you're meeting for an in-person audit, keep you answers brief and don't voluntarily provide information that could launch a fishing expedition.


• If the examiner questions you on an item not mentioned in the initial notice, you're allowed to ask for additional time to fulfill additional requests.


• Seek representation, especially if you don't understand the process or if it's a field or office audit.


• Never give original receipts to the IRS agent -- they are not responsible for lost paperwork.


• You're allowed to make an audio recording of the audit provided you sent your agent written notice 10 days before the appointment. Video recordings are not allowed.


• It's your prerogative to ask why your return was selected for audit.


• Always be polite. Acting belligerent or evasive can only hurt your cause.

Generally, the IRS can include returns filed within the last three years in an audit. Additional years can be added if a substantial error is identified. In the latter case the IRS generally won't go back further than six years unless they suspect fraud or you failed to file returns, in which case there is no statute of limitations.

Precautions you can take now in case you're ever audited:

• If you receive W-2 or 1099 forms showing incorrect amounts, make sure the issuer files a corrected form with the IRS.


• Always get receipts for charitable donations, business expenses, medical fees or other items you plan to deduct. Review IRS Publication 17 for rules on itemized deductions.


• To claim deductions for business meals, travel and entertainment, keep detailed records documenting the amount, place, people attending, business purpose and nature of the discussion or meeting.


• If you receive electronic statements for credit cards, utilities or other items you plan to deduct, download a PDF file while they're still available on the biller's website -- it might be hard to get copies three years down the road.


• Know your rights as a taxpayer and how the audit process works. For more details, visit this IRS site.

Bottom line: Think positively -- you might even come out of the audit with a tax refund. It happens.

Early Glimpse At Inflation Adjustments For 2014 Taxes

Ashlea Ebeling for Forbes writes: Because of inflation adjustments in the tax code for 2014, most taxpayers will see modest savings, according to Wolters Kluwer , CCH’s early estimates released today. But the news isn’t as good for high-income taxpayers.

Indexing of brackets due to inflation lowers tax bills by keeping more of your income in lower brackets—say in the 15% bracket instead of the 28% bracket. A couple can have up to $73,800 (up from $72,500 this year) and a single up to $36,900 (up from $36,250) of taxable income in 2014 and still be in the ordinary income tax bracket, CCH projects. That can help you beat the capital gains tax– to the extent you sell stock at a gain to fill up the 15% bracket, you pay 0% in capital gains tax. Inflation adjustments can also help you snag tax breaks that have income ceilings like education credits and Roth IRAs.

“Most taxpayers benefit from inflation adjustments since the adjustments tend to preserve the value of most, but not all, of the dollar-based benefits under the Tax Code year after year,” says George Jones, a senior federal tax analyst with CCH, a part of Wolters Kluwer, in the release.

But one group that doesn’t fare so well is high-income taxpayers. The two new Obamacare taxes that went into effect Jan. 1, 2013 are not adjusted for inflation so they stay the same for 2014. The first is the 3.8% surtax on net investment income, triggered when adjusted gross income exceeds $250,000 for a couple or $200,000 for a single. The second is the 0.9% Medicare tax on earned income, which hits when wages or self-employment income reach those levels.

High-income taxpayers are also hit with the phase out of personal exemptions and itemized deductions – CCH projects the phase out will begin at $305,050 for couples and $254,200 for singles in 2014.

The highest-income earners do get a break.The top 39.6% bracket for higher-income taxpayers, new this year, begins at $450,000 for married couples filing jointly (and surviving spouses) and at $400,000 for singles. For 2014, CCH projects the new thresholds at $457,600 for couples and $406,750 for singles.

Another freebie for the well-to-do is the indexing of the gift and estate tax exemption. Set at $5 million for 2011, it’s been steadily rising due to inflation adjustments, and CCH projects it will rise from $5.25 million this year to $5.34 million in 2014. This provides an opportunity for the wealthy who have already made lifetime gifts to their heirs to make additional substantial gifts taxfree.

The amount exempt from the alternative minimum tax for a couple will go from $80,800 to $82,100 and from $51,900 to $52,800 for singles.

The standard deduction is projected to jump by $100 to $6,200 for singles and by $200 to $12,400 for couples.

