Tuesday, January 7, 2014

Rerun (Recurring Billing. Simplified.) Launches Xero Integration

Acclivity announced Rerun integration with Xero, a cloud-based accounting application. Rerun simplifies the subscription and membership billing process for businesses and organizations using Xero to manage their finances.
“We’re excited to extend Rerun’s value for our customers who use Xero,” says Acclivity Co-founder, Scott Davisson. “Organizations who bill their customers on a recurring basis need that financial information to flow from Rerun into their accounting system. Nobody wants to enter data twice.”
Rerun integrates with Xero Accounting Software by syncing customers, items and taxes from Xero to Rerun, while sending paid sales receipts from Rerun to Xero.
Rerun is priced at 2.9% + $0.30 per transaction for Visa, Discover and MasterCard, 3.5% for American Express and $1.49 per bank transfer. There are no monthly fees, batch fees, or hidden fees. Pay only for what you process. No merchant account required.
Xero users can sign up for a trial account at http://rerunapp.com/.
Posted on 6:11 PM | Categories:

Squeeze bigger deductions from business gifts

Business Management Daily writes: As a small business owner, you may show your appreciation to clients by giving them gifts. Unfortunately, the deduction for business gifts is limited to a paltry $25 per recipient per year.


Strategy: Learn the “ins” and “outs” of the tax rules. By planning ahead, you can get the most tax-saving bang for your bucks.
In particular, you might benefit from a special rule allowing you to deduct certain gifts as business entertainment.  
Here’s the whole story: The $25 limit applies to the value of all gifts given to a recipient during the year. For instance, if you give a client five $20 gift cards, you can only deduct $25 of the total $100 in gifts.
This limit hasn’t been raised in decades. And you can’t circumvent the rules by giving a gift to a client’s spouse or by having your spouse make an additional gift.
However, there is some room to maneuver on items that may be treated as entertainment. Al­­though the tax law limits business entertainment deductions to 50% of the cost, the $25 limitation rule doesn’t apply to entertainment costs.
Example: You give each of your two best clients four courtside tickets to the biggest basketball game of the year. The tickets cost $250 each for a total of $2,000 ($250 × 8). If you treat the tickets as entertainment, you can deduct $1,000 (50% of $2,000). In contrast, if the tickets are treated as business gifts, your deduction is a miniscule $50 ($25 × 2).
Generally, items that may be deducted as either business gifts or entertainment, such as tickets to sporting events and concerts, must be treated as entertainment if you tag along. Conversely, if you give the tickets to a client and don’t attend the event yourself, you have a choice: Deduct the cost as a business gift or entertainment. Usually, you’ll come out ahead with an entertainment deduction.
Tip: Incidental costs—like packaging, insurance and mailing—don’t count toward the $25 business gift limit.
Posted on 6:10 PM | Categories:

Neat® Announces Digital Filing System Integration between NeatCloud® and Quickbooks

At CES, Neat®, the leader in Digital Filing Systems for the small business and consumer markets, announced that it has enabled direct integration between its cloud-based Digital Filing System, NeatCloud®, and popular small business accounting systems.
As the first cloud-based system to incorporate Optical Character Recognition (OCR) and parsing technology, NeatCloud can extract data from business documents like receipts and automatically deliver that information directly into small business accounting systems. By instantly parsing data from business documents, NeatCloud eliminates the time associated with manually entering data into accounting software, simultaneously reducing related data entry errors.
"Small businesses often rely on information trapped on paper or in digital documents to run their business. They waste countless hours manually entering that information into their accounting software. Neat can reduce these time-consuming administrative tasks at the touch of a button," explained Chris Barbier, VP, Product Management at Neat. "NeatCloud cuts the time small businesses spend organizing financial data and getting expense reports completed, providing small business owners more time to focus on more important things, like growing their business."
At CES 2014, Neat is demonstrating two-way integration between NeatCloud and QuickBooks desktop software as well as QuickBooks Online. Using NeatConnect®, the industry's first direct-to-cloud touchscreen scanner, the demonstration shows receipts scanning directly into NeatCloud. NeatCloud then automatically extracts data from the scanned images, immediately parsing it into relevant fields that translate seamlessly to QuickBooks. Because NeatCloud integration with accounting software is two-way, Neat is capable of leveraging the accounts from QuickBooks providing greater detail about an expense. This is valuable for accounting functions and provides a vital audit trail for tax purposes.
In addition to simplifying data entry, NeatCloud serves as a system of record for the supporting documents that small businesses are required to maintain for tax and accounting purposes. Whether it is information that will help accountants be more efficient or things the IRS will want to see in case of an audit, NeatCloud's ability to securely store, organize, search, share and manage financial data, enabling small businesses to save both time and money.
Neat also announced today expanded document classification and parsing capabilities for NeatCloud. Adding classifications and parsing of invoices, e-receipts, and checks will allow these categories of documents and the data they contain to be included in the integration between NeatCloud and small business accounting software further streamlining small business efficiency.
This new NeatCloud integration with small business accounting systems becomes available this month in Neat Labs. Neat Labs lets anyone with a NeatCloud account test drive the beta versions of new Neat capabilities. Neat Labs will provide real-world user feedback so features can be refined before they are made available as part of the NeatCloud offering. Integration with some small business accounting packages will be made available to all NeatCloud users during 2014.
The first small business accounting system integration to be available for NeatCloud will be with QuickBooks desktop products and QuickBooks Online. Additional NeatCloud integrations are planned for other accounting solutions in 2014.
Posted on 6:10 PM | Categories:

Hidden Advantages Of ESOPs As Alternative Succession Strategy

Fox Rothschild LLP for the NY Law Journal writes: The next 10 to 15 years will pose some daunting and unique challenges for closely held business owners and their advisors, as it's no secret that baby boomers will be retiring in large numbers.

With fewer and fewer children following their parents into the family business that may have been in the family for generations, a sale to either a strategic or financial (but in either case unrelated) buyer often seems to be the only viable alternative. With the demographic trend already well underway, sellers of family-owned firms may be surprised to discover that there may be relatively few and selective buyers interested in acquiring what have for decades been cash-generating and family-employing, although often niche or old-economy, businesses.
As a result of these generational trends, employee stock ownership plans (ESOPs) are increasingly being considered, among the "arrows in the quiver" of possible exit strategy options, to be explored by closely held business owners aiming for retirement.

Sale to a Trust

In concept, a sale of a closely held business to an ESOP is relatively simple. Instead of the owner selling his or her business to a third party, a business owner sells the business to a trust (i.e., the ESOP), established and operated by the business, for the benefit of its employees. To finance the trust's purchase of the business, the ESOP borrows from a bank, other financial institution or a private equity mezzanine lender. Alternatively, the business owner himself or herself may act as the lender for the ESOP's purchase of the business.

In most respects, the ESOP operates just like a 401(k) or profit-sharing plan, except that it invests primarily in employer stock. The stock of the business, formerly owned by the entrepreneur and purchased by the ESOP, serves as collateral for the loan (in addition to other collateral as may be required by the lender). On an annual basis, and as the business continues to operate, it makes tax-deductible contributions to the ESOP until the loan has been repaid.
As previously noted, the ESOP is a trust, managed by trustees and operated for the benefit of the employees of the business. With few exceptions, ESOP participation must be extended to all full-time non-union employees of the business. Just as, in the typical lifetime or testamentary trust, the trust has legal title to the employer securities and other assets, and the trust beneficiaries have no direct interest in trust assets. Accordingly, with few exceptions it is the ESOP's trustees who exercise all of the rights accorded to shareholders of the company. The employees participating in the ESOP have no direct ownership interest in the shares, and, therefore, are not entitled to access to the privately held company's financial statements and other information regarding its finances, contracts and business dealings.

Similarly, since it is the ESOP, and not its participating employees, which has the status of shareholder of record of the company, the ESOP participants have no vote or other direct voice in the company's day-to-day business decisions. In fact, it is common for existing management, including the business' owner, to remain in operational control of the business after a sale of all or part of the company to an ESOP. In one of the more common scenarios, the sale to the ESOP is effectuated in a series of stages, over a period of several years. In that manner, a business owner is able to gradually relinquish control of his or her business, and therefore more gradually turn over the reins of the business to the new management team he or she, if desired, has had an opportunity to select, mentor, evaluate and train.

Tax Advantages

Among the principal advantages of ESOPs are the substantial tax incentives afforded to owners who sell their companies to ESOPs, and companies that operate as ESOPs. Pursuant to Section 1042 of the Internal Revenue Code (IRC), the owner of a business who transfers his or her stock to an ESOP can avoid the payment of the capital gains tax that would normally be incurred upon the sale or other disposition of the business. In addition, under Section 404 of the IRC, both principal and interest on the loan, incurred by the ESOP to purchase the company's shares of stock from the owner, is repaid with pretax dollars (although subject to certain limitations that generally limits the benefit to 25 percent of the business' payroll).

Perhaps the most powerful advantage of an ESOP is its ability to operate as a tax-exempt entity. Once the ESOP owns 100 percent of the stock in the company, the ESOP can cause the company to elect Subchapter S status. As a Subchapter S corporation the business can pass-through its profits to its sole shareholder, the tax-exempt ESOP, thereby for all intents and purposes enabling the business enterprise to operate as a tax-free company. The usual requirement that a profit-making business owned by a tax-exempt organization pay tax on the income derived from the profit-making portion of the business pursuant to Section 512 of the code, does not apply to ESOP-owned companies.

Practical Advantages

When business owners are evaluating the exit strategies available to them, there are additional advantages to ESOPs that make them well worth exploring. Third-party purchasers usually demand complete control of the acquired business from day one, although financial buyers may require the seller to remain with the business after a sale for some transition period. With an ESOP, a business owner can choose to sell all or only some portion of his or her stock to an ESOP in the transaction. This is a big advantage to owners who want to remain involved with the operation of the company for some period of time, while still taking some "chips off the table" at such time or times as he or she desires.

Along a similar vein, while the sale to an ESOP must be handled as an arm's-length transaction, based upon a third-party valuation of the business, as a practical matter, the sale is much less disruptive than a sale to a third party. While the ESOP cannot pay more than fair market value for the business, based upon an independent valuation conducted by the ESOP's trustee, in the typical situation, even before the ESOP has been established, the business owner will have conducted his or her own "back of the envelope" valuation of the business. As long as the ESOP trustee's offer to purchase the business is within the seller's price expectations, it is highly likely that an ESOP transaction will take place.

The typical problems that may cause a non-ESOP business purchase and sale transaction to fall through, such as buyer's remorse due to reversals in the economy, concerns raised due to issues uncovered during due diligence or the purchaser's inability to obtain financing, may delay, but typically will not derail, an ESOP-buyout transaction. Any prospective seller of a business who has endured the disruption occurring during a buyer's due diligence, only to have the deal fall apart at the 11th hour, will appreciate the advantage of a transaction where the chances of closing are much higher.

In addition, there is much less disruption of the business operations when an ESOP is the buyer. While the ESOP trustee will conduct the due diligence required of an arms-length transaction, there is nevertheless an understanding that existing management will remain in place, and know where all the bodies are buried. Accordingly most trustees do not require the level of due diligence often conducted by many strategic or financial unrelated third-party buyers.

Therein lies another practical advantage of ESOPs over other exit strategy transactions. With an ESOP, the seller has much greater control over the timing of the transaction. The ESOP trustee is not distracted by competing transactions, the vagaries of the global financial markets, approvals from third-party boards of directors or other urgent corporate business. In many cases, an independent trustee is engaged to represent the ESOP with the singular marching orders of purchasing some or all of the shares of stock of the target company and, therefore, is more likely to remain focused on that goal until the transaction is closed.

Successful ESOP Candidates

Despite all of these advantages, ESOPs are not the answer for every business or every situation. So, one may ask, specifically when should an ESOP be considered?
As a threshold matter it should be noted that only corporate stock can be sold to an ESOP, so businesses operating as LLCs or partnerships must first be converted to a corporation. However, in most cases the conversion is an inexpensive, tax-free conversion under Section 351 of the Code.

While corporations of any size may establish an ESOP, the costs involved generally discourage companies from doing so when they have less than $1 million of earnings before interest, taxes, depreciation, and amortization (EBITDA). Because profitability is one of the main drivers of value, it is important that the business has been profitable in recent years and/or has strong prospects for achieving and maintaining profitability in the near future. Businesses with predictable levels of profitability, as opposed to those with dramatic swings in earnings, more easily lend themselves to an ESOP transaction. Cash flows should be sufficient to enable the company to repay the debt incurred for purchasing the stock from the business owner.
Organizations with owners who have higher levels of loyalty to their employees tend to be better candidates for an ESOP. Therefore, by way of example, a business owner whose sole objective is to obtain the highest price for his or her business, such as from a strategic buyer, with full knowledge that the buyer may well lay off 25 percent of the workforce within six months of the closing, is not an ideal ESOP candidate.

Although an ESOP can be a powerful incentive to the business' employees, the employees will need to be educated to be able to appreciate how their increased productivity during their working career for the company translates into a higher share price of the enterprise, resulting in a greater retirement benefit for them. This kind of incentive typically lends itself to a more sophisticated, well-educated or professional workforce, but this is by no means a universal rule. Successful ESOPs have been sponsored by restaurants, contractors, airlines and manufacturers. It's all about taking the time and effort to educate the workforce.

Another important ingredient for a successful ESOP candidate is a company with a deep management team, with the potential for junior managers to grow into senior management positions, and operate the business upon the retirement of the owner and senior managers. In smaller organizations, it is generally sufficient that there be two or three individuals in the pipeline. As buyers continue to become increasingly selective, ESOPs will become more and more competitive with third-party buyers.

In light of the greater flexibility accorded to sellers in ESOP transactions, powerful tax benefits and a greater degree of certainty that a closing will occur, ESOPs are a valuable tool that should be seriously considered as an alternative buyer by most closely held business owners.
Posted on 6:10 PM | Categories:

Taxes 2014: 10 Apps to Make Filing Easier

Beth Braverman for Yahoo Finance / Fiscal Times writes:Tax-filing season is nearly upon us, and it’s easy to be overwhelmed by all the forms, documents, and information you need to collect. Luckily, there are dozens of mobile apps designed to help.

Some are great for keeping yourself organized throughout the year, while others don’t come into play until you’re ready to file or want to check on the status of your returns.
Here’s a look at our 10 favorite tax-prep apps for 2014:
1.     Shoeboxed
Platform: iOS, Android
Cost: lite version is free; premium packages start at $9.95/month
How it helps: This app lets you digitize and archive receipts and other paper documents into a categorized, searchable, IRS-accepted database for easy access during tax time. You can snap photos of your receipts and email them in, or send hard copies to the company via mail for processing.
2.     iDonatedit
Platform: iOS, Android
Cost: $2.99
How it helps: Keeping track of non-cash charitable gifts can be a headache, but the IRS is increasingly asking for receipts and documentation of such donations. Enter iDonatedIt, which saves receipts, provides value estimates (although you’ll still need an independent appraisal for anything worth more than $5,000), and allows you to store photos of donated items. Then you can email a summary of the donated items to yourself or your tax preparer. 
3.     Gas Cubby
Platform: iOs
Cost: free
How it helps: Ad-supported Gas Cubby allows road warriors to easily track not only their miles, but also all gas and maintenance expenses associated with a vehicle. The app also has some handy non-tax related features, such as reminders about regular maintenance and insurance information storage.
4.     Tuition.io
Platform: iOS, Android
Cost: free
How it helps: Designed to help consumers manage their college debt, this app combines information from all outstanding student loans into one place, making it easier for borrowers to keep track of payments. It’s also an easy way to find out how much interest you paid on student loans, especially if you’ve got loans from multiple lenders, so that you can write it off on your taxes.
5.     Simplee Wallet
Platform: iOS, Android
Cost: free
How it helps: Simplee allows health care consumers to easily track and manage all of their medical expenses in one place. The service links to insurance accounts, allows user to pay medical bills directly, and—most importantly for taxpayers—keeps track of your out-of-pocket expenses. This year, taxpayers younger than 65 only deduct medical expenses that exceed 10 percent of income; those 65 and older need to meet a 7.5 percent threshold.
6.     Tax Caster
Platform: iOS, Android
Cost: free
How it helps: This app offers an easy way to get a quick-and-dirty-estimate of what your tax refund will look like. Enter some basic information such as your income, filing status, and projected withholdings, and the app will spit back its best guess at how much money Uncle Sam owes you. (Note: This app is essentially an ad for TurboTax, which created it, and will suggest a list of recommended TurboTax products based on your profile.)
7.     Angie’s List
Platform: iOs, Android
Cost: app is free, but an Angie’s List subscription costs $3 per month
How it helps: Angie’s List is a great resource not only for finding house painters and mechanics, but also for finding a quality tax preparer. There’s no licensing requirement for someone to call himself a tax preparer (as opposed to a certified financial planner or a certified public accountant), and many people who practice have never taken a competency test. Check Angie’s List for unbiased reviews and ratings of tax preparers before turning over your finances to a stranger.
8.     Ask a CPA
Platform: iOS, Android
Cost: free
How it helps: You know all those tax questions you always wanted to know the answer to but were afraid to ask? This app has your answer. Sort by category and question to find thousands of questions answered by real CPAs. If you can’t find the answer, type in your question for a quick response from a real CPA in your area.
9.     TurboTax for iPad
Platform: iOS
Cost: $29.99
How it helps: Want to actually file your taxes from your tablet? The TurboTax for iPad features all the services of the basic computer software package, available directly from your iPad. Several other tax prep firms offer tax-filing apps, but this one consistently gets the best ratings. (Note: Those with simple tax returns can file via mobile phone for $19.99, using the SnapTax app.) 
10.  IRS2Go
Platform: iOS, Android
Cost: free
How it helps: After you’ve filed, use this app to check your refund status. Enter your Social Security number, filing status and anticipated refund, and the app will tell you whether your return has been processed and when you can expect to receive the refund. You can also sign up for tax updates throughout the filing season, which provides helpful daily tax tips for filers.
Posted on 11:05 AM | Categories:

Blucora Builds Web Search, Tax Prep, E-Commerce Empire ("the digital do-it-yourself tax market is growing 4% to 6% a year")

 Investor's Business Daily for NASDAQ writes:  Most American consumers know by now that whatever the brand label on their electronics, most of them were made in the same network of factories in China. Shoppers at the website Monoprice.com follow this to its logical conclusion: Why not cut out the middlemen, and buy the gadgets straight from the Far East?

Monoprice launched in 2002 selling cables and switches it had bought from Asia and offered at cut-rate prices thanks to its simplified supply chain. Since then, it's expanded into computer accessories and, more recently, audio and video equipment. And in August, it came to the stock market's attention whenBlucora ( BCOR ) acquired it for $180 million.

Search Engine Roots
Blucora might have seemed an unlikely buyer for Monoprice, since the only thing the two companies had in common was the Internet. Up until 2012, Blucora was known as the search engine InfoSpace, a by-its-fingernails survivor of the dot-com boom and bust that experimented with various business models before stabilizing under the leadership of CEO William Ruckelshaus, who took the helm in 2010.

In January 2012, however, it branched outside its core business by buying TaxAct, a provider of cloud-based tax-preparation software. Like Monoprice, TaxAct has carved out its place in a highly competitive market -- dominated byIntuit ( INTU ) andH&R Block ( HRB ) -- by undercutting its rivals on price.

TaxAct has "a product offering with substantially the same feature set as larger players in the space but at what we would characterize as a substantially more fair price for their filing," Ruckelshaus told the BMO Technology, Media & Entertainment Conference in December. "The cornerstone of their offering is free federal filing for everybody regardless of your filing type or complexity or AGI (adjusted gross income), without any exclusions."

Another thing that TaxAct and Monoprice have in common is the potential that Ruckelshaus sees in them for expansion. He estimates that the digital do-it-yourself tax market is growing 4% to 6% a year, but the company has also been broadening its product offerings with sites designed to help people write up their own wills or navigate ObamaCare.

Monoprice also continues to offer a wider variety of wares, with more than 5,000 kinds of product available at this point. Ruckelshaus believes the customer base can be expanded given the high satisfaction of existing customers -- some 70% of reviews have given the site a 9 or 10 rating, he says. Jefferies analyst Brian Fitzgerald wrote in his Dec. 31 initiation report that Monoprice should also benefit from secular growth.

"Monoprice operates in large markets that are rapidly moving online," he wrote. "Global consumer electronics is a $300 billion market growing at single digits. The $37 billion online subsegment is forecasted to grow approximately 15% annually through 2016, according to IDC."
Business In Transition
Even so, the majority of Blucora's revenue -- around 60% -- is still coming from its core search business. The InfoSpace unit doesn't generate its own search results, but aggregates the results of other search engines through sites such as Dogpile and WebCrawler, as well as through its partners' properties and through the distribution of toolbars. It has more than 100 partners but about 31% of search revenue comes from the top five, led byGoogle ( GOOG ).
Google has been the source of some concern for analysts, since early in 2013 it changed its software distribution policy in response to complaints about misleading toolbar downloads that wind up taking over the browser. Blucora changed its own policies in accord with Google's, which Fitzgerald says slowed search revenue growth by quite a bit last year -- from 62.5% in the third quarter of 2012 to 17.9% in Q3 2013.

Nonetheless, Blucora's third quarter handily beat expectations, sending its stock to a 12-year high. Profit rose 20% over the year-earlier quarter to 30 cents a share, nearly double analysts' consensus. Sales climbed 34% to $124 million, vs. analysts' estimate of $96 million.
On the conference call to discuss results on Nov. 5, Wedbush analyst Gil Luria asked how the company had achieved such growth in its search revenue, given the policy changes.
Ruckelshaus pointed to the advantage of using both the distribution-partner model and the owned-and-operated website model.

"You're starting to see evidence of our taking advantage of that on the owned-and-operated side, which is really reverting back to where the company had its origins, which is as a consumer-facing provider of search solutions that are differentiated in their nature," he said. "What you're seeing in recent periods is our ability to not just bring that product to market, but also to market it and promote it in a way that we think is a benefit to consumers and also a benefit to us."

Nonetheless, analysts still see an overhang in the expiration of InfoSpace's contract with Google at the end of the first quarter. Fitzgerald points out that both Google andYahoo ( YHOO), another major InfoSpace partner, have refused to renew contracts recently with partners who they thought were abusing their policies.
However, Barrington Research analyst Alexander Paris didn't sound worried in his Dec. 9 research note.

"While customer concentration is indeed high, we do believe the agreement will be renewed at similar terms," he wrote.

Analysts overall expect continued solid growth from Blucora. They estimate that fourth-quarter sales jumped 62% over the year-earlier quarter to $158 million, with profit rising 63% to 39 cents a share.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.
Posted on 11:05 AM | Categories:

Xero UK managing director Gary Turner explains how to take the pain out of tax returns by making bookkeeping software do most of the hard work.

Gary Turner for RealBusiness writes: With the year-end fast approaching, many small business owners and directors once again need to think about filing their individual returns to HMRC.

While there’s no arguing they’re a necessary evil, doing the books is time-consuming, costly, and will invariably result in long hours spent toiling away at the last minute. Which is precisely why there’s good reason for even the most inexperienced start-ups to look to cloud computing to get the books in order and take the stress out of future returns.

Using online accounting platforms, even businesses or entrepreneurs operating on a tight budget can move away from shoe-box filing systems and ad hoc number crunching, which will not only help when it comes to submitting a tax return, but also provide daily insight.

Rather than manually noting down finance-related information in notebooks or spreadsheets and then checking in with the accountant when the deadline is looming, online accounting software cuts down otherwise time-consuming bookkeeping processes by making it easier to keep the books up-to-date and available in a secure, shared place.

