The 10-Minute Tax Checkup Everyone Should Do This Month

Robyn Gearey for DailyFinance writes: If you're like most people, you don't think about taxes until around February or March, and according to the IRS, 20 percent to 25 percent of us put them off until April.

It's no wonder there are so many procrastinators. Between the deadlines and the uncertainty surrounding how much you'll owe or have refunded, taxes are stressful.

But it doesn't have to be that way. The IRS offers a simple calculator on its website that will estimate your total tax burden. If you're fairly organized, figuring it out will take as little as 10 minutes (I timed it). And by checking in on your tax standing by October 1, you have three months to make adjustments -- and avoid surprises come April.

Find Out How Much You Owe

The first step is to go to the free, user-friendly IRS Withholding Calculator and answer the questions about your tax filing status and dependents.

Next you'll be asked for income information. For most people, your most recent pay stub will have the necessary numbers. If you're self-employed, take the extra time to add up your income so far and estimate what you'll get for the last quarter of the year.

Next, you'll be asked about expected deductions -- these are often similar to the deductions you took last year, so you can use your 2012 return as a guide. If your tax situation has changed significantly (say, you bought or sold a house, or had significant medical expenses), do your best to estimate the amounts. Mortgage interest information can be found on your monthly statement or via a quick call to your lender. Since this is often people's largest deduction, it's worth taking the time to get a number that is as close as possible to reality.

The calculator will then provide an estimate of how much you'll owe compared to how much you are on track to have withheld at the end of the year. It will also give guidance on how to adjust your withholdings for the rest of the year to either make up the difference or prevent having too much withheld.

Take the Edge off the Tax Bite Now

Now that you know where you stand, it's time to take action. Changing your withholdings is as easy submitting an updated W-4 form to your payroll administrator. You may also want to consider other steps to manage your overall tax bill.

If you expect to owe, look into beefing up your deductions. Here are a few suggestions:

• Make your January mortgage payment in late December. This boosts the amount of mortgage interest you can deduct. You may also be able to prepay property taxes.
• If eligible, plan to make a deductible IRA contribution before April 15, 2014.
• Purchase any deductible professional equipment such as a new computer before the end of the year.
• Ask to have any year-end bonuses paid after Jan. 1 (thereby pushing the tax hit to 2014).
• Make extra charitable contributions.

If you're expecting a refund, lucky you! Sure, you can take the money and run, but why not consider ways to shift some of your tax liability forward?

• If you have stock options, think about exercising them before the end of the year so your expected refund can counter the resulting tax hit.
• You may also want to review your portfolio for any winners you're ready to sell, or consider a Roth IRA conversion.
• If nothing else, at least file as early as you can, and put that money back to work for you.

Regardless of your situation, knowing what to expect allows you to make smart choices about everything from tax-loss selling to Roth IRA conversions now, when those moves can help you most.

Question on Self Employment Taxes / Should I form an LLC for tax purposes?

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4 posts • Page 1 of 1

CPAs - Question on Self Employment Taxes

by snoop9928 » Sun Sep 22, 2013 10:07 pm

I'm self employed(independent contractor) and some people that work in my field have said it would benefit me to form an LLC for tax purposes. Some have said it's pointless and a waste of money. I don't plan on starting my own business or adding employees to my LLC, so would this be worth it? Would I save money on taxes? Thanks

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Re: CPAs - Question on Self Employment Taxes

by Jack » Sun Sep 22, 2013 11:03 pm

What people are talking about is changing your business to be taxed by the IRS as an S-corp, not an LLC. People mix this up all the time. You do not need an LLC to be an S-corp.

An S-corp allows you to receive some or all of your income as salary subject to self-employment tax and possibly the rest as dividends subject only to income tax but not self-employment tax.

Whether this is possible for you is much too complicated an issue to resolve here. There are just too many details related to you type of business. You should talk to a tax professional. You should also be aware that the under-payment of self-employment tax via an S-corp is favorite target of IRS auditors.

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Re: CPAs - Question on Self Employment Taxes

by chaz » Mon Sep 23, 2013 12:06 am

Talk to a tax lawyer to be safe.

Chaz | | “Money is better than poverty, if only for financial reasons." Woody Allen | | http://www.bogleheads.org/wiki/index.php/Main_Page

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Re: CPAs - Question on Self Employment Taxes

by Spirit Rider » Mon Sep 23, 2013 1:30 am

All of the responses so far are correct. You don't say why people are telling you to form an LLC for tax purposes. There are different tax issues.

An LLC is a state chartered business entity. It is a separate issue how it is treated by the IRS for federal tax issues. By default a single member (SM)LLC is consider by the IRS to be a "disregarded entity". This means the LLC does not file taxes, you file as a sole proprietorship on a Schedule C. You can file an IRS form to elect for the LLC to be treated as a corporation (effectively the same as S-corp.)

Many people mistakenly think that you need to form a LLC in order to deduct business expenses. Simply not true, since you file a SMLLC exactly the same as a sole proprietorship (Schedule C). Also, you don't need an LLC to operate with a business name. You can do so by Doing Business As (DBA). In most states this only requires a simple registration of the DBA with the state.

A SMLLC elected to be treated as a corporation for tax purposes and a S-corporation provide a much more structured business entity. The business is now a separate entity from you individually. However, it is more complex to operate and do your taxes. You are now paid wages as an employee and the business can have profits that can be retained and/or returned as dividends. The key thing people talk about saving with a corporate structure is not paying Self-Employment (SE) tax on a portion of your net business income

So the bottom line is you really should get get state specific professional advice. Personally, I determined that with increased state filing fees, state tax issues (no personal income tax, but business profits tax), less SE tax (but less SS earnings), increased professional fees, and general complexities it simply was not worth it. I just settled on a SMLLC with default IRS treatment.

Accountants: Help me protect my windfall from the IRS!

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dropzone  Charter Member Join Date: May 2000 Location: Cloud Cuckoo Land Posts: 21,217

Accountants: Help me protect my windfall from the IRS! Yeah, I know. I can’t except by using my most powerful tool, being poor, which I’m going to do anyway. My wife, though, thinks there’s some magical Thing THEY Don’t Want Us to Know About, and I should talk to an accountant or tax lawyer before going any further.  I’m not going to take time off from work to pay some guy to tell me what I already know, but I want to do some collaborative thinking wit’chall just in case she’s right. Here’s my situation in a coconut shell: I worked for a company for ten years and got vested in its pension plan. I’m a big, fat guy with asthma and balance problems and never expected to live until retirement, so when they sent me yearly letters saying how much I’ll get monthly when I turn 65 I kinda ignored it as fantasy money, especially when it started out at about $125. Big whoop. Since that job I’ve seen some good times and some bad times, and this is one of the bad times. I’m massively under-employed and my wife is unemployed. We owe a lot of money, from back real estate taxes to credit cards to medical bills, and have a leaking roof and a busted furnace and stove. When I got a letter from my former employer telling me I could cash out my pension I thought, “How lovely! We don’t have to freeze next winter.” I was figuring about ten or fifteen grand. Uncle Sam would withhold about a third or half of it and I could use the rest to fix the house stuff and file Chapter 13 before the company that bought my first year of back taxes takes the house next April. Speaking of April, I’m a W-2 employee, but my company doesn’t withhold Federal taxes. I’m pretty sure that’s illegal, but their thinking seems to be that they pay us so little that, between our poverty and a judicious use of the Earned Income Tax Credit, none of us pay taxes, anyway, and the withheld amount of the pension will cover that. And yes, I am actively looking for another job. Why I stayed here this long is another story. It turns out, though, that the pension is over fifty-thousand, American, making it a bit more complex and causing my wife to assume I haven’t thought everything out and that there are tricks to protect it that I don’t know. I don’t have exact numbers on me but let me bounce my cunning plan off you. Sam will take $20,000/40% or so off the top, leaving me with $30,000. Back taxes are about $18,000, repairs are $2000 to $4000, Chapter 13 is $3500 upfront, according to a lawyer I spoke to last year. However, with the back taxes out of the way and the probability that, as I have stopped receiving letters and calls about my biggest medical debts, those may have been written off as bad debts (I’m delaying poking that hornet’s nest until I’m stronger financially), I think I could skip the bankruptcy and work with somebody who doesn’t advertize on daytime TV to restructure my debt. I’ll get a fair chunk of the $20k back from Uncle Sam next spring and be able to fix up this dump enough to sell it for more than I owe on it. Wife starts her new job in a couple weeks and I'll find a better one and we'll all live happily ever after. So, that’s my plan. How stupid and short-sighted is it?

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#2    Yesterday, 05:06 PM

aNewLeaf  Guest Join Date: Dec 2012

IRS might give you a break on back taxes if you go in and ask nicely and offer to pay cash. Taxes off the top are where an accountant or tax expert can help you. Buying a house is usually a good tax hedge.

#3    Yesterday, 05:13 PM

Nawth Chucka  Guest Join Date: Mar 2002

f your medical bills were more than $1000 they've probably been bundled w/ other people's bad debts and sold to a debt collector for pennies on the dollar. They'll try to collect from you and then take you to court and get a judgment against you, then garnish wages and/or put a lien on your car/home, depending on the state you live in. If your employer doesn't withhold taxes, I wonder if it's worth you doing a quarterly return now rather than wait till next year to do annual taxes? Has your wife worked another job this year? Have you?

#4    Yesterday, 05:19 PM

Twoflower  Guest Join Date: Dec 2004

Roll it over into an IRA. Then only pay taxes on the amount you withdraw from the IRA in a given tax year, to cover your proposed expenses. If you're not yet 59.5 years old, there's a 10% penalty on top of that; but I suspect a similar penalty will apply to the cash-out anyway, depending what kind of plan it is, if you don't roll it over.

#5    Yesterday, 10:17 PM

dropzone  Charter Member Join Date: May 2000 Location: Cloud Cuckoo Land Posts: 21,217

Quote: Originally Posted by Twoflower  Roll it over into an IRA. Remember the part where I was drowning in debt and was surprised I lived this long, never expecting to retire? This has a lot more in common with "putting my affairs in order" than it does "planning for a day that will never come." Quote: If you're not yet 59.5 years old, there's a 10% penalty on top of that; but I suspect a similar penalty will apply to the cash-out anyway, depending what kind of plan it is, if you don't roll it over. Hmmmm, as I won't be 59.5 until early December that is something I need to look into. Thanks!

#6    Yesterday, 11:00 PM

Twoflower  Guest Join Date: Dec 2004

Quote: Originally Posted by dropzone  Remember the part where I was drowning in debt and was surprised I lived this long, never expecting to retire? This has a lot more in common with "putting my affairs in order" than it does "planning for a day that will never come." I totally understand. You don't need to already have an IRA- you can open one just for the rollover, and just use it long enough for tax protection until you use the money. Good luck!

#7    Yesterday, 11:42 PM

jtgain  Guest Join Date: Jul 2007

Definitely talk to a lawyer. Two points: 1) You may not need to do a Chapter 13 to keep your house. You can do a 7 and reaffirm the mortgage. YMMV, ask your attorney about this. 2) Definitely roll it over into an IRA and don't take cash. The IRA assets are not part of your bankrupt estate. 3) $3500 up front is pretty damn steep for a Chapter 13. What is typical here is $3000. $1500 up front, and the other $1500 rolled into your monthly 3 year payments with other creditors.

#8    Today, 12:49 AM

Oakminster  Guest Join Date: Jun 2006

Quote: Originally Posted by jtgain  Definitely talk to a lawyer. Two points: 1) You may not need to do a Chapter 13 to keep your house. You can do a 7 and reaffirm the mortgage. YMMV, ask your attorney about this. Very possible, but eligibility for Ch. 7 is determined by a means test...if his family income is below a certain level, which varies by location, he may qualify. Even if a Ch. 7 is not an option, some bankruptcy courts will approve a 0% to unsecured creditors plan in some circumstances. Definitely worth looking into. Quote: 3) $3500 up front is pretty damn steep for a Chapter 13. What is typical here is $3000. $1500 up front, and the other $1500 rolled into your monthly 3 year payments with other creditors. Around here, some lawyers are doing Ch 13 for only the filing fee...about $310...up front, with the remainder of the fee paid through the plan. He should shop around for a better deal than what's he's been offered.

#9    Today, 04:52 AM

Nothar  Guest Join Date: Jun 2006

CPA here. The other comments are good advice. Rolling the balance over into an IRA is probably the best way to proceed, and then withdraw the money from the IRA as needed. You will also definitely also want to wait until you are 59 and 1/2 to avoid the 10% penalty on top of any taxes you will owe. There are certain ways to avoid the 10% penalty when you are below that age, but since you are reaching that age in December, I would wait until after. You could also withdraw the amounts needed across both 2013 and 2014 to spread out the income over 2 tax years, by withdrawing part of it in December after you attain 59.5 and then again in January. The custodian for the pension, or the IRA if you roll it over, will allow you to withhold as much or as little tax on the proceeds as you wish, including withholding nothing at all. Depending on your other items of income and deductions for the applicable year of the withdrawls(s) will determine how much tax you owe on the distributions, which will be included as regular ordinary income on your tax return. The others have noted good advice if you are going to be going ahead with a bankruptcy filing and the advantages of holding the funds in an IRA to protect them.

Why You Should Be Investing Your Money In Real Estate / Tax Advantages

MARK J. KOHLER  for Entrepreneur writes:  As entrepreneurs find success with their primary business ventures, many search for the proper investments for their profits.

Of course, we can and should all start traditional tax preferred vehicles like an IRA and 401k. These are the bedrock of good 'benefit' planning for ourselves and our employees. I'm also convinced more entrepreneurs should consider rental real estate as an important part of their portfolio.

I realize many business owners shrug off this concept after the recent downturn in real estate values, but let me list a few reasons that may change your mind:

1. Gain more leverage. Real estate is one of the few investment vehicles where using the bank's money couldn't be easier. The ability to make a down payment, leverage your capital, and thus increase your overall return on investment is incredible.

2. Grow, tax-free. Buying rental property based on speculation of its value is a dangerous tactic since cash flow is the key. However, appreciation over the long-run is certainly realistic and at the least you should be considering a tax-deferred strategy. In the future, you may even consider a 1031 exchange, charitable trust, or an installment sale to lesson your tax liability further.

3. Tax free cash flow. It's no secret that because of depreciation and mortgage interest deductions (if you leverage your capital), your cash flow should be tax-free. That's right! The far majority of the time an investor will never pay taxes on their cash flow and can wait for capital gains on the sale of the property in the future.

4. The tax write-offs against your other income. Depending on your classification as an Active Investor or Real Estate Professional and your income level, there is a good chance your rental property will not only give you tax-free cash flow, but an overage of tax deductions you can use against your other income. With that said, this is something you want to discuss with your tax professional before investing so your expectations are realistic.

5. Increased tax deduction strategies. Rental property affords investors with another incredible opportunity to convert personal expenses to potentially valid business deductions. Don't forget that rental real estate is a business. This means that travel expenses to check on your properties and payments to family members who manage your properties (such as students away at college) can be deductible and increase the tax benefits when it comes to cash flow and the future sale of the property.

6. Rental real estate is a forced retirement plan. Americans are terrible savers. We lack the self-discipline to put a monthly deposit into our IRA, SEP or 401k as small-business owners. However, buying a rental property is a significant commitment that you are required to commit to and maintain. You will always be grateful in the long-run when you don't give up on it and build future cash flow and wealth.

I meet with a lot of successful entrepreneurs, and almost every one of them has taken profits from their businesses over the years to invest in rental property. Based on this fact and the list above, I have consistently urged my clients to buy one rental property a year and already have clients with rental properties earning them money they never imagined they'd have.

The far majority of us will never get rich overnight. It takes long-term investing and a diverse portfolio to build true wealth. Don't forget real estate as an important part of the equation.

How An Online Sales Tax Would Help Corporate Interests And Hurt Small Businesses / The only brick and mortar stores to benefit from a House committee’s “principles” toward legislation are big-box chains.

Frederick Reese for MinutePressNews writes: For many customers, one of the true benefits in online shopping is the lack of sales tax. Under a 1992 Supreme Court decision, retailers cannot collect sales tax from an out-of-state customer unless the retailer had a physical facility in the customer’s state. Most states, like New York, ask their residents to track online purchases and pay their sales tax as a “Use Tax” on their end-of-year income tax filing. Few taxpayers actually did this.

This sense of “unfair play” has rattled brick and mortar stores, who feel that the online stores’ growing share of the retail market is responsible for shrinking sales. From 2012 to 2013, online sales grew 13 percent, from $231 billion to $262 billion, while the retail market as a whole grew just under three percent. While online sales only constitute eight percent of all retail sales in the U.S., as of 2012, recent developments — such as Blockbuster Video being driven out of business by competition from Netflix and Borders’ Books shutting their doors after a losing market fight with Amazon.com, which is now endangering Barnes & Noble — have made physical retailers jumpy. The states are looking for a way to collect the sales tax they feel is due them in an attempt to help balance their budgets.

“This collection disparity has tilted the competitive landscape against local stores, creating a crisis for brick-and-mortar retailers around the country and in your state,” said David French, senior vice president of the National Retail Federation.

To remedy this, the House Judiciary Committee has issued “principles” for guiding conversations toward establishing new legislation. “Americans across the country are affected by the issue of Internet sales tax whether they are consumers or business owners,” wrote House Judiciary Committee Chair Bob Goodlatte (R-Va.) “The aim of the principles is to provide a starting point for discussion in the House of Representatives. I greatly look forward to hearing fresh approaches to this issue and continuing the discussion.”

Defining “principles”

Among the “principles” listed are the idea that only taxes that exist in the offline world should be imposed online, that the notion that a retailer is online or offline should bear no difference on the sales tax burden, that customers can challenge discriminatory taxation practices, that executing sales tax compliance requirements should bear no excessive burden on businesses, that tax rates should be competitive, that the federal government should not be able to intervene on a state’s right to impose an independent sales tax system and that customer data must be protected.

“The principles are a good step forward and we will continue to walk with the chairman on this journey. However, we shouldn’t lose sight of the fact that certain sellers are continuing to suffer from as much as a 10 percent price disadvantage and they are looking for relief sooner rather than later,” said Jennifer Platt, vice president for federal operations at the International Council of Shopping Centers.

This is Congress’s second attempt at an internet sales tax. In May, the Senate passed the Marketplace Fairness Act, which would make all items sold online taxable in the state they were shipped from. The bill, despite bi-partisan support in the Senate, died in the House — in part due to the exemption offered to online retailers to not collect sales tax in states that have sales of less than $1 million. Major retailers, such as eBay, considered this unfair and actively lobbied for the exemption limit to be lifted to $10 million.

The exemption was included to remedy the primary reason many retailers do not favor collecting online sale tax: every state has an unique tax code with requirements and obligations that must be met. Preparing 46 separate tax reports in 46 different ways is typically beyond the capability of the small vendor. Under the Marketplace Fairness Act, it is the states’ obligation to provide the companies with free software for the tax calculation and a single state entity that the retailers would have to communicate with.

“Whether you’re a consumer who loves the selection and value that small businesses provide online, or a small-business seller who relies on the Internet for your livelihood, Internet sales tax legislation affects you,” eBay wrote on its public plea to its customers to petition Congress. “For consumers, it means more money out of your pocket when you buy online from your favorite small business. For small-business sellers, it means you would be required to collect sales taxes nationwide from the more than 9,600 tax jurisdictions across the US. You also would face the prospect of being audited by out of state tax collectors. That’s just wrong, and an unnecessary burden on you.”

eBay’s position — at least, earlier this year — was that the fact that small business were exempt from the sales tax actually protected them from the unfair application of tax laws larger companies can secure. “The current bill [the Marketplace Fairness Act] favors large online and offline retailers,”eBay wrote on its Main Street blog. “Larger retailers leverage their size to negotiate tax breaks or grants, in addition to the favorable terms they can obtain throughout their supply chains. Unless the bill is amended to include a real small business exemption, it would actually damage the competitiveness of innovative small businesses. eBay believes those very businesses should be empowered to use online tools so they can reach new customers and grow their business.”

A lost need to protect small businesses

Goodlatte’s “principles” remove the impetus on the states to accommodate the multi-state tax regulations. While the “principles” called for simplicity, it also ensured the states’ rights to collect taxes freely. Without any specific protections to accommodate small online businesses, it can be argued that this set of “principles” serve larger retailers such as Wal-Mart, Target and Amazon.com — who all already collect sales tax online due to their physical presence in multiple states — at the expense of the independent retailer.

“We’ve been on the record for years that we believe the small seller exemption is a relic from when the software was extremely expensive,” said FedTax Chief Executive Officer David Campbell, whose company provides business owners free tax compliance software by charging a commission to states on tax it collects. “We’ll support whatever exception Congress thinks is O.K., but we vehemently disagree that compliance has to be complex or expensive.”

With Goodlatte removing small business protection from his online sales tax “principles,” eBay is now onboard. The company “is very encouraged that the remote sales tax principles released today by Chairman Goodlatte address concerns that we have raised on behalf of our small business community,” said Brian Bieron, a public policy executive for the company, in a statement.

The states are expecting legislation to pass by December. While 50 percent of all online shoppers shop without consideration of the sales tax, 30 percent said having to pay sales tax would return them to offline shopping. With online shopping being one of the few sectors in the economy showing real growth, it is questionable why one would be tempted to alter it simply to make the big box stores happy.

Ultimately, the answer to this lies in whether one feels the economy can be rebuilt and healed by the wealthy or from the energy and effort of the nation’s small businesses.

A New Reckon (formely rebranded Intuit products) Writes a Future in Cloud and Mobile Accounting

Down Under Sholto MacPhearson keeps us up to date on the Reckon/Intuit fall out by writing:  The registrations line to enter Reckon’s annual conference in Melbourne last Friday had the feeling of a political party convention. The faithful – Reckon accountants, bookkeepers, key customers – had come to hear the company deliver on its post-Quickbooks vision and were burning with anticipation. The stakes couldn’t have been higher.

Circumstances had forced Reckon into centre stage. The accounting software market, once a cosy duopoly with MYOB, had been upended by New Zealand entry Xero which had morphed into a $2 billion player almost overnight. Intuit, owner of QuickBooks, had not only terminated Reckon’s rights to the global brand but launched a cloud accounting program, QuickBooks Online, targeting Reckon’s Australian customers.

Reckon had a lot to prove. It had to show its partners it could stand by itself, sell its own name to Australian businesses, and make client accounting software to a globally competitive standard. And it needed to convince them that it could be trusted to continue as a rock-solid supplier of accounting software.

Neither task was simple. Reckon’s reputation as a buttoned-down, blue-chip ASX stock that could deliver dividends year in, year out suddenly appeared a strait-jacket. Today’s new breed of software companies sip from a fountain of youth, pump out updates every six weeks and live to the beat of the always-on, highly connected internet. How could Reckon achieve such a fundamental transformation without shedding its entourage of conservative investors and partners?

When I first met with Reckon, for a demonstration of their hosted software about two years ago, I didn’t think it possible. Reckon was marketing its hosted desktop software as a cloud solution, but without any ability to connect to third-party cloud apps. At a time when Intuit, MYOB, Saasu and Xero were pushing ahead with browser-based accounting programs, Reckon was just rebadging an existing product.

But the company that took the stage last Friday had clearly changed. The young management team introduced themselves and showed how Reckon had restructured itself as a multi-platform software developer. Reckon had clearly understood that it couldn’t just hire a bunch of web developers to make it in the world of cloud software. It had to know hosting infrastructure, open up to customer feedback and use it to drive development.

Reckon’s management appealed for trust based on the company’s experience. While senior executives resigned to make way for new blood, over 100 employees have been with the company for five years and 30 have been with the company for more than 10 years. As a strategy of differentiating itself from the seven-year-old Xero, which has added most of its 500 staff in the past two years, it was clever.

And what evidence did Reckon give of its rebirth?

Reckon has moved quickly to smooth out a lot of rough corners with its cloud app Reckon Onesince its preview in July, a bookkeeper at my table told me. “The preview had a lot of issues,” she said with an eyeroll. Reckon’s development team appears to have broken through its legacy desktop mindset and is moving at web speed.

(Reckon One is in restricted release for six weeks so Reckon’s partners can familiarise themselves with it before clients start calling.)

Reckon has managed to find attractive points of difference. The customisable dashboard is new to the market and works really well. A user can add many widgets and set the period (by month, quarter, annual) individually. My first impression of the modular pricing was that it was too confusing compared to the small, medium, large plans offered by rivals. But accountants and bookkeepers love the fact they can upgrade transactions or payroll or projects as needed on a monthly basis. Reckon also has the biggest spread of formats – cloud, hosted and desktop – which has renewed appeal given the imminent gutting of the NBN.

The clearest indication of Reckon’s rebirth is in mobile. Mobile is the next frontier for cloud accounting; Saasu and Xero are prepping big releases next year which will push more features to handsets and tablets. Reckon has made sure it didn’t just work on a browser-based app; it has clearly invested heavily in its mobile strategy.

The mobile app is ahead of the competition and shows the potential use of accounting apps among employees. A business owner can look at his or her dashboard and add bills and invoices on the mobile; employees can add expenses (record receipts by photo like the Xero Touch app) and enter timesheets.

But the biggest surprise of the day was strategic director Dan Rabie’s personal project to create a mobile payments service. Rabie spent a year and a half talking to the big four banks to find a way for businesses to take credit card payments with an iPhone or Android smartphone. Rabie signed with NAB the week before the conference to produce Reckon Pay, due in Q1.

At this stage Reckon has nothing more than screenshots to show of the mobile payment service which is similar to the US-based Square. But Rabie said Reckon Pay would be superior to Square in that the phone cradle will recognise the smartchip in credit cards as well as the magnetic stripe and it will work with EFTPOS. Users will select accounting or payments from the Reckon One mobile app.

A single solution for businesses to run their accounts and take payments in clients’ offices is a very strong proposition. But the fact that Reckon had the ambition and found a backer – after Square and PayPal were allegedly knocked back here by regulators – shows Reckon has what it takes to compete in the next generation of accounting software.

Reckon is finally ready but the fight is only just beginning. Xero is on a streak and has launched a national marketing blitz to establish itself as a household brand. Intuit is quietly building a presence in Australia to market QuickBooks Online and free practice management software. MYOB says it isseeing strong demand for its cloud programs and must be building towards another IPO.  The market’s reaction to Reckon One is untested.

One question remains – how much will Reckon have to change? The upfront development costs of cloud software are enormous. Xero has spent many millions on building its apps; Reckon and everyone else will have to do the same. And Reckon is spending on three fronts (mobile, hosted, browser) for two products (client accounting and practice management). How can it still deliver dividends?

Who knows. 2014 will be an epic year, and only one thing is certain. The world has changed and – just in time – so has Reckon.