The personal exemption is projected to go up $50 to $3,950.

What stays the same?

The “kiddie” deduction, used on the returns of children claimed as dependents on their parents’ returns, stays the same at $1,000.

The gift tax exemption, the amount you can give to as many individuals as you’d like without eating into your lifetime gift tax exclusion, stays the same at $14,000.

The limit on how much you can contribute to an Individual RetirementAccount stays the same at $5,500.

Here are CCH’s projections:

Married Filing Jointly (& Surviving Spouse)

Tax Rate	2014 Taxable Income	2013 Taxable Income
10%	$0–$18,150	$0–$17,850
15%	$18,150–$73,800	$17,850–$72,500
25%	$73,800–$148,850	$72,500–$146,400
28%	$148,850–$226,850	$146,400–$223,050
33%	$226,850–$405,100	$223,050–$398,350
35%	$405,100–$457,600	$398,350–$450,000
39.6%	$457,600+	$450,000+

+

Unmarried Individuals (Other Than Surviving Spouses and Heads of Households) Tax Rate 2014 Taxable Income 2013 Taxable Income          10% $0–$9,075 $0–$8,925 15% $9,075–$36,900 $8,925–$36,250 25% $36,900–$89,350 $36,250–$87,850 28% $89,350–$186,350 $87,850–$183,250 33% $186,350–$405,100 $183,250–$398,350 35% $405,100–$406,750 $398,350–$400,000 39.6% $406,750+ $400,000+

Surviving Tax Season: It's Not Over Yet

Kelly Erb Phillips for Forbes writes: It’s not over yet, folks.  While many of you have already filed your federal income tax returns for 2012, more than 10 million taxpayers are expected to file a return on extension in October (including me and likely, Mitt Romney). There are legitimate reasons why taxpayers need time beyond April 15 to file. One of the most common reasons is a situation like mine where income does not come from the usual suspects like forms W-2 and 1099-INT. Self-employment income, interests in pass through entities like partnerships, limited liability companies and s corporations, last minute retirement account contributions, and receipt of distributions from a trust or estate all make filing complicated and generally delayed. Fortunately, filing for extension gives you a six month extension of the original time to file. For 2013, the key date is October 15: taxpayers who timely requested an extension have until that day to file their federal income tax return without a late filing penalty.

The October 15 deadline comes on the heels of another important extension date: September 16 (since September 15, 2013, fell on a Sunday). September 16 marks the day that corporate tax returns (and a few related forms) on extension were due. About half of all businesses will file for some kind of extension. Corporate extensions include practically the whole series of forms 1120 (including C, F, FSC, H, L, ND, PC, POL, REIT, RIC, S and SF), certain excise tax returns and a few oddities like the form 1041-N, U.S. Income Tax Return for Electing Alaska Native Settlement Trusts thrown in for good measure. And no, you won’t see the regular form 1065 on the list: partnerships or entities electing partnership status only get a five month extension.

That means that chances are, your favorite tax professional has been working pretty steadily over the past couple of weeks. And the work load won’t let up until after October 15 (but then, it’s time for year end planning).

It’s a cycle that tax professionals are sort of used to by now.

Except this year, it feels different.

Tax professionals all over the country have reached out to tell me that they’re tired. They’re frustrated. They feel beaten down. Some want out of the game. Talk of early retirement has peppered conversations with a frequency I’ve never experienced before. It is, in a word, dispiriting.

It’s been a rough tax year for all of us. Tax season got off to a delayed start. Despite the setback, thedue date remained the same, making it a shorter season. Compressing all of those returns into a shorter time span meant that IRS was overwhelmed. The result? Delayed refunds. Thateducation credit snafu that went on far too long. And generally angry taxpayers.

Taxpayers voiced their frustrations – many directly at their tax professionals. Some screamed. Some were just nasty. Others refused to pay their bills.

But the consequences of this tax season? Your tax professional didn’t do those things to you. You. Your tax preparer. Your bookkeeper. Your tax counsel. We’ll all on the same team.

I get that nobody wants to pay taxes. And I get that the Tax Code is becoming more complicated. And I get that people are genuinely angry at the IRS.

But you shouldn’t shoot the messenger.

This summer, we took our annual trip to Maine – for the first time, my parents and my brother came along. My oldest daughter had been looking forward to it for months (she had been packed for about two weeks before we left). And then she got sick. On vacation. We ended up in the emergency room where she was eventually diagnosed with pneumonia. There was no way around it: it sucked. But we didn’t yell at the doctor. Or the nurses. Or the radiologist. They didn’t give her the pneumonia. They were just trying to help (and for what it’s worth, the whole staff at the Bridgton Hospital ER was fantastic). A few tests and some hefty meds later, we were on our way home for some rest and hopefully, getting better.

Tax professionals do the same kind of thing. They’re there to help you figure out your next steps – diagnose any problems and get you moving again. It’s not always fun. But they’re doing the best they can.

So, if you’re one of those folks on your way to see your tax professional this season to finish up your returns, do me a favor and be nice. Be patient. Smile. Maybe even bring along a cup of coffee. Or a bottle of wine (again, that kind of season).

But if you want to scream about your tax bill, call this number: 202.456.1111. That’s the number to the White House. You can also email or send a letter via the Post Office to The White House, 1600 Pennsylvania Avenue NW,Washington, DC 20500.

Or contact your Senator. Or your Representative.

Those are the folks who should be on your rant radar. Not your tax professional.

It’s been a tough tax season for all of us. We’re heading down the home stretch. Let’s see if we can end it on a better note than we started.

Same-sex married couples and state taxes

Kay Bell for Bankrate writes:  Sept. 16 was a watershed tax day for some same-sex married couples. From that day forward, they must file as married -- jointly or separately.That means their added filing tasks come to an end when it comes to completing both federal and state tax returns.

Other gay and lesbian couples, however, are finding that their tax-time double duty has simply shifted to state paperwork. All the shuffling of state and federal 1040 forms is thanks to the Supreme Court's June 26 decision that invalidated the part of the Defense of Marriage Act, or DOMA, that defined marriage as between one man and one woman. 

The good news for gay and lesbian couples continued in late August, when the Internal Revenue Service announced that it would implement a "state of celebration" standard when it comes to federal return filing.

State of celebration refers to the jurisdiction in which the couple was married, meaning the same-sex pair can file their federal taxes as married even if they live in a state that does not recognize their marriage.

"Traditionally, the IRS has not used state of celebration, but the state of domicile for its rulings," says Kyle D. Young, CFP professional and Accredited Domestic Partnership Advisor at the Schmitt-Young Investment Group of Wells Fargo Advisors. "It is a huge win for married couples."

Under the celebration instead of residency standard, a couple in Texas, which does not recognize same-sex marriages, could head to California, exchange vows and return home to the Lone Star State. They then would file a joint federal tax return and not have to worry about state taxes, since Texas is one of seven states without an income tax on wages.
But many same-sex married couples who live in states that do collect income taxes will have some filing work ahead.

Still twice the tax work for some

The IRS decision does eliminate a common complaint of same-sex married couples who live in states with income taxes. Because most states rely on some portion of taxpayers' federal return information, same-sex married filers who had been able to file a joint state tax return previously had to complete a mock federal joint Form 1040 to use as their state basis.
Now that federal return effort won't be wasted. The 1040 they fill out as a married couple will actually go to the IRS for processing.

State and federal tax return conformity, 2013 tax year filing
No state income tax on wages
Alaska, Florida, Nevada, South Dakota, Texas, Washington, Wyoming
State tax on interest and dividend income only
New Hampshire, Tennessee
State tax return starts with federal adjusted gross income and then applies one rate
Illinois, Indiana, Michigan, Utah
State starts with federal taxable income and then applies one rate
Colorado
State starts with federal taxable income and then applies its own rates to federal brackets
North Dakota, Vermont
State starts with federal taxable income and then applies its own rates and brackets
Minnesota, North Carolina, South Carolina Note: Beginning with the 2014 tax year, North Carolina will join the group that starts the state tax return with federal adjusted gross income and then applies one rate.
State starts with federal adjusted gross income and then applies its own rates and brackets
Arizona, California, Connecticut, Delaware, Georgia, Hawaii, Idaho, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Missouri, Montana, Nebraska, New Mexico, New York, Ohio, Oklahoma, Oregon, Rhode Island, Virginia, West Virginia, Wisconsin
State starts with federal gross income and then applies its own rates and brackets
Massachusetts, District of Columbia
State income tax calculation does not reference federal return
Alabama, Arkansas, Mississippi, New Jersey, Pennsylvania

Source: Tax Foundation.

1 federal, 2 state returns

But while same-sex couples are celebrating in states that recognize they're married and which collect state taxes, those in other states, along with state tax officials and tax professionals, are left scratching their heads.

Will states that don't recognize same-sex marriage still follow the IRS and accept joint tax returns from the couples?

That was the advice Kathryn M. Morgan, an enrolled agent and master tax adviser for H&R Block in Shreveport, La., got from Louisiana tax officials. "Through unofficial email and conversations with the Department of Revenue, I've been told to file the state material like the federal ones," says Morgan.

But she's approaching the situation from a trust-but-verify perspective. Morgan and other tax professionals nationwide await promised additional word from the IRS as well as formal guidance from their state tax offices.

"Everybody is in limbo," says Morgan. "We are still waiting on responses from the IRS and the states as the clock ticks ever closer. I have advised my clients to let me work up the numbers, file the returns, including the state jointly, if they work in their favor and then wait for a ruling. Or to let me file a protective claim for the state for 2009 and unfiled 2012 returns so they don't lose their rights to those refunds." By a protective claim, Morgan means filing a claim for a refund while a tax issue is evolving. This preserves the taxpayer's right to claim a refund when the matter is resolved. 

Most tax experts expect states that do not acknowledge same-sex marriage to continue to require their residents to file as single or, if they have children, head of household taxpayers.
That's the case in Wisconsin. The state's Department of Revenue website tells its taxpayers that, "Individuals who entered into a same-sex marriage in another state cannot file a Wisconsin income tax return using a tax status of married filing jointly or married filing separately."

Estate taxes, too

The IRS noted in its announcement that its treatment of same-sex couples as married for all federal tax purposes includes estate tax provisions. It was, after all, an estate tax issue filed by a New York widow following her wife's death that led to the invalidation of the DOMA definition of marriage.

Few filers are affected by the federal estate tax because estates valued at up to $5.25 million for 2013 are exempt from taxation. Separate state estate and inheritance taxes, however, could be costly for same-sex couples living in states that do not recognize their marriages.
Twenty states collect estate tax, inheritance tax or both. As with the federal law, most exempt a portion of an estate, typically $1 million or less, from taxation. Where an inheritance tax is in place, spouses and in some cases certain other family heirs are allowed to inherit property without any limits.

Of the states that collect taxes after death, most recognize same-sex marriages. Others grant equal estate and inheritance tax treatment to their residents who are registered civil unions or domestic partnerships. Four states do not recognize any same-sex relationships, meaning gay and lesbian widows and widowers will not be afforded any of the state benefits that their heterosexual counterparts are granted.

Taxation of estates or property left to heirs
12 jurisdictions recognize same-sex marriage and collect estate tax, inheritance tax or both
Connecticut: estate tax Delaware: estate tax District of Columbia: estate tax Iowa: inheritance tax Maine: estate tax Maryland: estate tax and inheritance tax	Massachusetts: estate tax Minnesota: estate tax New York: estate tax Rhode Island: estate tax Vermont: estate tax Washington: estate tax
3 states allow same-sex civil unions and collect estate tax, inheritance tax or both
Hawaii: estate tax Illinois: estate tax	New Jersey: estate tax and inheritance tax
1 state allows same-sex domestic partnerships and collects estate tax
Oregon: estate tax
4 states do not recognize same-sex marriage, civil unions or domestic partnerships and collect inheritance tax
Kentucky: inheritance tax Nebraska: inheritance tax	Pennsylvania: inheritance tax Tennessee: inheritance tax

Sources: State tax departments and Bankrate.com.

Young, who is based in Short Hills, N.J., says that in order to get the maximum tax benefit of marriage, same-sex married couples in the Garden State need to register with the state as a civil union and then take a short trip to neighboring New York to get married.
With the civil union, each spouse would be covered under New Jersey's estate and inheritance tax laws. Getting married in New York would solve any federal estate tax concerns since the IRS would accept that ceremony even though the couple formally lives in New Jersey.

Things would be more complicated, however, if the same-sex married couple lived a few miles farther west in Pennsylvania, which has an income tax and an inheritance tax and does not recognize gay marriage, civil unions or domestic partnerships. As Keystone State residents, the couple likely would have to file separate single state tax returns and the surviving spouse would get no state tax protections.

In the many states that do not recognize and in fact specifically ban same-sex marriages, it will likely be some time before gay and lesbian couples there receive equal tax treatment. Young believes, however, that the IRS ruling will put pressure on domestic partnership and civil union states to recognize same-sex marriages.

"For so long states have passed these substitutes in lieu of marriage, saying that couples get the same treatment as married couples. The rationale has always been it's the same thing as marriage," he says. "But it's very clear that it is not the same thing and you do not get the full benefits."

The one thing the IRS ruling does offer, though, is clarity.
"It's clear that it only applies to married couples, not civil unions or domestic partnerships. It's not necessarily the best news, but at least we know," says Young. 

Same-Sex Married Couples’ Filing Angst Now Triggered by State Taxes

Richard Rubin for Bloomberg/Accounting Today writes:  Kat Morgan will check a “married” box on her federal tax return next year for the first time since her 2009 wedding, now that the Internal Revenue Service will recognize same-sex marriages no matter where couples live.

Her South Carolina income tax return will be another matter, because of the state’s constitutional prohibition against treating her marriage as legal. She and her wife, Daena Petersen, will probably need to create dummy federal tax returns used only to fill out separate state tax forms, on which they will each declare themselves single.

“Annoying doesn’t begin to capture how it feels,” said Morgan, a 50-year-old nonprofit professional in Charleston who was married in Vermont and moved to South Carolina for her wife’s job earlier this year. “Every time I have to check that box, there’s a disconnect between what’s reality and what’s recognized here in South Carolina.”

The IRS’s decision last month to recognize all same-sex marriages is reversing the scenario that had been in place. Until now, same-sex couples in states that recognize gay marriage filed joint state returns as well as separate federal returns declaring themselves single. The burden of enforcing laws at odds with federal policy now falls on states such as South Carolina that prohibit same-sex marriage.

Undo ‘Discrimination’
“What happened before in marriage-equality states was that those states had to find a way to undo the discrimination at the federal level,” said Ruth Mason, a tax law professor at the University of Virginia. “Now you have states that don’t want to recognize same-sex marriages trying to redo the difference.”

Residents of states such as Massachusetts and Connecticut that legalized same-sex marriage will no longer have to combine separate federal tax returns for their joint state filings.

Instead, those who will have to split returns are same-sex couples who were legally married in one of 13 states, the District of Columbia or a foreign country and now live in a state that doesn’t recognize their marriage. Residents of states such as Oklahoma, Utah and Wisconsin will have to use different rules for their state and federal tax returns, adding complexity and cost. It’s prompting state officials to write new rules and come up with new tax forms.

“It has sort of flipped the states,” said Verenda Smith, deputy director of the Federation of Tax Administrators, a Washington-based association of state revenue officials.

130,000 Couples
There are more than 130,000 married, same-sex couples in the U.S., according to estimates from the 2010 Census. Many of them will pay more in taxes, because of the so-called marriage penalties in the tax code for couples with relatively equal incomes.

In states that recognize same-sex marriage, the new system will be easier, because the federal and state returns will be as seamless as they are for opposite-sex couples.

Some states without same-sex marriage, such as Oregon, allow joint income-tax filing by registered domestic partners. Other states that prohibit same-sex marriage, such as Florida and Texas, don’t impose income taxes.

That narrows the conflict to 24 states that don’t recognize same-sex marriage and also have state income tax systems that refer to definitions or income data from the federal government, according to the Tax Foundation. The nonprofit group in Washington tracks state tax policy and advocates for simpler tax rules.

Amending Rules
Some states will be able to provide rules for taxpayers administratively. Others may need to amend state laws that require taxpayers to use the same federal and state filing status and are now at odds with state constitutions.

Wisconsin made the first such ruling, announcing that it would soon issue a new tax form, “Schedule S: Allocation of Income to be Reported by Same-Sex Couples Filing a Joint Federal Return.”

States must act quickly. Starting Sept. 16, the IRS will prohibit same-sex married couples from filing individual returns. That means couples who received extensions through Oct. 15 for their 2012 tax returns will face the conflict immediately, without the help of guidance from their states. Then, tax filing for 2013 will open in January 2014— before many state legislatures convene.

Stephanie Cheek, a spokeswoman for the South Carolina Department of Revenue, said officials are reviewing the issue. Charlie Roberts, a spokesman for the Utah State Tax Commission, said state lawyers are studying the questions involved.

Short Run
“It’s going to be a hassle in the short run,” said Pat Cain, a tax law professor at Santa Clara University in California. She said the patchwork of laws may help speed up consideration of lawsuits challenging those state constitutions.

“Everybody has their opinion on the moral issue,” said Nanette Lee Miller, national leader of the accounting firm Marcum LLP’s practice for lesbian, gay, bisexual and transgender clients. “But everybody has an opinion that nobody should have such craziness on their taxes.”

Beyond tax filing status, states will have to consider other ways in which marriage affects the definition of income.

For example, many companies offer health benefits to the same-sex spouses of their employees. Until the IRS decision, those payments were treated as taxable income.

Now, they won’t appear on the W-2 form that companies submit to the federal government, meaning that states that want to continue taxing that income must tell businesses to keep reporting the income to the state.

Taxable Events
Other laws that involve marriage include those governing whether transactions between two people are taxable events.

“Tax accountants are going to be very busy,” said John McGowan, managing director of the LGBT practice at Northern Trust Corp. in Chicago.

Sarah Schmidt, a political and business consultant in Wilmette, Illinois, said she and her wife are reviewing their estate plans and tax filings.

Because she’s part owner of her family’s Wisconsin-based petroleum-distribution business, Schmidt said she files eight or nine state income tax returns a year.

“We’re now going to look at what needs to be changed given this ruling,” said Schmidt, who leads LPAC, a lesbian political action committee. “I’m happy to deal with the added complication.”

Xero stays scalable, resilient in the cloud / Cloud accounting software firm Xero deploys SQL Server 2012 on Rackspace infrastructure to gain resilience, uptime, and scalability.

Tim Lohman for ZDNet writes: When you're a fast-growing company with highly aggressive sales targets, the ability to scale your business and your product offerings at speed is everything.

That's why the founders of Xero, a New Zealand-based cloud accounting software, decided to launch the company in the cloud from the start. It's also the reason that the vast majority of the applications the company uses internally to run its business — Microsoft 365 to Atlassian's Jira and Confluence for project tracking and collaboration, and Google — are also in the cloud.

As Oliver Furniss, product manager at Xero, explained, the cloud is essential to Xero's highly distributed business; the company has development offices in Melbourne, Canberra, San Francisco, New York, Wellington, and Auckland. It also has sales and support offices in Sydney, Brisbane, Perth, and Melbourne, and is growing in the US and the UK.

Despite being a competitor to everyone from MYOB and Quicken in Australia to Inuit in the US and Sage in the UK, Xero is also growing exponentially, and has been given very aggressive sales targets; the company is currently adding around 200 customers each day as it strives for an 80 percent growth in revenues this year. It currently has around 75,000 small business customers in Australia and 200,000 globally, and is ultimately aiming for a far larger target of 1 million customers.

"It is scalability, scalability, scalability," Furniss said of the biggest challenge and need that Xero has. "If we look at the US, we have some really big targets for that market. Given the timescale ... we need help to scale up. Without it, we would be constrained in how we grow, and we don't want that."

Furniss said that with the growth Xero has experienced, a traditional IT installation with on-site servers, storage, networking, and software would just be a hindrance. At the same time, as a software company, Xero still needed its IT infrastructure to be accessible and easy to upgrade in the face of demands for greater capacity and speed, as well as to offer the highest uptime possible.

"With that rapid growth we have had is the need to quickly scale and change that scale really fast," he said. "Resilience is certainly also a challenge. This is our business, and our business is in the cloud, so uptime and performance is just fundamental to everything that we do."

The answer was to host its cloud infrastructure with Rackspace in the US and use Akamai to help deliver Xero's software around the globe.

The solution

Furniss said that when Xero decided to source a hosting provider for its cloud, there was no need to canvass the market. That's because Xero had decided on Rackspace from the beginning.

"From the early days, the founders knew that to create a seamless 24-hour network with the levels of speed and uptime needed to be the number one priority," he said. "Without that, the business doesn't exist. If you have a hardware failure and you can't get to that quickly, then the business fails."

Furniss said the decision to choose Rackspace came down to the vendor's reputation as a B2B services provider.

"Their reputation for uptime and support is known in the industry as probably the best," he said. "It's something we didn't want to skimp on, and was a priority from the start."

However, with its rapid growth, Xero began encountering scalability limits with its existing storage area network (SAN) and needed to upgrade. With the upgrade, the opportunity to also upgrade Xero's database software made sense.

Since early 2012, Xero has relied on about 50 Dell PowerEdge R710 and R810 servers running Windows Server 2008 R2, and a couple of SQL Server clusters all hosted in Rackspace's Dallas and Chicago datacentres.

Through upgrading to SQL Server 2012 and hosting with Rackspace, Furniss said Xero was able to access some of the latest features in SQL Server that support higher availability and scalability and also help improve resilience and response.

Accessing SQL Server 2012's AlwaysOn feature, Xero can treat a group of databases as a single entity — an "Availability Group" — and failover a group of databases as a single unit. By using AlwaysOn, Xero can set up an active or passive configuration for its databases, which allows for greater availability and easier testing of new features.

As at early 2012, Xero's main production database contained roughly 5 terabytes of data and served nearly 80,000 customers. As at October 2012, the company had two production workloads running on SQL Server 2012.

Uptime and support

In addition to gaining access to new capabilities and easier upgrades, Furniss said that the major benefit of using Rackspace is the additional uptime and control over its downtime that the provider gives Xero. The company currently sits at about 99.97 percent uptime in order to allow planned downtime for maintenance, new software, and upgrade releases.

"The benefit of the cloud is that we can schedule those planned releases and maintenance windows so it doesn't impact business customers," Furniss said. "We can release often and constantly if and when we want to release an upgrade."

Using Rackspace to host its cloud infrastructure has also meant that Xero has avoided having to source and pay for its own in-house hardware team and multiple hardware deployments across the globe.

"Having the support on the ground gives us the confidence that we are in the hands of the best people. If we tried to do it ourselves, we would just end up with big teams on the ground and multiple instances around the world.

"It is why we chose Racksapce as our technology partner — because of the challenge of scaling. It allows us to have a much smaller operations team, and they can focus more on the high-end work and less on the grunt work ... we don't need a 24/7 ops team.

"We can really just focus on how we solve problems for our business and our customers, rather than just solve all the internal problems.

"Having Rackspace gives us the confidence that we can grow. We don't ignore our hardware, but it is a great risk management piece to have Rackspace in our corner."

Local hosting flexibility

Furniss said that Xero currently has no plans to host a local instance of its services within Australia. However, with Rackspace's launch of Australian datacentres in February this year, local hosting is now an option should the Australian government or customers demand it of Xero.

"If there is ever an issue that we need certain information within the borders of Australia for Australian customers, then that is something we will do," Furniss explained. "The market so far hasn't shown that hosting in the US is a problem.

"If it ever does become an issue, with Rackspace in Australia, we can just maintain that relationship with them and look to bring some of that information across to Australia."

The company has also benefited from the service levels Rackspace offers. As Furniss explained, Xero has been able to apply to New Zealand's Inland Revenue Department (IRD) for an exemption to current laws that require tax data to be held within the country's borders.

"In New Zealand, we have been given authorisation from the IRD to host information in the US," he said. "Because of our security, our service levels and everything we do, we have an exemption to that. Rackspace is essential to that. We can prove that our data is secure and no one else can access that."