In particular, the fact that the software can automatically download bank statement data via automatic bank feeds means users don’t need to spend hours adding in transactions manually. VAT returns are automatically calculated, not only saving hours but also providing an audit trail after the return is filed.
As well as taking back financial control and swerving a fine from the tax man for filing a return too late, a move to online accounting can also positively affect the relationship small business owners and managers have with their accountants and enable them to benefit from more strategic tax and other financial advice.

With their financial data held securely in the cloud, the business owner can invite their accountant to view the books at any time – even when they are on the road – via their smartphones and tablets. Rather than limiting contact to once a year meetings and phone calls, the annual race against-the-clock instead becomes a more fruitful monthly or quarterly health-check.

With more time to act and improved data at their fingertips, the accountant will also be in a stronger position to advise the business on how it could improve performance. This may include, for instance, establishing that the company can afford to recruit the new member of staff it needs or can find enough funds to invest in a new piece of equipment.

Aside from being in a stronger position to make more of any tax breaks, the business-driven tools and financial connectivity inherent in online accounting platforms has also been shown to reap dividends in other ways too. This can include, for example, helping entrepreneurs and other small business users to bring down debtor days, stay on top of cash flow and make business decisions based on up-to-date financial information and forecasts.

Instead of dealing with a post-Christmas bookkeeping hangover or a hefty accountant’s bill, when future tax deadlines come around, owners and directors that take their accounts to the cloud will have gained more time and budget to spend on improving their overall bottom line.
Posted on 11:05 AM | Categories:

7 changes to tax form 1040 / What you need to know about your 2013 return

Bill Bischoff for MarketWatch writes: Time marches on, and you’ll soon be receiving your 2013 W-2 and 1099s. So it’s not too soon to start thinking about putting together your Form 1040 for last year. As you do, please take note of the following key federal income tax changes that took effect in 2013.


New higher tax rates for upper-income individuals
For most individuals, the 2013 federal income tax rates are the same as for 2012: 10%, 15%, 25%, 28%, 33%, and 35%. However, the American Taxpayer Relief Act (ATRA) increased the maximum rate for 2013 to 39.6%. That rate only affects singles with taxable income above $400,000, married joint-filing couples with income above $450,000, and heads of households with income above $425,000.
For most individuals, the 2013 federal income tax rates on long-term capital gains and dividends are also the same as for 2012: either 0% or 15%. However, the ATRA raised the maximum rate for 2013 to 20% for singles with taxable income above $400,000, married joint-filing couples with income above $450,000, and heads of households with income above $425,000. Folks with 2013 taxable income below these levels will pay a 15% federal rate on long-term gains and dividends or 0% for gains and dividends that would otherwise fall within the 10% or 15% brackets.
New 3.8% Medicare surtax on investment income collected by upper-income individuals
Starting in 2013, all or part of your net investment income, including long-term capital gains and dividends, can potentially get socked with an additional 3.8% “Medicare contribution tax.” As a result, the maximum federal rate on long-term gains for 2013 is actually be 23.8% (versus the 15% maximum rate that applied on your 2012 return). The new 3.8% Medicare tax only applies if your adjusted gross income (AGI) exceeds: (1) $200,000 if you’re unmarried, (2) $250,000 if you’re a married joint-filer, or (3) $125,000 if you use married filing separate status.
Specifically, the 3.8% Medicare tax hits the lesser of your net investment income or the amount of AGI in excess of the applicable threshold. Net investment income includes interest, dividends, royalties, annuities, rents, income from passive business activities, gains from assets held for investment like stocks and bonds, the taxable portion of personal residence gains, and income and income and gains from the business of trading in financial instruments or commodities,. (Income and gains from assets held for business purposes are not subject to the 3.8% tax.)
For example, a married joint-filing couple with 2013 AGI of $295,000 and $60,000 of net investment income would owe the 3.8% tax on $45,000 (the amount of AGI over the $250,000 threshold for joint-filers). If the same couple had AGI of $350,000, they would owe the 3.8% tax on $60,000 (the entire amount of their net investment income). To figure out if you owe the new 3.8% Medicare surtax, fill out IRS Form 8960 (Net Investment Income Tax).
New 0.9% Medicare surtax on salaries and self-employment income earned by upper-income individuals
Before 2013, the Medicare tax on salary and/or self-employment (SE) income was a flat 2.9%. If you’re an employee, 1.45% was withheld from your paychecks, and the other 1.45% was paid directly by your employer. If you’re self-employed, you paid the whole 2.9% yourself.
Starting in 2013, an extra 0.9% Medicare tax is charged on: (1) salary and/or SE income above $200,000 for an unmarried individual, (2) combined salary and/or SE income above $250,000 for a married joint-filing couple, and (3) salary and/or SE income above $125,000 for those who use married filing separate status. For self-employed individuals, the additional 0.9% Medicare tax hit comes in the form of a higher SE bill.
To discover whether you owe the new 0.9% Medicare surtax, fill out IRS Form 8959 (Additional Medicare Tax).
New personal and dependent exemption deduction phase-out rule for upper-income individuals
The last time we saw a phase-out rule for personal and dependent exemption deductions was back in 2009. Sadly, the phase-out deal is back for 2013 and beyond. As a result, your 2013 personal and dependent exemption write-offs might be reduced or even completely eliminated. Phase-out starts at the following adjusted gross income (AGI) thresholds: $250,000 for singles, $300,000 for married joint-filing couples, $275,000 for heads of households, and $150,000 for married individuals who file separate returns.
New itemized deduction phase-Out rule for upper-income individuals
The last time we saw a phase-out rule for itemized deductions was also back in 2009. Unfortunately, this phase-out provision has also been resurrected for 2013 and beyond. As a result, you can potentially lose up to 80% of your 2013 write-offs for home mortgage interest, state and local income and property taxes, charitable contributions, and miscellaneous itemized deduction items (such as investment expenses and fees for tax advice and preparation). Phase-out starts as the following AGI thresholds: $250,000 for singles, $300,000 for married joint-filing couples, $275,000 for heads of households, and $150,000 for married individuals who file separate returns. More specifically, the total amount of your affected itemized deductions is reduced by 3% of the amount by which your AGI exceeds the threshold. However, the reduction cannot exceed 80% of the total affected deductions that you started off with.
New higher threshold for itemized medical expense deductions
Before 2013, you could claim an itemized deduction for medical expenses paid for you, your spouse, and your dependents, to the extent the expenses exceeded 7.5% of AGI. Starting in 2013, the hurdle is raised to 10% of AGI for most folks. However, if either you or your spouse were age 65 or older as of 12/31/13, the new 10%-of-AGI threshold will not affect you until 2017.
Members of legally married same-sex Couples must file as married individuals
Thanks to the well-publicized 2013 Supreme Court decision, same-sex marriages that are recognized under state or foreign laws must now be recognized for federal tax purposes. So folks who were married under such laws as of the end of 2013 must use either married joint-filer status or married filing separate status for their 2013 federal income tax returns. In most cases, filing jointly will be the tax-smart choice. In any case, members of legally married same-sex couples cannot file their federal returns as unmarried individuals for 2013 and beyond.
Note that members of same-sex couples who have entered into civil unions or domestic partnerships are still treated as unmarried individuals for federal tax purposes. 
Posted on 7:47 AM | Categories:

Post Divorce Tax Intimacy Can Be Riskier Than Post Divorce Sex / "Tax compliance is relatively easy to disentangle and it can cause you a lot of trouble if you don’t."

Peter J Reilly for Forbes writes: Post-divorce intimacy between exes seems to be something of a controversial topic among therapists and the like.  In Psychology Today Pamela Cytrynbaum wroteabout the various forms that postmarital sex can take, finishing with the caution:
No matter how, why, when and where you’re doing it with your ex, my advice: Keep your eyes wide open.
Post divorce sex between exes has an interesting titillating aura about it, but there is a bit of financial intimacy that is more or less taken for granted.That would be a joint tax return for the final year of the marriage.  It might even be arranged, even prepared, by the half of the couple that had always tended  to it.  I would suggest that, in many circumstances this might be an even worse idea than a post-marital roll in the hay.
Tax Court decisions to illustrate the hazards of post-marital tax entanglement are numerous, but the most recent is something of a standout.   I should mention at the outset that the Tax Court believed the version of events laid out by Anthony W Roberts.  His ex-spouse had a different version, which the Tax Court did not believe.  I’m just a tax blogger, not an investigative reporter, so I am telling you the story as the Tax Court told it without any independent verification.
Mr. Roberts married Cristie Smith in 1990.  They separated for a period in 2008, permanently separated in January 2009 and were divorced in March 2010.  They maintained two checking accounts, one with Washington Mutual(WM) and the other with Harrborstone Federal Credit Union (HS) .  Although both accounts were joint, they operated them on a his and hers basis, with Mr. Roberts doing everything through the HS account and Ms. Smith doing everything through the WM account.  Mr. Roberts never saw the WM statements.  Mr. Roberts gave his tax information to Ms. Smith in early 2009, expecting that she would file a joint return as had been their custom.
As it turned out, Ms. Smith did not file a joint return with Mr. Roberts.  She did her own return, apparently accurately, married filing separately.  She filed Mr. Roberts as single lowered his wage income by $3,000, increased his withholding by $3,000 and had the resulting $3,357 refund electronically deposited in the WM account (i.e. “her account”).
There was something even more significant that Ms. Smith left off Mr. Roberts return, something that she had not informed him about. In late 2008, she had arranged to have ING issue to checks totaling $37,020 which she deposited into the WM account. ING issued the accounts from Mr. Roberts IRA.  According to the Tax Court findings Ms. Smith used the funds to set up her postseparation household, take a vacation and family trip and pay expenses for which she was liable.
What A Mess
When Mr. Roberts received a 1099-R from ING, he thought at first that he was a theft victim.  Eventually he found out what happened.  The IRA money that Ms. Smith had availed herself us was taken into account in the final divorce property settlement in 2010.
The IRS position was that ING made checks out to Mr. Roberts and they were deposited into a joint account.  He picks up $37,020 in 2008.  End of story.  The Service noted that taxpayers in similar circumstances were allowed to replenish IRA funds that had been diverted citing PLR 20119040 (Lew Taishoff commented on the oddity of the Service using a Private Letter Ruling as authority.)  Mr. Roberts had not done that.  The Service noted that Mr. Roberts ended up getting credit for the IRA distribution in the final settlement.
Mr. Roberts Mostly Wins Kind Of Sort Of Probably
Since Mr. Roberts did not disclaim the return that Ms. Smith filed for him nor file one of his own, he was stuck with the deficiency from the W-2 and filing status misstatement and any resulting penalty.  The Tax Court did not find it reasonable of him to rely on Ms. Smith.  Yah think?
The IRA distribution was a different story.  The theories that the IRS put forth were arguments that support him being taxable on the distribution in 2009 or 2010.  There was no reasonable basis for taxing him in 2008.  That puts a bit of a cloud over Mr. Roberts victory parade, since, counting on my fingers, I come up with 2010 still being an open year.  I’m betting the Service does not go after him for 2010.  If they did and he won, they may have created a roadmap for conspiratorial divorcing couples to bail money out of IRAs tax-free.  Frankly, I would caution you to not try this at home or at all.
The Lesson
When you get divorced, you need to accept that bad as the relationship may have been, there were probably many of your needs that were being met through it.  Likewise, low as their opinion may have become of you, you were probably meeting some of your spouses needs.  There may be some things that you cannot disentangle, but you probably should disentangle as many as you can.  That’s the point of getting divorced.  Tax compliance is one that is relatively easy to disentangle and it can cause you a lot of trouble if you don’t.
If you have always hired somebody to do your return, one of you should probably hire somebody else.  My experience is that many preparers don’t think of couples as two clients.  Also many preparers are not sensitive to the implications of joint and several liability and encourage joint filing when it is inappropriate.  Divorce attorneys and even probate judges seem to make the same mistake sometimes ordering recalcitrant spouses to sign joint returns.
As far as having your ex prepare your return or preparing your ex’s return, it seems like a really bad idea, although the only instance of it I know of seems to be working out OK.  My covivant is such a good preparer and already does so many other free returns, that I persuaded her to do my return the last rather than have to learn new software myself.  So for 2012, there is a Drake software account with nine returns – Me. CV, her five adult children, her ex-husband and her ex-brother-in-law.  I guess there is an exception to every rule.

Posted on 7:47 AM | Categories:

Major changes to IRS rules going into effect: get ready / IRS changes are overwhelming

D Scott Smith for The American Genius writes:  It’s truly shaping up to be one of the worst tax seasons in history. With all of the new legislation passed this year, it’s almost impossible to make heads or tails of it. Are the new regulations effective for 2013 or 2014? What are the new regulations? What happens if I file an extension? Well, rest assured one thing is certain; it is not going to be in your favor.bar Major changes to IRS rules going into effect: get ready

First, here are some of the changes and or proposed changes as of Jan. 1st 2014:
  • For high income earners, the top ordinary tax rate will be 39.6 percent if, as a single filer, your taxable income is more than $400,000 ($450,000 for married couples filing jointly).
  • There is a new net investment income tax of 3.8 percent, also known as the Medicare surtax.
  • Personal exemptions and itemized deduction total will be reduced.
  • Affordable Care Act (don’t get me started) – if you don’t buy an insurance plan, you could face a penalty. The charge for 2014 is either 1 percent of your yearly household income or $95 per uninsured adult and $47.50 per child, up to $285 for a family. You pay whichever amount is higher. If you get insurance for part of the year, your penalty will be prorated. You’ll pay the penalty when you file your 2014 tax return in 2015.
  • Married same-sex couples now have the same federal tax filing responsibilities as heterosexual couples. The IRS instructed same-sex married couples to file jointly or as a married couple filing separately, even if the state where they live does not recognize their marriage. This will simplify same-sex couples’ federal filings, but if they must pay state income taxes, depending on their state’s law, they could still face filing two state returns as single taxpayers.
  • For 2013 returns filed in 2014, the IRS is now offering a simplified home office deduction. The new optional deduction is $5 for each square foot of home office space, up to a maximum of 300 square feet. That comes to a maximum $1,500 annual home office deduction. The IRS estimates that this option will save home-office filers who claim it’s an estimated 1.6 million hours of paperwork and record keeping collectively. Instead of filling out Form 8829, you’ll use a worksheet in the Schedule C instruction book and enter your simplified home-office deduction amount on Schedule C.
  • Inflation had a nominal effect on around 40 tax provisions. Most notable is that income brackets were widened, meaning you can earn a more next year without being bumped into a higher tax bracket. Most people claim the standard deduction, and those amounts for each filing status in 2014 were increased slightly, as was the personal exemption amount, going from $3,900 to $3,950. However, the amounts you can contribute to your workplace pension plan and individual retirement account in 2014 have stayed the same as in 2013.

Is there anything positive about these changes?

There is one good thing about all these IRS changes for this tax season – you get more time to file your return. Ok, not technically. Due to the federal government shut down for 16 days last October, the IRS says Jan. 31, 2014, is the earliest it will be ready to process individual tax returns. That date might even be pushed back to Feb. 4 in order for the agency to complete system updates and tests, which were interrupted by the shutdown.
The IRS promises to make an official announcement of the filing season start date as soon as it knows for sure. You can go ahead and submit your return electronically as soon as you’re ready; your e-filer will hold it until the IRS is ready to accept returns. If, however, you file a paper return, the IRS encourages you to wait until Jan. 28 (or later) to mail it.

So how can one avoid all the complication and mess?

Coming from a small business owner who has had his fair share of enjoyment of that 14% interest payment to the IRS, the absolute best thing you can do is DO NOT FILE YOUR OWN TAXES. Hiring a great accountant and/or CPA is well worth the weight in gold that they, or the IRS, will charge.
That is the only way I know to avoid all the hassle and aggravation. They also act as an insurance policy between you and the IRS should you have to go through an audit.

Oh yeah and then there’s this:

The IRS effort to regulate professional tax preparers will continue in 2014, both in the court system and on Capitol Hill. The agency wants to register all tax preparers who aren’t already subject to certain standards (that is, attorneys, Enrolled Agents or CPAs) and require they pass competency exams and take continuing education classes. The IRS believes this will help reduce incorrectly and fraudulently filed returns.
Three tax pros filed a federal lawsuit against the IRS, winning the first court round. An appellate court decision is pending. Meanwhile, legislation has been filed in the House to give the IRS statutory authority to regulate tax preparers. Senate Finance Committee Chairman Max Baucus also has suggested such preparer oversight in his tax reform working drafts. A final decision on tax preparer standards could come in 2014, affecting taxpayers who seek professional help in fulfilling their tax responsibilities.

Posted on 7:47 AM | Categories:

IRS’s New Commissioner Favors Voluntary Tax Preparer Certification

Michael Cohn for Accounting Today writes: The newly approved commissioner of the Internal Revenue Service, John Koskinen, said Monday that he would support voluntary certification for tax preparers if the Internal Revenue Service fails to win an appeal of a judge’s decision striking down the IRS’s Registered Tax Return Preparer regulatory regime.
Last January, U.S. District Court Judge James E. Boasberg ruled in favor of three independent tax preparers—Sabina Loving of Chicago, John Gambino of Hoboken, N.J., and Elmer Kilian of Eagle, Wis.—and found the IRS had exceeded its statutory authority in imposing its RTRP requirements for mandatory testing and continuing education for tax preparers (see Court Rules IRS Doesn’t Have the Authority to Regulate Tax Preparers). The IRS appealed the decision in the case, known as Loving v. IRS, and a three-judge appeals court heard oral arguments last September (see Appeals Court Hears IRS’s Case for Tax Preparer Regulation).
“If you could require certification of preparers and some educational requirements, it would help taxpayers feel some level of confidence that preparers actually know what they’re doing, and the vast majority of them do,” Koskinen said during a conference call with reporters after he was sworn in ceremonially Monday by Treasury Secretary Jack Lew with an audience of many IRS employees in attendance. “My sense is that we should be able to provide that same educational training and that background to preparers. If you can’t require it, offer it, and if you complete the information, you get a certificate that says, ‘I have completed the IRS preparer course.’ I think that could be over time very valuable to preparers, and consumers could ask preparers, ‘Have you gone through the IRS training?’ Whatever happens with the court case, we ought to be able to move forward on that and provide taxpayers with as much assurance as we can that the preparers they are dealing with have met some kind of minimum standards.”
While it would be helpful if Congress were to mandate tax preparer regulation, according to Koskinen, even if that doesn’t happen or the IRS doesn’t win the legal appeal, he believes that many tax preparers would welcome some certification from the IRS.
Koskinen was asked by Accounting Today about what he would do about reports of the IRS’s declining level of service to taxpayers and tax practitioners.
“We sometimes talk about taxpayer services on the one hand and tax compliance as if it were a separate issue,” he responded. “My strong feeling is that most people want to pay the right amount. They want to pay their taxes, and they want to be comfortable and confident that the system is fair, not only that they get treated fairly no matter who they are, but that if they are paying their fair share, everybody is paying their fair share. For compliance, you need to have uniform enforcement. But to the extent that you make it harder for taxpayers to figure out what the right amount is and to get the information, then compliance is going to suffer. So I think they’re wrapped up together.”
Koskinen wants to improve the in-person Taxpayer Assistance Centers, in addition to the IRS telephone help line and the IRS.gov Web site.
“I also think it is important for us to make it as easy as possible for taxpayers to make their payments, so we need to be efficient and responsive on the phone when they call,” he said. “We need to be able to deal effectively with them in Taxpayer Assistance Centers. We need to have a Web site that provides them information easily available in language that they can understand.”
However, he noted that the IRS regularly faces budget cuts that hamper its ability to provide taxpayer service. “When I look at the impact of the budget and the implications of further cuts or what happens the next time there’s a sequester, the first thing that happens is the waiting time on a phone call goes up and our service goes down,” he said. “We try to get to 70 or 80 percent, but sometimes it gets as low as 50 or 60, which means at 50 percent that half the people who are calling are getting no answer at all and no satisfaction. It just seems to me that’s intolerable. Taxpayers deserve better, so we need to do whatever we can to provide the services that taxpayers need and expect. They ought to be able to dial the IRS number and get an answer promptly, and they ought to be able to get accurate information.”
Koskinen believes taxpayer compliance will increase if service improves. “I think it’s a critical function and if we can continue to make improvements in that area, make it easier for people to get on the Web site and electronically get the information they need, then I think compliance rates will go up,” he said. “I’m in favor of doing it not for that reason, but because that’s what we owe individuals. We work for the public and we need to meet their expectations.”
Facing Challenges
Koskinen said he plans to address the various challenges faced by the IRS, including implementation of the Affordable Care Act, efforts to combat identity theft-related tax fraud, and controversy over the IRS’s handling of applications for 501(c)4 tax-exempt status by political groups.
One of the first challenges will be the new filing season that begins later this month, he noted. “I know that planning has already begun to ensure that it goes smoothly,” he said. “As I have assured the employees, as the new kid on the block, with all the experience they have, one of the things I can probably do most profitably to help them is to stay out of the way. As I told them this morning, there’s a lot they accomplish in the normal course of every filing season.”
Koskinen also plans to deal with the controversy over tax-exempt applications. “Another priority for the agency is to put to rest all of the issues and concerns surrounding applications for tax-exempt status,” he said. “The management problems associated with the 501(c)4 application process have shaken public trust in the IRS. The agency has already made important progress in this area under the leadership of [former acting commissioner] Danny Werfel, and it’s my job to help make sure that we complete the work being done to solve those management challenges and begin to restore public trust.”
Another priority will be tax compliance, he added. “It will also be critical to build upon the important work the IRS has done to improve tax compliance,” he said. “The code of tax laws is vital to preserving the system of voluntary compliance. The vast majority of taxpayers are law-abiding, and they must always feel confident that the system is fair and equally important that everyone is made to play by the rules. Recently, the IRS has made great strides on enforcement in a number of areas, including the fight against refund fraud, especially fraud caused by identity theft, and also international tax compliance, particularly the efforts that have been made to combat offshore tax evasion.”
He added that along with tax enforcement, the IRS would improve taxpayer service, including the assistance that people need to file their returns and help filers who face difficult times or other hardships. In addition, the IRS plans to work on implementing the Affordable Care Act.
“We must also continue to fulfill our responsibilities to implement tax-related provisions in major legislation, especially the Affordable Care Act,” said Koskinen. “The excellent work the IRS has done thus far should serve us well as we prepare for the implementation of significant portions of the ACA.”
Koskinen also hopes to rebuild employee morale at the embattled agency. “Finally, I recognize this agency’s success to build upon the experience, skills and enthusiasm of our employees,” he said. “The challenges that all federal workers have faced the past three or four years, along with the more recent adverse publicity about the IRS in the past few months, have understandably undermined employee morale. We won’t turn the situation around overnight, but ultimately I want our employees to again view the IRS as a great place to work, where their accomplishments are appreciated and supported, so I will do whatever I can to ensure that every employee has the leadership, systems and training to support them in their work and allow them to reach their full potential.”
Along with that, Koskinen intends to restore some of the money that has been cut from the IRS’s budget in recent years. “If we are to be successful in all of these areas, the IRS needs to receive adequate resources,” he said. “As I have said on numerous occasions, I am extremely concerned about the deep budget cuts that the IRS has needed to absorb over the last few years. It’s critical that we find a solution to this problem, and I will do everything I can to make sure that we do. I hope that one of the legacies in my four years as IRS commissioner is that we put the agency’s funding on a more solid basis. Fulfilling our mission, we also need to support Congress and our external stakeholders. I enjoyed meeting with many senators as part of our confirmation process and I’ll look forward to working with all of the members of the Senate and the House in the days ahead. I also look forward to continuing our longstanding partnerships that the IRS has with key stakeholder groups who are valuable sources of advice and assistance to us.”
Posted on 7:46 AM | Categories: