Friday, January 17, 2014

Make tax-smart retirement moves

Wells Fargo Advisors / Dustin Schofield  for The Spectrum writes:  Smart investing often involves choosing the right assets to meet your specific needs. It can also involve holding those investments in the right types of accounts — particularly when it comes to retirement savings. When managing your retirement savings, aim for tax efficiency, recommends Bev Doolin, IRA product manager at Wells Fargo Advisors. “And make sure you involve your tax professional as well as your financial adviser in assessing the tax implications of any investing strategy you’re considering.”
You can save for retirement in a variety of accounts:
• Traditional IRAs and workplace plans such as 401(k)s can lower your taxes now, but your distributions will be taxed as ordinary income.
• Roth workplace plans and Roth IRAs don’t provide an immediate tax break, but you generally won’t pay tax on your distributions.
• Ordinary taxable accounts face taxes on realized gains and investment income each year.
“The various types of accounts offer different advantages, not only when making contributions but also when taking funds out,” Doolin says. “But you have to set up the accounts properly to get the benefits.”
Here are a few considerations to help you make the most of the accounts available to you:
• Tax deductions — Some investors delay making a traditional IRA contribution until they know whether it will qualify for a tax deduction. If there’s any doubt, Doolin suggests contributing to a Roth IRA. “It’s a no-brainer,” she says. You can contribute directly to a Roth IRA if you earn less than $125,000 (single) or $183,000 (married filing taxes jointly). Otherwise you can contribute to a traditional IRA and then convert it to a Roth. One benefit of Roth IRAs: They don’t require minimum distributions after you reach age 70½.
• Growth versus income — As a general rule, it’s wise to keep investments with strong growth potential in Roth accounts, which shield you from tax on any appreciation. Taxable accounts can also be a good option for growth stocks, as long as you hold the stocks for the long haul. The reason: The capital gains tax you’ll pay when you sell the shares is likely to be lower than the income tax you’d pay if you held them in a traditional IRA, sold them and then distributed the cash — but be sure to review such a strategy with your own accountant and financial adviser to make sure that would be the case for you.
Investments that regularly spin off taxable income, such as high-dividend-paying stocks or bonds, are likely best kept in tax-advantaged accounts. The same is likely to prove true for mutual funds with high turnover. The funds’ frequent trading tends to generate significant short-term capital gains, which are distributed to shareholders. The result can be a hefty tax bill in a taxable account.
• Estate planning — A Roth IRA is the undisputed champion of accounts when it comes to passing down assets. You won’t have to take withdrawals during your lifetime, and while your heirs will have to distribute a required minimum amount each year, they generally won’t pay any tax on it. Securities in taxable accounts come in second, at least in terms of tax efficiency: The inheritors won’t have to take required minimum distributions, and they’ll pay capital gains tax only on appreciation that occurs after your death. On the other hand, if you pass a traditional IRA or 401(k) to your heirs, they will be required to take minimum annual withdrawals and pay taxes on those distributions.
Note that assets in all types of accounts are considered part of your estate, and so may trigger estate taxes. Your financial adviser can work with your estate attorney and tax professional to help you craft a plan for minimizing the impact of estate tax on your financial legacy.
• Distribution strategy — The rule of thumb for retirement distributions is to start tapping your taxable accounts first, your traditional IRAs second and your Roth IRAs last. But that’s not always the most effective order, Doolin says: “Liquidating an asset in your taxable account might push you into a higher tax bracket, which could affect everything from the taxes you owe to the cost of your Medicare Part B premium.”
Her suggestion: Lay out a general distribution strategy that reflects your anticipated income needs, then adjust your withdrawals depending on your situation in any given year. Again, consult with your financial adviser and your tax professional to make sure the strategy you develop takes into account all relevant changes in tax regulations as well as your own needs.
You worked hard to save money for retirement, so it makes sense to be as tax efficient as possible. But Doolin points out that any added value is less important than the benefits of saving in the first place. “Most mistakes you might make in terms of tax efficiency can be fixed with time,” she says. “That’s not the case if you haven’t saved enough for retirement. So save first — and then think about taxes.”
Wells Fargo Advisors is not a legal or tax adviser. However, we will be happy to work with your chosen adviser to help you reach your financial goals.
Posted on 9:37 PM | Categories:

Raymond James bets on Intuit in its 2014 best picks list

Silvia Ascarelli for MarketWatch.com writes:  Raymond James boasts that its list of top picks for a year tends to beat – no, cream — the market.

As it publishes its list for 2014 — 13 stocks this time — MarketWatch looks at how the rest of Wall Street judges its choices.
Perhaps not surprisingly, almost all get a thumbs up from most analysts who cover the stock, based on FactSet compilations. But there are some outliers.
The biggest is Intuit Inc. INTU , a $21.88 billion company known for its TurboTax tax-preparation software and its QuickBooks accounting program. Just 35% of analysts who cover it give the stock a buy or overweight rating, while 60% say hold and the final 5% say sell.
Raymond James analyst Wayne Johnson is focused on the rollout of a cloud-based QuickBooks platform called Harmony and the prospects for higher recurring revenue and margin expansion. While he notes Intuit  hasn’t met his (and the Street’s) expectations for the past two years, reduced expectations for TuboTax means the company should  at least meet expectations. He writes:
“All in, we believe Intuit could post high-single digit long-term growth, modest margin expansion, and low double-digit or better EPS growth driven in part by solid subscriber growth in the QuickBooks ecosystem.”
Posted on 6:29 PM | Categories:

Get Free Money in Your 401(k) Plan

Mitch Tuchman for Forbes writes: If you are a typical salaried or hourly full-time employee in the United States, you’ve probably heard about your 401(k) plan. Fifty-two million Americans use them. Such plans held $3.5 trillion in retirement assets at the end of 2012.
Folks who work in educational institutions have access to similar programs, known as 401(b) plans. State employees use 457 plans. They all do the same thing: Give you free money.
That’s right, free money. It happens two ways, through tax-deferral and matching.
The tax-deferral part is a huge benefit. Essentially, you get to save money every year and subtract that money from your current income for tax purposes. It will appear as if you made less, both to state and federal tax collectors.
Since tax rates are progressive, this is a powerful tool. A “progressive” tax rate means you pay the highest percentage on the highest dollars you earn. In 2013, the tax rate on the first $8,925 you earned was 10%. On the money from that level up to $36,250 the rate was 15%.
From there to $87,850 the rate was 25%. (The top rate was 39.6%. All figures for single filers.)
Your effective tax rate
Figuring out your “effective” tax rate is a matter of applying the different rates to each part of your income to find the average. However, that’s before your standard deduction, any itemizing you might do and possible tax credits.
So where’s the free money? If you make, say, $50,000, exemptions and deductions might reduce your taxable income to $40,000. Put away $12,000 in your 401(k) plan, however, and your income is now $28,000. Your average tax rate falls
Plus, your current-year tax rate on that $12,000 is zero, zip, zilch, nada. It now gets to grow and compound on your behalf, tax-deferred. You will pay taxes later, yes, but only as you take it out and at current income tax rates in the future, when presumably you will spend less.
Repeat this simple savings routine for 30 years earning a market return of 7.2%. At the end of those three decades you will have $1.4 million, and only then will you pay taxes on the withdrawals. All along the way, no taxes on capital gains, no taxes on reinvested dividends.
What about the other free money? Well, most employers want you to save more. They also want you to feel some loyalty to your workplace. So, as part of your overall compensation they might offer a matching amount.
An extra $300,000
Usually, it’s small, perhaps 5% of your salary. And it’s often tied to the idea of you spending a minimum number of years at your job, usually four or five.
But consider this simple fact: It’s free to you and placed in an account in your name. Our example worker earning $50,000 a year could be receiving $2,500 extra a year, all going straight to the tax-deferred account. So, no taxes today on that, either.
Let’s bump up our computation to take into account the extra $2,500. You might spend that much on coffee and lunch out in a year. But if you let your company put the money into your 401(k) instead, the total comes to $1.7 million. Essentially, you “saved” an extra $300,000 without trying.
Using your 401(k) plan at work is a no-brainer, the easiest possible way to save for retirement. And, it’s free money, if you use it wisely.
Posted on 6:17 PM | Categories:

Dodging 529-Plan Tax Traps / Investors can make costly mistakes with the college-savings plans

Kelly Greene for the Wall St Journal writes:  When Julie Craft started saving money for her daughter's education through a 529 college-savings plan several years ago, her financial planner told her she could use those savings for any college expenses.
Then she switched planners and learned that wasn't the case—just in time, as her daughter is now a freshman at the University of Oklahoma. "You have to know what you can use the money for so you don't wind up paying more in taxes and penalties," says Ms. Craft, who lives near Dallas.
Her new financial planner, Todd Schneider of Southlake, Texas, says he has encountered a lot of confusion among clients about how to use the money they have accumulated in the plans—and has saved them from a number of tax traps. Still, he worries many people have committed fouls they might not discover unless they wind up getting audited.
The 529 plans are state-sponsored investment accounts whose earnings can be withdrawn free of taxes as long as they are used for qualified higher-education expenses. Many states also offer income-tax breaks on contributions.
For 2013, an estimated $19 billion went into 529 plans (before withdrawals), compared with $18 billion in 2012, according to Strategic Insight, a firm that tracks the plans. The accounts held $191.3 billion in assets as of Sept. 30, up 17% from a year earlier.
Here are some ways to avoid the plans' pitfalls.
Pay attention to timing.
The biggest mistake that Mr. Schneider sees people make is withdrawing 529 savings in one calendar year—and then waiting until the following year to pay the bill. Those are two different tax years, and the Internal Revenue Service hasn't issued a final rule on whether withdrawing money from a 529 account one year and using it the next is allowed or not.
The upshot: Money not used in the year it is withdrawn could wind up being subject to taxes and a 10% penalty.
It is an easy trap to fall into when paying bills for the spring semester, because families often will start the process during the holidays, get sidetracked, and then turn back to bill-paying after Jan. 1, Mr. Schneider says.
To avoid the problem, wait until after Jan. 1 to request the needed funds, he says.
The IRS has said it plans to propose a rule to allow 529 withdrawals to cover current-year expenses along with expenses in the first three months of the following year, says Joe Hurley, whose website, Savingforcollege.com, offers in-depth information about 529 plans. But so far, no changes have been made.
Make sure the expenses qualify.
Before you withdraw 529 savings to pay a college bill, double-check that you are allowed to do so.
Ms. Craft, in suburban Dallas, says she might have been tripped up by the limits on housing and food expenses when her daughter moves off campus next year had she not learned about the limits on the use of 529 withdrawals.
Qualified expenses have to be paid for the account's designated beneficiary. They include tuition, fees, books, supplies and equipment, and special-needs services incurred in connection with enrollment or attendance at an eligible school. Room-and-board expenses are allowed only for students enrolled at least halftime.
IRS Publication 970, "Tax Benefits for Education" (available at IRS.gov), lists expenses that qualify. Other sources of information include www.collegesavings.org andMorningstar.com (search for "529").
Take any scholarships or tax credits into account.
Here is a good problem, but a problem nonetheless: You withdraw enough from a 529 account to pay your child's tuition fully. Then it turns out you owe a smaller amount, due to a scholarship your child is awarded midyear.
Besides scholarships, the federal government offers a number of tax credits. The most valuable one for many taxpayers is the American Opportunity Tax Credit, worth up to $2,500 per student. The credit is generally available to individuals with a modified adjusted gross income of up to $90,000 a year or $180,000 for married couples filing a joint tax return, then phased out for those with higher incomes.
But getting that credit means that up to $4,000 would have to be subtracted from college expenses you could pay with 529 withdrawals. (You can take a $2,000 tax credit on the first $2,000 of qualified expenses and then take a 25% credit on the next $2,000.)
If you overlooked those expenses and already withdrew the money from a 529, you would owe income tax—but the 10% penalty would be waived, Mr. Schneider says.
Act fast on fixes.
If you do find that you have taken too much from the account, you could roll the excess amount into a different 529 account within 60 days. That way, the amount would no longer be treated as a distribution. One caveat: You're allowed only one rollover for each 529 account you own within any 12-month period.
You also could try to pay the following year's expenses, but educational institutions vary on whether they will take prepayments, Mr. Schneider says.
Check before you make a big gift.
Assets you contribute to a 529 account no longer count as part of your estate even if you are the account owner. That makes them especially appealing for many grandparents.
Another advantage: Each grandparent can contribute up to $14,000 a year in a 529 account for each child without incurring gift taxes or $70,000 in one fell swoop, using up five years of gifts at once.
Still, people who make five-year gifts have to file a federal gift-tax form to make sure they get the full exemptions, Mr. Schneider says.
Posted on 6:08 PM | Categories:

8 Errors You're Most Likely to Make on Your Tax Return / If you’re going trip up somewhere, here’s where it’s probably going to happen

Geoff Williams for US News World Report writes:  You're starting to think about your taxes – or maybe you're fully engaged and already working on them. Either way, be careful. Last year, the Internal Revenue Service said it discovered 2.7 million errors made by 22 million taxpayers on their 2011 returns, which was considerably fewer than the 6.6 million errors the year before. It's believed that the rise of tax-software preparation programs have something to do with that.

Still, even if you use software or hire a professional, mistakes can be made. Here are some of the more common goofs, according to tax experts.
Simple errors. The IRS website, written by the people who would know, point out several of the top blunders, including taxpayers frequently entering the wrong Social Security number or shortening the number by a digit or two. They also enter the right information on the wrong line and make simple addition and subtraction errors. If you're mailing your tax forms, don't forget to sign and date them, and make sure to put postage on your envelope. The moral of this part of the story: Don't rush.
Improperly claiming (or not claiming) dependents. A dependent is someone who depends on you financially, like a spouse or a child, and who you can claim on your taxes for credits and exemptions. It may seem straightforward, but a parent in a blended family knows how it can get confusing. Generally, if the mother or father or other relative provides more than half of the child's support, that person can claim the youth as a dependent. But if you have a pureed concoction in your household, you may want to go to the IRS's website and answer a series of questions that will help you determine who is a dependent.
It also gets confusing if someone depends on you financially who isn't a relative, says Dave Du Val, resident tax expert at taxaudit.com, TurboTax's exclusive audit defense service provider. He offers an example of a woman supporting a boyfriend and his son.
"The taxpayer in this scenario may be able to claim the boyfriend's son as a dependent if he meets all the tests for a qualifying relative, and as long as the son isn't a qualifying child of the boyfriend or another taxpayer," Du Val says, adding that the boyfriend might even qualify as a dependent "if he is a U.S. citizen who lived with her all year, he made less than $3,900 and she provided more than half of his support."
When you're not required to file, not filing. You might miss out on the earned income credit, says Donald Goldman, a professor who specializes in taxation and teaches at Arizona State University.
"At the lower end of the income scale, a very common mistake that could cost taxpayers money is not filing a tax return and therefore missing out on the earned income credit," Goldman says. "This is a refundable credit, meaning it can entitle a taxpayer to a refund in excess of the taxes he or she has paid. The average credit in 2012 was more than $2,000 and can reach almost $6,000."
There are a lot of rules concerning who is eligible, so it's a good idea to check out the IRS website and scroll down to look at the chart. But if your adjusted gross income is $14,340, and you're single and without a child, for instance, you may be eligible. If you make $51,567 and are married and have three or more kids, you also probably qualify.
Not reporting stock sales correctly. "Folks who sell stock often do not report the sale on their return if there was a loss. They don't realize that the IRS receives a 1099 [Form] showing the amount of the sale and assumes the entire amount is taxable income unless it is reported on the tax return with the purchase and sale price listed to compute the taxable gain," Du Val says.
Retirement-related errors. "One of the most common mistakes people make on their tax returns is improperly reporting the taxable amounts of their retirement plan or IRA distributions," Du Val says. "Determining the taxable amount is particularly complicated when nondeductible IRAs or basis in the retirement account are involved."
By basis, also known as cost basis, Du Val is referring to the dollar amount you paid for your shares. The basis is adjusted for items such as returns of capital and transaction fees and can impact your tax liability when you sell shares.
Schedule E blunders. "This is the Schedule that is used to report rental property, royalties, partnership income and expenses, estate income and expenses and S-Corp income and expenses," says Du Val, flagging it as the area on the federal tax form 1040 where people are most likely to make a mistake.
He adds that anyone who needs to fill this out should be familiar with phrases like "property basis" and "suspended losses." If you own rental property and don't know those terms, you should start learning everything you can about them, as well as "depreciation" and "passive activities," Du Val says.
Or, of course, you could hire someone who does, because things can get sticky when it comes to rental property. "For example," Du Val says, "A residential rental property is depreciated over 27 1/2 years, but furniture is depreciated over five years."
Waiting until the last minute. That can be the biggest mistake for a taxpayer because it leads to making other mistakes, says Ryan Blume, a senior manager of tax and business consulting at Moss Adams, a public accounting firm headquartered in Seattle.
"The rush to meet tax-filing deadlines shifts your accountant's focus to compliance and ensuring that you fulfill the basic tax requirements, rather allowing him or her time to seek additional ways to reduce your taxes through overlooked deductions or preparation mistakes," Blume says.
And if you rush your taxes to the point where you feel that you've made a mess of things, Blume suggests asking the IRS for an extension.
"Some individuals think asking for an extension is a red flag for the IRS. Not true," Blume says. "Instead, it gives you more time to seek additional ways to reduce your taxes through overlooked deductions or preparation mistakes."
Not filing. That, everyone agrees, is the biggest mistake of all.
Posted on 3:06 PM | Categories:

A beginner's guide to tax-efficient investing

Curtis Lyman NBC/Investopdia write:  Tax efficiency is essential to maximizing returns. Due to the complexities of both investing and U.S. tax laws, many investors don't understand how to manage their portfolio to minimize their tax burden.

Simply put, tax efficiency is a measure of how much of an investment's return is left over after taxes are paid. The more that an investment relies on investment income - rather than a change in its price - to generate a return, the less tax-efficient it is to the investor. This article will detail common strategies for creating a more tax-efficient portfolio. It will discuss tools commonly overlooked by investors, which results in lower lifetime returns due to paying higher taxes.

Taxable, Tax-Deferred and Tax-Exempt Accounts
Before investors can take any steps toward tax-efficient investing, they must first determine how their accounts are structured under the law. Generally speaking, accounts can be taxable, tax deferred or tax exempt. For taxable accounts, investors must pay taxes on their investment income in the year it was received. Taxable accounts include individual and joint investment accounts, bank accounts and money market mutual funds. On the other hand, tax-deferred accounts shelter investments from taxes as long as they remain in the account. Any kind of retirement account - 401(k), IRA or Roth IRA - is a tax-deferred account. For tax-exempt accounts such as Canada's Tax-Free Savings Account, investors do not need to pay taxes even at withdrawal.

Both types of savings accounts have their advantages and disadvantages. As a general rule of thumb, tax-efficient investments should be made in the taxable account, and investments that are not tax efficient should be made in a tax-deferred or tax-exempt account - if an investor has one.

Know Your Bracket
Next, an investor must consider the pros and cons of tax-efficient investing. First, the investor needs to determine his marginal income tax bracket and whether it is subject to the alternative minimum tax. The higher the marginal bracket rate, the more important tax-efficient investment planning becomes. An investor in a 39.6% tax bracket receives more benefit from tax efficiency on a relative basis than an investor in a 15% bracket.

Once the investor identifies his bracket, he must be aware of the differences between taxes on current income and taxes on capital gains. Current income is usually taxable at the investor's bracket rate. Capital gains taxes are distinguished by being a gain and by being either short term (usually held less than one year) or long term (usually held more than one year).

Generally speaking, short-term capital gain rates are at the investor's marginal tax bracket, and his long-term rates are at a preferential rate. If the latter is the case, then the investor needs to try to generate capital gains at the preferential longer-term rate.

Different asset classes like stocks and bonds are taxed differently in the United States and often play much different roles in the investor's portfolio. Historically, investors purchased bonds to provide an income stream for their portfolios, and bonds have generally enjoyed lower volatility or risk than stocks. The interest income from most bonds is taxable (municipal bonds are a tax-efficient vehicle at the Federal Tax level, however) and is, therefore, tax-inefficient to the investor in a higher tax bracket. Stocks are often purchased to provide a portfolio with growth or gains in their capital, as well as a current income stream from dividends.

As a rule, investors should put tax-inefficient investments in tax-deferred accounts, and tax-efficient investments in taxable accounts. But tax efficiency is a relative concept. With the exception of the lowest-quality bonds, no investment is completely tax-inefficient - yet some are clearly more tax-efficient than others. To underscore this hierarchy, we'll now discuss the different kinds of investments in terms of their location on a tax-efficiency scale, moving in the direction of complete tax efficiency.

Tax-Inefficient Investments
Among the most tax-inefficient investments are junk bonds. Due to their high risk of default, junk bonds typically pay higher yields than better-quality bonds to attract investors. Since junk bonds are used primarily as speculative instruments, they also pay higher yields than other types of bonds. Consequently, the yields paid to junk-bond investors are taxed at the same rate as ordinary income.
Straight-preferred stocks are relatively tax-inefficient. Generally considered hybrid instruments, straight-preferred stocks share characteristics of both common stocks and bonds. Like common stocks, straight-preferred stocks are issued in perpetuity; like bonds, they yield fixed payments, which provide downside protection but limited upside potential. In addition, straight-preferred stockholders, like bond holders, are paid ahead of common stockholders.

Due to their bond-like qualities and fixed payment, straight-preferred stocks are taxed at the same rate as ordinary income. Although institutional investors, which are the primary market for preferred stocks, may largely offset their tax bill using the dividend received deduction (DRD), this tax credit is unavailable to individual investors. As with junk bonds, individuals must apply the current income tax rate to their dividend income from straight-preferred stocks.

Some straight-preferred stock is convertible to a pre-determined number of the issuer's common stock. The stockholder may decide to exercise this option at any time, enabling him to first lock in the fixed dividend payouts and then participate in the capital appreciation of the common stock. In exchange for this flexibility, the issuer usually pays lower dividends on convertible preferred stocks than on its straight-preferred stocks.

Dividends from convertible preferred stocks are considered ordinary income and taxed as such, unless the securities are converted to common stock. Therefore, convertible preferred stocks are hardly more tax-efficient than straight-preferred stocks - although investors may dramatically increase their tax efficiency by converting their holdings to common stocks, which are taxed at the lower long-term capital gains rate.

Tax-Efficient Investments
By comparison, convertible bonds are relatively tax-efficient. Not only do they usually have lower yields - and therefore incur fewer taxes - than junk bonds or preferred stocks, but bondholders may hold them in tax-deferred accounts. To achieve improved growth in capital gains, investors may convert these bonds into the issuer's common stock.
Next are investment-grade corporate bonds. Investors may also put them in tax-deferred accounts, making them a relatively low-cost and liquid means of gaining exposure to the bond market while also lowering their tax profile.

Even more tax efficient are common stocks, which are among the most tax-efficient investments, particularly when held in tax-deferred accounts. This is primarily because they are taxed at the long-term capital gains rate if held more than one year. Most tax efficient are municipal bonds due to their exemption from federal taxes. Yet because they have lower yields than investment-grade bonds, municipal bonds often represent a substantial opportunity cost for investors.

Real estate investment trusts (REITs) offer tax-efficient exposure to the real estate market. At the trust level, REITs are tax exempt provided they pay at least 90% of their profits to shareholders, while investors must pay ordinary income tax on their dividends and on shares bought and sold. However, REIT shares are taxed only after they earn back that part of the investment used to finance real estate purchases and improvements. Consequently, investors may time their tax liability for their REIT shares, or in some years avoid taxes altogether.

The Bottom Line
Tax-efficiency is within reach of most investors. If you want to keep more of your investment earnings and stay out of a higher tax bracket, choose investments that offer the lowest tax burdens relative to their interest income or dividend income. You may also want to consider your opportunities for investing tax-free. Given the markets' persistent volatility, your decisions regarding tax-efficient investing may spell the difference between reaching and falling short of your financial goals.
Posted on 1:01 PM | Categories:

PC Magazine Reviews Bill.com

Kathy Yakal for PC Magazine reviews Bill.com 

Pros Automates accounts receivable and payable approval and processing. Forecasts cash. Integrates with numerous financial applications. Easily accessible via mobile devices.

Cons Lacks the depth of partnerships that some financial solutions have. Online support scattered.
Bottom Line   Bill.com can manage your company's accounts receivable and payable or as an integrated partner with your accounting solution. Either way, you'll have tremendous collaboration and financial transaction-processing and tracking tools.
            
When I first reviewed Bill.com in 2009, it was an excellent accounts payable website, automating the process of receiving, approving and paying bills. It had a simple, clean user interface, a good help system and a relatively painless setup routine. My main criticism was that the workflow could be puzzling to new users. In the intervening four years, Bill.com not only improved its workflow, but it has also more than doubled its usefulness, its collaboration capabilities and its user base.


Today, it manages both accounts receivable and payable. It integrates with many more financial applications. And it's easily accessed via mobile devices.

Founder Rene Lacerte comes from a long line of successful entrepreneurs, and this history shows in the smart, careful evolution of Bill.com. It's to his credit that I'm unable to find another Web-based solution that can compete with it.

Establishing Your Financial Framework
Bill.com provides a setup checklist that breaks the process down into small steps (though I would do it in a different order than they did). First up is synchronization with your accounting software, unless you're using Bill.com as a standalone application. The service now shares data with NetSuite, Sage and Xero ($15 extra), in addition to QuickBooks and Intacct. Once you've completed the initial sync using the site's step-by-step videos and printed guides, Bill.com will continue to send changes to your accounting software, which will in turn update Bill.com.

If you don't import data, you'll need to create records for your vendors manually. Once this is done, you'll have a page for each that displays not only their addresses, phone numbers, payment terms, etc., but also lists their historical bills, payments, vendor credits and any documents that have been attached to them.

Next, you'll want to set up the users who will be accessing the system. Bill.com comes with five pre-defined roles: Administrator, Accountant, Payer, Approver and Clerk. These are displayed in a grid that shows what permissions each has by definition (Approve Bills/Vendor Credits, Pay approved bills via Bill.com, Sync with Accounting System, etc.). You can either assign staff to one of these or you can create your own roles.

It's easy to designate the bank account(s) you'll use to pay bills and/or receive payments. Bill.com walks you through the process of verifying your identity and connecting to your account(s). If you want customers to be able to pay you online, Bill.com will set up a separate website for that purpose that can include your business name and your logo. You can accept credit and debit cards through Bill.com's merchant account service, as well as ePayments and PayPal payments.

One of the advantages of using Bill.com is its bill approval mechanism, something QuickBooks doesn't offer. You'll need to indicate whether or not bills need to be approved before they're paid (and who is allowed to do so). Your bill approval workflow preferences must also be established. In fact, there are many other preferences that you'll need to establish, so it's best to work your way through this whole section before you upload your fist bill.

Clean Operations, Cash Flow Forecast
Bill.com's user interface is clean, simple and understandable. You can access any area of the site by clicking the tabs at the top of the screen: Home, Inbox, Payables, Receivables, Documents and Reports. Each has its own sub-menus.

Your personal dashboard appears when you first log on to Bill.com. The most common activities are represented here. Your to-do list contains links to tasks that need attention, like overdue invoices, bills awaiting approval and documents in your Inbox that need processing. There's a vendor search box and a tool for uploading bills. Your cash forecast is displayed here in a graph; you can see how your projected income and bills will affect your bottom line over the next three months.

Many sites offer simple cash forecasts, but Bill.com's is interactive in an unusual way. Follow the line that represents your current balance with your mouse, and a small window opens for each day of the next three months, displaying the prior day's balance, inflow and outflow totals, and your ending balance. If your forecast indicates that you're going to have a negative balance at any point, you can edit any of the unprocessed transactions to, for example, push a bill payment back or move an invoice due date up. This is great.

Moving Your Payables
There are three ways to move your actual bills to Bill.com. The service establishes a unique email address and fax number for your company. You can scan and email paper bills, fax them directly or drag and drop electronic copies onto your dashboard. A fourth alternative is offered by one of Bill.com's partners, Earth Class Mail. You can have your bills mailed directly to them, and they'll scan and submit them to Bill.com for you.

 Your scanned bills go into your Bill.com Inbox, which displays every uploaded file, eBill and ePayment in a small box that contains a miniature version of the document itself. Hover over "View Email" to see the "From" and "Subject" line, and over the document itself to see a larger version. This is just an image, though; information will have to be pulled from it to create a version that Bill.com can read. To do so, you click "Bill" under the "Create a New" menu to the right of the image in the Inbox.

The next screen contains your scanned image and the "Bill Details" dialog box, which contains fields and drop-down boxes for entering data about your bill (vendor, due date, account, etc.). Your default approver for that bill is pictured there, though you can add another. When you complete the fields and save the transaction, your bill is entered into the system for processing. Recurring bills are supported, and can be set up on a separate screen.

To approve bills, you either click through to that screen from the dashboard or click Payables/Approve. The pending bills that you must approve are listed on the screen, ready to be selected and approved in two clicks. Select Payables/Pay if you have that particular permission, and enter the required details. You also have the option to pay without using Bill.com (if you're printing a check, for example) and to mark a bill already paid. Bill.com will make the payment for you either electronically or via U.S. Mail by its due date.
All paid bills are available in the History section of your Inbox. Your bill payments themselves are stored in Payables/History. This screen offers much more information than small business accounting solutions generally do, and which is sorely needed: Bill.com keeps track of uncashed checks, returned checks and failed ePayments.

Time-Saving Alternative
If you have a lot of bills or limited staff time or both, you can subscribe to Bill.com's Data Entry Service (formerly called "Zen"). For $1.99/bill,two different U.S.-based agents enter all bill and vendor information for you, and any discrepancies are caught by a third person. All bills received by 7 p.m. Eastern appear online in the Bill.com Inbox of your approver by the morning of the next business day. Company representatives create new vendor records when necessary and categorize bills based on that vendor's previous bill. Your bills are also scanned using state-of-the-art OCR technology, providing you with a searchable database.

If you don't opt for this service, you'll still pay $1.29 per processed bill that Bill.com sends by U.S. Mail. Electronic payments are 49 cents each. And there are three subscription levels for the service itself, ranging from $24.99 per month (customized plans and multi-account discounts are available for enterprise users). The differences in service levels are related primarily to the accounting syncs supported. Intacct and NetSuite synchronization require corporate subscriptions ($99 per month for up to 15 users), for example. The customized roles option, too, is limited to Corporate.

Incoming Revenue
Bill.com has added receivables-processing since the last time I reviewed it. That enhancement has made the site the only accounting solution that many companies need. Just as a large segment of the Microsoft Word user base uses only a fraction of the word processor's tools, small businesses often buy or subscribe to an accounting program or website and only use accounts receivable and payable, and maybe a few reports.

All of your work on invoicing and receiving income is done within the Receivables menu. And it works much the same as Payables, only you may be creating invoices (though these can also be done in an accounting product). You'll click the Overview link under Receivables to see the same kind of information you saw in the Payables dashboard – soon-to-be-due and overdue invoices, those that need processing and payments received/scheduled.
Of course, you'll have to import a customer database or manually enter records. You'll also need to build item service and sales tax records so you can enter them on invoices. You'll assign staff roles and establish preferences, and if you haven't already, create branded payment websites and sign up for merchant accounts or other payment options.

Invoices forms are simple and similar to other web-based accounting sites, though not as detailed as some. If you've built a thorough customer database, some of the upper part of the invoice will already be completed. You may have to supply information like invoice number, sales rep, etc. Then you select items from the drop-down list, enter quantities and indicate whether the sale is taxable. Like bill payments, you can dispatch invoices electronically or pay Bill.com to send them through U.S. Mail.

The last two toolbar tabs gives you access to lists of documents (you can attach documents to bills and invoices) and reports (many more than five years ago, but with minimal customization options).

The Work Flows

There are numerous benefits of using Bill.com to automate your company's accounts receivable and payable workflow. For example, it makes these processes actually feel like a workflow, rather than a series of related-but-separate actions. Add to that the site's approval mechanism, its secure financial data storage, its data entry option and, above all, its tremendous collaboration capabilities, and you have a solution that's yet to be rivalled.


Posted on 11:54 AM | Categories:

Tax Season: Plan Now For Great Advertising Returns

John Cosley for Search Engine Land writes: Someone once said that Americans deserved a tax system that looked as it if were designed on purpose. No doubt, the world is a complicated place when tax time looms. Rule changes, exemptions, complicated deductions — it’s no wonder that people start to sweat a little as April 15 approaches.
ppc-puzzle-featuredIf there’s one thing taxpayers can cheer, however, it’s the fact that the web has really helped reduce the pain of researching tax information, completing tax documents and submitting tax returns. Tax season is increasingly a digital season.
Here at Bing Ads, we’ve seen firsthand the growing tendency to go online at tax time and have learned quite a bit about the habits of web-using taxpayers. We think tax time is a great time for those in tax-related service businesses to tailor ad campaigns that highlight the services they offer and attract new customers.

Tax Season Offers Opportunities & Challenges For Advertisers

Clearly, people use the Internet heavily at tax time, whether that means researching the impact of tax laws, meeting with tax preparers virtually, or using online services to prepare their tax returns. Tax sites have experienced tremendous growth: according to comScore Media Metrix, the tax category was among the top 10 with the highest traffic growth in unique visitors last summer – and that is during an off seasonal period. In 2012, more than 145 million tax returns were submitted electronically, a figure expected to continue to rise. (Source: IRS.gov PDF)
Our own numbers show that about 2 million people used the Yahoo Bing Network for some 5 million tax-related searches. Google, of course, will have higher numbers based on market share.
For marketers in this space, the opportunities are there. I’ve already mentioned the increase in online tax filing. Note, as well, that the share of clicks in the tax category was growing at a rate of 12 percent-a-year as of 2012. And, we’re seeing growth in traffic to top tax and DIY tax sites, such as TurboTax, H&R Block, and TaxAct.
Also, mobile is growing rapidly in this space, as it is across the search world in general. Mobile filing apps for tax — such as IRS2Go, TurboTax SnapTax, TaxACT Central, and others — are gaining popularity.
But, as with the rest of the financial services vertical market, the tax industry can be a tough one to navigate from a search marketing standpoint. Query terms can be narrow, making it a competitive segment for winning ad bids. In fact, the average cost-per-click is the highest among all of the vertical markets we’ve researched, including automotive and travel. Plus, the changing regulatory environment in taxes can make it difficult to tailor a campaign.

How To Design A Winning Tax-Season Ad Strategy

To design an effective campaign, it helps to understand the search patterns people employ. Our research as shown that tax-related searches have two peaks during the season.

Tax Searches By Type

The first peak comes early in the year, shortly after people receive their W2s from employers. That’s when they usually begin to think seriously about completing their taxes and are apt to search for tax products and services.
If your goal is to reach these people, the time to advertise is now. Although searches are dominated by tax-related, brand-name software, advertisers can gain clicks with terms such as “accountants” or “tax preparers.”
Around mid-February, these very tax-service or product searches diminish. They’re replaced by terms such as “IRS” and “Refunds.” People are starting to anticipate their tax refunds — which averaged $2,803 last year — and thinking about how to spend them.
This entertaining infographic from the portfolio manager Jemstep, for instance, highlights some of the options. According to Jemstep, although about 43 percent of tax refund recipients plan to save the money, 12.3 percent plan to use it for a significant purchase such as a car or television set. Another 11.3 percent will use their refund for a vacation.
This means advertisers can choose among several strategies. Those in banking and investment, for instance, might want to suggest investing in a money market account or opening an online brokerage account. Retailers, auto dealers, and travel agencies, meanwhile, might want to tailor campaigns to attract people interested in spending their refund on durable goods or travel experiences.

Don’t Forget Key Tools For Campaign-Building

Whatever the objective, be sure to take advantage of some of the tools offered by Bing Ads and Google that give your ads more impact.
For instance, both offer sitelink extensions, which are additional links in your ads that take people to specific pages on your website. This can be crucial to ensuring people click through to your site, as sitelink extensions have been shown to boost click-through-rates by 7-21 percent within the financial services category on our network.
While tax customers aren’t typically apt to be drop-ins, using call extensions in conjunction with location extensions allows for your phone numbers to be displayed — and the availability of click-to-call will depend on the device where the ad is being viewed. This can help potential customers find nearby tax help from local or national-local service providers. This should be combined with location targeting to ensure optimal customer experience and the most relevant leads.
Also, test ad copy early, before the first tax search peak, and then deploy those terms that perform the best. Remember to use dynamic insertions in your ads, which allow you to offer searchers more relevant text while using a single ad for multiple keywords. Additionally, you should employ a clear call to action, such as: “Contact us today to receive the full refund you’re due.”
As tax season progresses, update ad copy as consumer searches change from branded and research terms early in the season, to refund and tax extensions later. Also, bid for mainline positions to increase click volume and click-through-rates.
Consider using broad match for specific and relevant keywords to increase your prospects — they may be searching for related information, but don’t use the exact wording you anticipate. At Bing Ads, we found that in the Financial Services category, adopting broad match can deliver 46 percent more clicks and 65 percent more conversions than campaigns using only exact match, which would be inclusive of Tax.
As I noted earlier, mobile is a fast-growing part of the search world in taxes, so employ the right mobile strategy. Having a device strategy can help you reach prospects at the right time with the right contextual message.
Tax season can be trying. But by offering consumers value and service during this time of year, you can gain customers and help them navigate the complicated world of taxes.

If it matters, this comment is credited to William Simon, former secretary of the treasury.

About The Author:  is responsible for Microsoft Search Advertising’s global brand marketing and communications activities, which includes Bing Ads. He has over 15 years of digital marketing experience across a diverse set of industries, including Entertainment, Technology/Software, Advertising, and Creative Services. John has been overseeing search advertising campaigns for over 10 years. 
Posted on 10:09 AM | Categories:

Why can’t a computer beat a CPA? / Some financial experts say tax-prep industry has a software problem

Jonnelle Marte for MarketWatch writes: Despite big improvements to tax-preparation software over the years, most Americans still prefer to delegate the dreaded annual chore to a pro.
Indeed, roughly 60% of individual tax returns are done by a preparer, according to data from the Internal Revenue Service. That percentage has barely budged over the past decade, even as Americans have embraced technology for more and more financial tasks. “We haven’t seen as big a shift toward online services as we thought we might have,” says Jeremy Edwards, a lead analyst with IBISWorld, a market research firm.
So why is it that a computer can beat a chess grandmaster, but not a CPA? Even though most tax returns are fairly simple, many consumers feel they need help navigating and understanding the ever-changing tax code, especially if they are higher earners facing large tax bills, says Edwards. “The people who are most technology savvy and are prepared to do their taxes online have a lot of income and want professional help to collect the most tax breaks and deductions,” he says. Some people will never be converted over to tax software, H&R Block CEO Bill Cobb told MarketWatch. “It’s a little bit like cat people and dog people,” he says.
Some financial experts contend the industry just has a software problem. More people might break up with their tax advisers if the preparation software available could streamline the process of scanning and interpreting all the paperwork, and if the programs offered clearer guidance on filing decisions and deductions, says Jon Stein, Founder and CEO of Betterment.com , an online investment firm. “The user experience of online tax services is too complex,” says Stein. “It’s a lot like the investing space, where the typical solutions are too time consuming, frustrating, and overwhelm you with unnecessary options.”
Why is it that a computer can beat a chess grandmaster, but not a CPA?
Tax software providers are in fact working to improve the filing process, by cutting down on the number of questions consumers have to answer and how much data they have to type in. Both TurboTax and H&R Block, for example, offer returning customers the option to automatically download their personal and financial information from the prior year’s tax return. Both firms also make it possible to download W2 forms and other income information directly from participating employers and banks. And this year TurboTax says it is offering more detailed definitions of the numbers and information consumers need to input themselves, as well as explaining why their refunds may have changed. H&R Block is using a new interface that tells consumers what they need next to complete the return, among other features.
The IRS has also tried to simplify the tax filing process by introducing Free-file, a program that allows free e-filing for Americans earning $58,000 a year or less. But only about 40 million individuals have used the program since it was launched in 2003, says Edwards. (Roughly 140 million individual tax returns are filed each year.)
But where tax preparation often falls short is that many Americans are too confused by the tax code, even when they do have fairly simple returns, tax pros say. Some people seek professional guidance after facing major life changes, such as buying a house, getting married, having children or moving. “There are numerous and conflicting credits available; which are the ones you should take advantage of?” says Edward Karl, vice president of taxation for the American Institute of CPAs in Washington, D.C. “I don’t know that software can help you make those decisions.”
And it isn’t just the highest earners who want help making sure they’re taking advantage of as many tax deductions and loopholes as possible, says Roberton Williams, an economist with the nonpartisan Tax Policy Center. Low-income workers may seek guidance on whether they qualify for the earned-income tax credit or child-related credits, says Williams.
More people might use software to do it themselves if tax software providers would offer more detailed explanations of each step in the filing process and walk users through the significance of each figure being calculated, says Edwards of IBISWorld. That might help remove what is still a major obstacle keeping many people from doing their own taxes—the fear that they are filling out their returns incorrectly or not paying the proper amount in taxes, he says.
For many people, though, the decision to have their taxes done by a pro comes down to pure dread. The majority of Americans (56%) don’t like doing their income taxes, with many of them saying the process requires too much paperwork, and they are afraid of making mistakes, according to a national survey by the Pew Research Center done last April. Not surprisingly, 60% of those who said they don’t like doing taxes said they prefer to have someone else do it for them. “Doing taxes is a chore and it’s not something people want to think about or care about or do,” says Sasan Goodarzi, senior vice president and general manager of Intuit’s TurboTax business. “There’s nothing easier than going to somebody else.”
Posted on 8:22 AM | Categories: