Cheqbook: LIST OF ONLINE ACCOUNTING SOFTWARE AND WHY CHEQBOOK IS THE BEST CHOICE

 DOUG@CHEQBOOK.COM writes: Online accounting software in general has a wide variety of different benefits that can’t be ignored. Instead of storing all of the important financial information for your business on a single hard disk drive, you’re storing it on the Internet. If you ever need to quickly make adjustments, print out an invoice, check some numbers or perform any other type of pertinent task, you can do so from nearly any computer in the world with an Internet connection. You no longer need to physically be at work to get something productive accomplished.

Of all the different online accounting software products that are available, Cheqbook is the clear leader for a number of reasons. Once you begin to look at the list of accounting software and see what each product has to offer, you’ll easily understand why Cheqbook is the clear victor and the future industry leader in this category.

LIST OF ACCOUNTING SOFTWARE:

FreshBooks Cloud Accounting

Wave Accounting

Xero Accounting

Intuit QuickBooks

Cheqbook Smart Online Accounting

When you compare Cheqbook smart online accounting to a list of other accounting services available, you’ll quickly find that Cheqbook offers more features than nearly every member of the distinguished competition. Cheqbook has over 20 additional features when compared to FreshBooks Cloud Accounting, for example, and also does not limit the use of features in any way.

Some of the features that are available in Cheqbook that are not available in FreshBooks Cloud Accounting include the AccuScore Smart Categorization function, unlimited simultaneous users available in all plans, the fact that it is a fully functional accounting software, the ability to generate accrual accounting, journal entries, memos by line items and more. Cheqbook also allows you to create a chart of all the different accounts that you’re using for easy reference in the event that you’re using more than one account per business. The FreshBooks Cloud Accounting ability to add and edit charts of accounts is limited, while it is fully functional in Cheqbook.

Cheqbook has over 14 more features than the Wave Accounting service, including the ability to generate customization of reports that you’ve created using the service. Wave Accounting is missing a large number of features that Cheqbook users have come to know and love. These missing features include the AccuScore Smart Categorization function, the ability to generate cash reports, the ability to assign a default tax code to reports and accounts that you’ve generated using the service, the ability to create automation rules, the ability to import contacts and more.

The ability to import contacts will be especially useful if you are using Cheqbook to create invoices for various clients that your business may have. Instead of entering in the contact’s address and other information by hand each time you need to generate a report, you can import the contact from one of a number of different services and allow the program to automatically take care of the rest.

Cheqbook has six more features than Xero Accounting. One of the most notable differences between the two services is that Cheqbook does not quarantine transactions in any way. One major difference between the two services is that Xero Accounting does not give users the ability to batch edit transactions.

Batch editing means that you can quickly edit more than one transaction at a single time. If you had 100 different transactions all relating to the same company, for example, you would need to edit each of them manually in Xero Accounting if you ever need to make a change. You would need to perform manual edits regardless of how big or small the changes really were. In Cheqbook, on the other hand, you can select all of the transactions that you want to edit and make the change once. The service will then apply the new information to all of the selected transactions in one fell swoop.

One of Cheqbook’s major competitors is QuickBooks by Intuit. Devoted users of QuickBooks may be surprised to learn that Cheqbook actually has eight full features that their software of choice doesn’t have, including the ability to add categorization to transactions that you create and enter with your account. Other notable features that QuickBooks lacks include the AccuScore Smart Categorization function, unlimited simultaneous users in all plans, the ability to create automation rules and more.

Cheqbook also supports additional formats when the user is importing bank statements from various services. While both companies support the OFX and QFX file formats, only Cheqbook supports the popular IFX file format. Cheqbook also gives users the ability to host invoices on the Internet for customers to view, which can save a great deal of money in postage if your customers are on board with these methods.

Once you’ve examined all that the competition has to offer, you’ll begin to realize why Cheqbook is becoming the leader when it comes to online accounting software for small businesses.

Cheqbook (click here)

Estate Planning Opportunities For Same-Sex Couples UPDATE – IRS Adopts State Of Celebration Rule

Robert Stern and Stephanie Sanderson-Braem for  Stradley Ronon Stevens & Young, LLP writes: This is an update to our recent firm Estates Advisory “Estate Planning Opportunities for Same-Sex Couples After DOMA.” The IRS has released guidance clarifying the federal tax implications of the U.S. Supreme Court decision in United States v. Windsor and resolving the question of what constitutes lawful marriage that arose after the Windsor decision. In Rev. Rul. 2013-17, the IRS ruled that same-sex couples legally married in any domestic or foreign jurisdiction will be treated as married for federal tax purposes, regardless of their state of domicile. Said a different way, the IRS ruled that individuals of the same sex will be considered lawfully married as long as they were married in a state whose laws recognize the marriage of same-sex individuals (i.e., “state of celebration”), even if such individuals reside in a state that does not recognize the validity of same-sex marriages.

United States v. Windsor

The Defense of Marriage Act (i.e., DOMA) was enacted in 1996, and Section 3 of DOMA defined marriage for federal law purposes to mean only “a legal union between one man and one woman as husband and wife.” Section 3 disallowed federal recognition of a same-sex marriage that was valid under state law. In Windsor, the surviving spouse of a same-sex couple filed a lawsuit for a refund of the federal estate taxes paid by the deceased spouse’s estate and argued that the deceased spouse’s estate should be able to use the unlimited marital deduction reducing such estate’s federal estate tax liability to zero. The court held that Section 3 of DOMA was unconstitutional and violated the equal protection clause guaranteed by the Fifth Amendment. As a result, same-sex married couples currently residing in a jurisdiction that permits and recognizes marriages between same-sex couples are treated the same as opposite-sex married couples for federal law purposes. However, the court did not decide whether federal marital rights are available to same-sex spouses who reside in a state that does not recognize same-sex marriage.

Revenue Ruling 2013-17

Effective Sept. 16, 2013, Rev. Rul. 2013-17 now makes it clear that for federal tax purposes the terms “spouse,” “husband” and “wife” include a person of the same sex as long as the couple was legally married in a state that recognizes same-sex marriages[1] even if they reside in a state that does not—hence, the “state of celebration” rule. Rev. Rul. 2013-17 clarifies that same-sex couples legally married in any foreign or domestic jurisdiction are considered married for federal tax purposes regardless of the couple’s state of domicile.

In announcing the “state of celebration rule,” Treasury Secretary Jacob L. Lew stated that “[t]oday’s ruling provides certainty and clear, coherent tax filing guidance for all legally married same-sex couples nationwide. It provides access to benefits, responsibilities and protections under federal tax law that all Americans deserve. This ruling also assures legally married same-sex couples that they can move freely throughout the country knowing that their federal filing status will not change.”

The IRS also made clear who is not legally married. Couples (whether opposite-sex or same-sex) in registered domestic partnerships or civil unions are not considered married for federal tax purposes.

How Does Rev. Rul. 2013-17 Affect Same-Sex Couples?

For all federal tax purposes, including income, estate and gift taxes, same-sex couples who are legally married are treated as married. The federal tax law benefits of this ruling include, but are not limited to, filing status, claiming personal and dependency exemptions, taking the standard deduction, employee benefits, contributing to an IRA, using the unlimited marital deduction, and splitting gifts.

The IRS provided guidance to Rev. Rul. 2013-17 soon after the ruling was issued. Below are some key points from the published IRS guidance to Rev. Rul. 2013-17:

• A married same-sex couple may file a joint federal income tax return if they were married in a state that recognizes same-sex marriage but they live in a state that does not recognize same-sex marriage.
• For tax year 2013 and forward, same-sex spouses must file federal income tax returns using a married filing jointly or married filing separately status.
• For tax year 2012 and all prior years, same-sex spouses who file an original federal income tax return on or after Sept. 16, 2013, generally must file using a married filing separately or married filing jointly status.
• For tax year 2012, same-sex spouses who filed their federal income tax return before Sept. 16, 2013, may choose (but are not required) to amend their federal income tax returns to file using married filing separately or married filing jointly filing status.
• For tax year 2011 and earlier, same-sex spouses who filed their federal income tax returns timely may choose (but are not required) to amend their federal income tax returns to file using married filing separately or married filing jointly filing status, provided the period of limitations for amending the return has not expired. This allows same-sex couples to adopt the most tax advantageous status of being treated as either married or single.
• Same-sex married couples living in a nonrecognition state will continue to file state income tax returns as single even though they are considered married for federal tax purposes.
• The amounts paid for employer-provided health care coverage by an employee for a same-sex spouse could be treated as pretax dollars and, therefore, excluded from income. As a result, for the years that the period of limitations has not ended, the employee can file an amended Form 1040 reflecting the employee’s status as a married individual to recover federal income tax paid on the value of the health coverage of the employee’s spouse.
• For federal estate, gift, and generation-skipping transfer tax purposes, tax returns should be examined and potentially amended to incorporate the unlimited marital deduction for a same-sex married couple.
• Same-sex married couples who divorced and paid income tax due to a settlement agreement should review their prior income tax returns.

A Word To The Wise

The clarity provided by Rev. Rule 2013-17 makes this an opportune time for individuals in same-sex relationships to consider financial and estate planning opportunities.

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[1] Currently, there are 15 states that permit and recognize marriage between same-sex spouses: California, Connecticut, Delaware, Illinois, Iowa, Maine, Maryland, Massachusetts, Minnesota, New Hampshire, New Jersey, New York, Rhode Island, Vermont and Washington. The District of Columbia also permits and recognizes same-sex marriages.

2014 Tax Planning – Purchasing New Capital Assets

Bonnie Lee for Fox Business writes: The conclusion of 2013 also brought the end of 55 tax breaks, many of which relate to your small business.

Congress can still renew any or all of these breaks (and even make them retroactive), but it’s likely that Congress will want to see how the economy reacts to this year’s events before considering that action. Many experts expect decisions on renewing tax breaks to come during fourth quarter 2014.

One of the biggest tax planning tools that expired is the Section 179 deduction. This code section allows for a business to expense the purchase of capital assets such as machinery, equipment, furniture, vehicles and fixtures to name a few, in the year of purchase rather than depreciate them over their useful lives. The American Taxpayer Relief Act of 2012 (ATRA ’12) extended the $500,000 expense limit and the $2 million threshold retroactively to include tax years beginning in 2012 and 2013. This means that you were limited to $2 million in purchases (after that, the amount you can expense phases out) and expense $500,000 of those purchases.

The Section 179 deduction brings significant tax savings for small business by reducing their tax liabilities. This deduction is available to independent contractors, sole proprietors, partnerships and corporations. It applies to the purchase of new or used assets. It is also limited to the amount of trade or business income. Any excess may be carried forward to the subsequent tax year.

Check with your state taxing agency to see if it conforms to federal law regarding the expensing limits and purchase thresholds of Section 179. Some states limit the write-off. For example, California has never allowed more than $2,000 expensing of capital assets for C corporations and $25,000 for other entities with a $200,000 qualified asset placed-in-service threshold. The remainder of purchases must be depreciated.

When this provision expired at the end of 2013, it reverted back to 1986 tax law when the deduction was first introduced. This means that if Congress doesn’t take action, for 2014 and later years, the total amount that a business can expense via Section 179 will be $25,000.

A tax provision for bonus depreciation also expired on Dec. 31, 2013. Bonus depreciation came into effect in 2008 and allows a business owner to write off 50% of the cost of capital assets. Bonus depreciation applies only to the purchase of new capital assets. Used items must be depreciated over their useful lives or expensed through Section 179.

When using bonus depreciation, there is no limit as to the amount of money the business can spend on capital asset purchases. And if the use of bonus depreciation creates a loss for the business, you are entitled to enjoy it against other income.

Since these are two of the most popular tax reduction provisions available to small business, tax planning will therefore be a challenge during 2014. My best advice is to plan according to your company’s needs, save for capital asset purchases, and see what happens at year end. Check with your tax professional sometime during the summer to see which way the winds are blowing and to see what other tax planning steps can be taken to minimize your tax liability in the event these provisions are not renewed.

Joint Return or Married Filing Separate: It’s Not Your Choice to Make

Paul R Tom for Accounting Today writes: Here is a one-question multiple choice quiz for all return preparers.

The date is December 1, 2013. You have an appointment with married taxpayers, Joe and Jane Taxpayer. Joe and Jane have been married for 10 years and they have never lived in a community property state. They have three children ages 9, 11 and 12. Neither has filed a tax return for 2006, 2007, 2008, 2009 or 2010 (the “delinquent years”). For the past 10 years, Joe has been a plant manager for a manufacturing company. For each of the delinquent years, Joe earned on average $75,000.00 and claimed single and -0- on his W-4.

Jane was a self-employed lawyer who earned on average $100,000 net business income for each of the delinquent years. Jane made no estimated tax payments while she was self-employed. For all of 2011, Jane has been an employee earning around $80,000. Her W-4 shows married with one exemption.

 The IRS has not yet assessed tax for any of the delinquent years. You have prepared tax returns for Joe and Jane for each of the delinquent years. The returns show the following liabilities:

 

How should the delinquent returns be filed?

(a)    File the returns as married filing joint, because Joe and Jane save $29,500.00 in tax.
(b)    File the returns as married filing separate so only one person has a liability.
(c)    None of the above. I don’t have sufficient information to make a recommendation.

If you answered (a), you have saved Joe and Jane a lot of money, but that may be penny wise and pound foolish. What if Jane and Joe own their home jointly, and the home has substantial equity? What if Joe has a 401(k) with $50,000? Is Joe going to thank you for putting his home and retirement at risk?

But (a) may be the correct answer if, for example, Joe and Jane have sufficient cash to full pay the liability or pay the balance owed to below $50,000, and have sufficient income in future years to do a “streamlined installment agreement” to pay the balance in full within 72 months.

If you answered (b), you could be wasting the taxpayers’ money for no reason. What if Jane just inherited $500,000 and is willing to fully pay the liability? What if Joe and Jane have recently qualified for a $75,000 low-interest mortgage to pay down the liability and are willing and able to pay the balance on a “streamlined installment?”

The correct answer is (c). You don’t have enough information! If you just prepared joint returns, showed the taxpayers where to sign and provided mailing envelopes, you likely committed malpractice. You might say, “But I saved the Taxpayers $29,500.00 in tax!” So what. Joe and Jane can’t pay the $91,500, let alone the $121,000. Had you asked the right questions, you would have learned that Joe just got a 20 percent pay cut, one of the kids was recently diagnosed with muscular dystrophy, and Jane—who has diabetes—may have to quit her job to take care of the sick child.

Whenever I speak to preparers, enrolled agents or CPAs, I constantly remind them to view problems holistically. Always look at the entire situation before making any recommendation. You wouldn’t file an Offer in Compromise if there is only 120 days left before the collection statute expires. So why would you file a joint return for Joe and Jane without first knowing whether you are saddling Joe with a liability and jeopardizing his home and retirement?

Before making the filing status recommendation to Joe and Jane, you need to know the following:

• Can Joe and Jane file head-of-household for any of the back years (that is, have they lived apart for the last six months of the year)?

• Do the taxpayers have the money to pay the liability down to $50,000 or less, and can they then pay the balance with a streamlined installment agreement?

• Does the withholding for future tax periods need to be adjusted?

• What do the taxpayers own, and are the assets held jointly or separately? Find out who owns what.

• What are the anticipated future expenses, aside from current taxes?

• Can you give Jane all of the exemptions and deductions to lower her separate liability without hurting Joe’s situation too much?

• How much is the state tax liability?

• Are there any state licensing issues for Jane that will affect her ability to practice law?

• Is there any potential criminal liability for either taxpayer?

These are just a few of the questions you need to ask. I’m sure you can think of many others.
When advising married clients on filing delinquent returns, you can’t just look at the bottom-line tax liability owed. You must also try to protect and preserve existing assets. One of the best ways to do that is to file some or all of the years as married filing separate. It is very difficult for the IRS to collect from jointly owned assets if only one spouse owes taxes. And the IRS cannot collect from the separate property of a non-liable spouse without proving nominee, alter ego or transferee liability.

Advising spouses to separate their tax liability must be done carefully and tactfully. The liable spouse may conclude that he or she is being “sold down the river.” You have to show the couple how separating the liability helps both of them. Separating the debt completely protects the non-liable spouse’s separate assets from IRS collection. It also makes it difficult (if not impossible as a practical matter) for the IRS to collect from jointly owned assets.

When faced with a situation like this, you must proceed deliberately and cautiously. Always remember: Filing status on any return, no matter how simple, is not your call to make. Each spouse has the absolute right to file a separate return for any tax year.

Your job is to fully advise each taxpayer of the economic consequences (both individually and jointly) of married filing joint and married filing separate for each of the years. Overall tax liability (joint liability vs. married filing separate liability) is clearly an important factor to weigh in making the decision, but it is just one of several factors that must be considered.

MYOB AccountRight Live vs Xero – a Bookkeeper’s Comparison

Pam Pitt for BoxFreeIT writes: There has been a massive move towards cloud-based accounting solutions over the last three years in Australia. In that time MYOB AccountRight Live and Xero have a large share of the market. At the end of 2013, 80,000 Australian Xero clients are currently using cloud accounting, while more than half of new MYOB registrations in Australia are for cloud accounting solutions.

Our team of bookkeepers at Bookkeepers4u works with Xero, MYOB and Quickbooks Online cloud programs, so we asked our team for some feedback. This is a summary of the comments that came back from the coal-face in relation to Xero and AccountRight Live.

Functionality

Xero is an attractive product with some great dashboards that gives a snapshot of the financial position of the business. It is a good product for more basic businesses, quite easy to set up and use, and is very similar to MYOB’s LiveAccounts browser-based program.

MYOB AccountRight Live is more suitable for businesses with more complex business operations. It provides functionality that Xero users can only achieve by buying third party applications such asUnleashed, which is used for inventory. Typically add-on products do not give you the same depth of integration back to the general ledger.

AccountRight Live Plus has the ability to track inventory on hand, handle complex payroll and has time billing (which can be used to generate sales invoices and payroll). Xero on its own cannot do these functions.

Xero also has a limit of approximately 1,000 invoices per month, 1,000 banking transactions per month and around 5,000 contacts in total whereas AccountRight Live and Live Accounts have unlimited transactions and contacts.

Some of the more expensive Xero plans have a very good multi-currency function, which AccountRight Live does not have. Xero to Xero functionality also makes it easier to deal with inter-company transactions and transactions from other Xero users. A Xero plan allows unlimited numbers of users to access the file whereas AccountRight Live is restricted to five concurrent users.

Xero does integrate very easily with third-party applications; there are over 300 additional programs that can be added on to Xero (at a cost), extending the functionality into many specialised areas. There is no rating of these products so it is up to the user to determine the suitability of the product and the viability of the supplier behind it.

MYOB launched their API for AccountRight Live earlier this year and have over 100 apps listed on their add-on centre. Users report that both systems are easy to integrate.

Cloud

This is one of the biggest points of difference between AccountRight Live and Xero. MYOB users have the option to use the software on the desktop or the cloud. Xero is only available on the cloud. Cloud-based accounting systems have a slight lag in comparison to having a file on the desktop. With AccountRight Live there is the flexibility of taking the file offline if a user requires faster processing.

In both cases, the accounting file can be accessed by multiple users from multiple locations when it is stored on the cloud. AccountRight Live also enables users to install the software across a local network where five users can access the file at the same time.

With MYOB, since the file can be used on the desktop, there is the need to download any new software updates onto the users’ computers, and to make sure everyone has the latest update. With Xero, this is done automatically.

This leads to another important point – with Xero, there is no local backup of the data file. This is not crucial while the client is using the software, as the servers used by Xero are fully backed up. But if the client stops paying for the product they no longer have access to their accounting data. There are no local backups to use. They are able to print off reports and extract data into spreadsheets, but they are not able to open their accounting file.

With MYOB, clients are able to buy and own the software, so they are able to take backups and continue accessing their accounting files even if they stop paying their subscription. The backup functionality is also useful for a bookkeeper or an accountant as it lets you back up the business at a point in time, for example, at the time a business activity statement (BAS) was submitted.

Support

MYOB has a very good range of support options. For clients who have current support plans, there is a free phone call centre with extended hours. There are a huge range of well explained support notes on the MYOB website. The live chats and webinars are increasingly popular.

In addition, there is the MYOB forum where any MYOB user can log questions and post answers. Other MYOB users, MYOB staff and MYOB Certified Consultants all respond to the questions.

Xero is a much newer product and currently does not have the same breadth of support. There is no phone call centre. However, there is an email service for client questions and a website of frequently asked questions and guides, plus very good regular webinars and training sessions. Xero users are very active in social media too.

Payroll

MYOB AccountRight Live Plus and Live Accounts have no restriction on the number of employees who are in the payroll run. Xero charges more per month dependent on the number of employees in a pay run.

AccountRight Live Plus has the ability to handle more complex payroll arrangements, for example it is very easy to run an additional pay without doing it in the standard pay run. Staff can have standard pay items set up on their pays too, which also makes doing the pays much easier.

On the other hand, Xero has the advantage of having all the superannuation funds set up in the payroll section which saves time in having to enter or look up funds. MYOB indicated that they adding this in 2014 but at the time of writing this was not available.

However, our bookkeepers have found Xero’s payroll generally to be time consuming; a lengthy procedure to do a pay run, then a draft bill has to be raised then approved then authorised, then apply separately to a multi-payment on the bank feed.

Xero has indicated this is going to change but it hasn’t happened at present. Our bookkeepers also said that handling expense claims on Xero payroll is difficult. And they also find it very difficult to do unscheduled pays and pays in advance in Xero. Overall, their preference is for MYOB when clients are using the payroll function.

Pricing

At the time of writing, AccountRight Live starts at $29 (no restrictions on transactions, but no payroll or inventory) up to $65 a month (including unlimited employees, payroll and inventory). Xero has a number of plans starting at $25 a month for the smallest plan (restricted to five invoices and five bills a month and 20 bank transactions) and going up to $90 a month (with a restriction of 100 employees).

Conclusion

There will be continuing debate over which cloud accounting software is “the best”. It comes down to the individual business needs rather than one particular software. By providing comparisons like this we hope that businesses will be able to make a more objective choice when looking for their next cloud accounting program.

Pam Pitt is a director of Bookkeepers4u, a Melbourne bookkeeping service which deals with MYOB, Xero and QuickBooks Online software, and Two Peas, an accounting software consultancy. Pitt was also MYOB partner of the year 2013.

Keep Your Receipts, Logs And Data Intact — You’ll Need Them In An IRS Tax Audit

Mel Schwarz for Grant Thornton writes: One of the easiest ways for taxpayers to lose an audit with the IRS is to fail to substantiate their expenses or time. You may have closely followed the arcane and often confusing tax laws, but failing to keep adequate records of your time spent on an activity, receipts detailing your expenses or logs describing the type of work you did or the places you traveled can easily cost you the tax benefits to which you’re entitled.

This is especially important for taxpayers who own and operate their own businesses. The IRS requires expenses incurred by an employee or business owner to be documented through “adequate records” when those expenses are incurred. At the same time, a taxpayer must prove that he or she is actually participating in a trade or business by keeping adequate records that reflect the time spent working in that trade or business. Those records must show the amount, the time and place, and the business purpose of the expense, or in the case of someone proving participation in the business, the time spent working.

What exactly does that mean? Case law and IRS regulations indicate that “adequate records” can be a diary, an account book, a trip sheet or a log book. Technology has improved, so records retained digitally, through a logging program, also qualify. Expenses and time spent must be documented in those records contemporaneously, meaning “within a reasonable period of time” or “at or near the time” the expense was incurred.

Consider the following example: On occasion, a business owner may take a client or a prospective employee to dinner. Contrary to what many taxpayers think, keeping a receipt of the dinner, even if it is itemized, isn’t enough to survive an audit, though you should always retain those records. Entertainment and meals have historically been ripe for abuse by taxpayers, so Congress has constructed strict guidelines on deducting those expenses.

To deduct such expenses, a taxpayer must record (1) the amount and description of each expenditure; (2) the time and place the entertainment or meal was provided; (3) the business purpose of the activity, including any benefit derived from the meal or entertainment; and (4) the nature of the discussion with each participant, and the business relationship with each person entertained or fed. Even then, the meal or entertainment can’t be “lavish or extravagant” – something determined on a case-by-case basis.

Your business should also have an “accountable plan” – a written set of policies that describes the responsibilities of the employee to record such expenses pursuant to IRS rules. Without it, if your business is audited, you could lose such business deductions and/or your employee could be required to treat those reimbursements to him or her as includable income.

What about substantiating for individual income tax purposes? Now, more than ever, even an individual taxpayer should maintain his or her receipts, for every itemized or “above the line” deduction taken. For example, the law allows an individual to deduct certain payments made to charities or nonprofit groups. Cash donations are the easiest to substantiate – all you need is a receipt from the charity and a bank record. But donations of tangible property are a bit more difficult.

For one, the individual will not only need a receipt, but also have to prove the value of the property donated. Often, a local charity will allow a donor to assign a value to the items donated. Your honesty as a taxpayer will come into play if you overestimate the value of donated goods, especially if you can’t prove their value. So, what to do?

Document each item donated. If you donate clothing, note the brand, material, age and condition of the garment. If you donate something of greater value, like artwork or other expensive items, you’ll likely need an appraisal. Contributions of property for which a deduction of $5,000 or more is claimed require a qualified appraisal to be attached to the tax return. Contributions of a vehicle worth more than $500 require a contemporaneous written acknowledgement by the donee organization, which must be attached to the tax return of the taxpayer-donor.

Appropriate documentation isn’t just for expenses incurred. If you’re involved in a business activity as an owner, you have to prove you are “materially participating” in a trade or business during a tax year. There are a variety of tests for proving this, and they mostly involve spending a certain number of hours working in that business during the year. The most common test to prove material participation is to work 500 or more hours in the business, and show that the work is regular, continuous, and substantial.

But the IRS can ask for proof that you actually worked. You probably won’t have receipts, so how do you prove material participation?

Unlike the requirements for substantiation of expenses, proving hours of participation in an activity does not require contemporaneous daily time reports or logs. Reasonable proof, such as notes scrawled in a journal or entries in appointment books or calendars can be sufficient. Other options are credit card bills, records of emails sent, telephone records, building entry logs from key-card swipes and even records from automated highway toll passes, like “EZ Pass.” Of course, the IRS and the courts will view contemporaneous reports as more authoritative than journals, which may be seen as self-serving in some cases.

Maintaining the proper documentation is a good practice and may be something a business owner is already doing. While the effort can be burdensome, it will pay dividends in the event of an IRS audit.

What to Know About the New Rules for Medical IRS Tax Deductions

Bonnie Lee for Fox Business writres: Unless you rack up an enormous amount of medical and dental bills during the year, it is difficult to get a deduction for medical expenses.

Unlike other deductions like property taxes and mortgage interest, you are not allowed to write off the grand total of your medical bills. For 2013, you must subtract 10% (an increase from 7.5%) of your adjusted gross income from your total medical expense and the remainder is what you are allowed to deduct on Schedule A, Itemized Deductions.

For example, your total medical expense for the year is $10,000.  If your adjusted gross income is $100,000 multiply that by 10% and you get $10,000. Subtract that result from $10,000 and the amount you are able to deduct is zero. At the previous 7.5% rate, you would have been able to deduct $2,500.

There is a break for seniors, however. If you were age 65 or older before the close of the 2013 tax year, you may continue to use the 7.5% variable in the equation. This is true even if one spouse is 65 or older and the other is younger than 65. They both enjoy the lower threshold even if they file separate income tax returns.

This reprieve for seniors is only temporary. The lower threshold will last from 2013 through 2016 then revert to the 10% limitation.

If it appears that you will lose this deduction because of the higher threshold amount, there are a few steps you can take to ensure that you get some deductibility.

First of all, if you have a high-deductible insurance plan, you may qualify to open a Health Savings Account (HSA). These plans may be administered through your employer or you can check with your local bank or insurance broker to see if they have a plan you can enroll in. With an HSA, you are allowed to write off the amounts that you contribute into the account as a full deduction on your tax return. Complete IRS Form 8889 then list the contribution deduction on Line 25 under Adjustments to Income on form 1040. You simply deposit funds into the account then pay your medical, dental, and prescription bills from the account. If you pay for health supplements or any other expenses not considered valid medical expenses from this account, you must show those distributions as income on your tax return.

You may contribute $3,250 (individual plan) or $6,450 (family coverage plan) for 2013. The contribution limits increase to $3,300 or $6,550 respectively for 2014.

You can also consider bunching medical and dental expenses into one tax year. For example, say you incur a lot of medical expenses during 2014. Then in December, you find out that you need extensive medical tests or extra dental work. Be sure to incur the expense and have the work done during December 2014 in order to stack your medical deduction.

And lastly, make sure you take every medical deduction to which you are entitled. It’s important to understand the rules regarding what the IRS considers a valid medical expense.

It’s important to understand the rules regarding what the IRS considers a valid medical expense. I’m always surprised by clients who miss many of the deductions simply because they don’t understand what is allowed. For example, you may deduct alternative forms of medical treatment such as acupuncture and visits to naturopathic doctors. Hearing aids and other medical apparatus are also deductible. Don’t forget the Medicare premiums paid from your Social Security benefits as well as health insurance premiums and long term care premiums. For more information on what you can deduct, check IRS Publication 502 Medical and Dental Expenses

Spreadsheet-Based Form 1040 Available at No Cost for 2013 Tax Year

David Ringstrom for Accountingweb writes: Although the IRS is still madly preparing for the 2013 filing season, one man remains ahead of the curve.

Glenn Reeves of Burlington, Kansas, has released his seventeenth spreadsheet-based version of the US Individual Income Tax Return, commonly known as Form 1040. Since 1997, Mr. Reeves has pursued this "labor of love," which means he allows any taxpayer to download and use the spreadsheet for free.

Mr. Reeves' spreadsheet empowers anyone to prepare their tax return spreadsheet applications, such as Microsoft Excel, Office 365, Libre Office (formerly known as Open Office), or Gnumeric Portable, a spreadsheet that fits on a flash drive. When you click the "Download" link at www.excel1040.com, the file will attempt to open in Google Docs. Follow the onscreen prompts to download the file to your computer, and use one of the aforementioned programs to complete your tax return.

As you can see in Figure 1 (below), the form closely mirrors the official IRS format, but Mr. Reeves doesn't guarantee that the IRS will accept printed versions of this form. He personally files his return online after using the spreadsheet to compute his return.

Figure 1: Glenn Reeves has updated his Excel-based version of IRS Form 1040 for the 2013 tax year.

The 2013 version of the spreadsheet includes both pages of Form 1040, as well as these supplemental schedules:

• Schedule A: Itemized Deductions
• Schedule B: Interest and Ordinary Dividends
• Schedule C: Profit or Loss from Business
• Schedule D: Capital Gains and Losses (along with its worksheet)
• Schedule E: Supplemental Income and Loss
• Schedule SE: Self-Employment Tax
• Form 6251: Alternative Minimum Tax – Individuals
• Form 8949: Sales and Dispositions of Capital Assets

The spreadsheet also includes several worksheets:

• Schedule D Worksheet
• Line 10: State and Local Tax Refund Worksheet
• Lines 16a and 16b: Simplified Method Worksheet taxable annuities and pension benefits
• Lines 20a and 20b: Social Security Benefits Worksheet
• Line 32: IRA Deduction Worksheet
• Line 44: Qualified Dividends and Capital Gain Tax Worksheet
• Line 51: Child Tax Credit Worksheet

Five additional worksheets round out the tool:

• W-2 input forms that support up to four employers for each spouse
• 1099-R retirement input forms for up to four payers for each spouse
• SSA-1099 input form to record Social Security benefits
• A tax table
• Change log that records revisions to the spreadsheet

All of the worksheets in the 1040 workbook are password-protected, and most of the underlying formulas are hidden, but you’re free to add new worksheets to the file or create links to other workbooks. Mr. Reeves noted that the spreadsheet is constructed in such a fashion that proper use of the spreadsheet means a user won't need to access any of the protected cells. As shown in Figure 2 (below), the spreadsheet also offers some limited error checking.

Figure 2: The spreadsheet offers limited error-checking prompts.

Although Mr. Reeves gives the spreadsheet away, he does accept appreciation contributions, which he reports on his tax return as income. He also donates 10 percent of any contributions to his church. Spreadsheet-based versions of Form 1040 are available for tax years 1996 through 2013 at www.excel1040.com. 

Direct questions regarding this Excel 1040 form to Glenn Reeves via his website.

Maxed out 401k, Phased Out Roth / Advice: how to save for retirement and what to do with my existing accounts.

Over at Bogelheads we read the following    Need Advice - Maxed out 401k, Phased Out Roth

by NYCInv » Wed Jan 22, 2014 6:44 pm

I'm in need of a little direction on how to save for retirement and what to do with my existing accounts.

I currently contribute the max to my 403b and in 2013 I started phasing out of Roth contributions (these are at Vanguard). In 2015 I'm getting married and I'll be unable to contribute to a Roth because we'll be above the income limit. I know I can contribute to a non deductible IRA and recharacterize it to a Roth, but I have ~$50K sitting in a Vanguard rollover IRA from my prior employer's 401k plan so any recharacterizations will be prorated. I also have the option to contribute to a 457 plan at work.

I expect to be in a higher tax bracket when I retire, so I think my best option is to convert the rollover IRA to a Roth and pay the taxes this year (I'll be in a higher bracket in 2015), though the taxes will need to come out of the rollover IRA balance since I can't afford the tax bill out of pocket. My two alternatives are to move the rollover IRA into my current 403b plan (funds have higher expenses) or to leave the money where it is and prorate any future recharacterizations.

Is there any real reason to move it to the 403b or keep the money where it is?

NYCInv

Re: Need Advice - Maxed out 401k, Phased Out Roth

by Texas hold em71 » Wed Jan 22, 2014 10:46 pm

Are you under 59.5? If so and If you don't have the money to pay the taxes outside of the IRA, you'll be subject to a 10 percent penalty on the part you don't put in the Roth and hold out for taxes.

From the wiki:

"If the tax is paid out of the converted assets, the payment is considered an early distribution and is subject to both income tax, and if one is under age 59 1/2, a 10 percent penalty tax. [5]"

Texas hold em71

Re: Need Advice - Maxed out 401k, Phased Out Roth

by Duckie » Wed Jan 22, 2014 11:07 pm

NYCInv, welcome to the forum.

NYCInv wrote:Is there any real reason to move it to the 403b or keep the money where it is?

You can either:

1. Convert it (not recharacterize), which will be a big tax hit you can't afford.

2. Roll it over to the current 403b/potential 457, which won't cost you in taxes, but the employer plan has to allow for incoming rollovers and should have decent options.

3. Leave it in the IRA and pay the pro-rata taxes for a dozen years or so. I'm not going to do the math but eventually you'll use up the $50K pre-tax value and won't have to deal with the pro-rata issue. It's like a conversion spread out over years instead of all at once.

If the plan does allow for incoming rollovers and has decent options I would roll it over. It's a lot simpler.

Duckie

Re: Need Advice - Maxed out 401k, Phased Out Roth

by NYCInv » Thu Jan 23, 2014 12:06 pm

Texas hold em71 wrote:Are you under 59.5? If so and If you don't have the money to pay the taxes outside of the IRA, you'll be subject to a 10 percent penalty on the part you don't put in the Roth and hold out for taxes.

From the wiki:

"If the tax is paid out of the converted assets, the payment is considered an early distribution and is subject to both income tax, and if one is under age 59 1/2, a 10 percent penalty tax. [5]"

I'm 29...so the 10 percent penalty would apply. Thanks for pointing that out!

NYCInv

Re: Need Advice - Maxed out 401k, Phased Out Roth

by NYCInv » Thu Jan 23, 2014 12:18 pm

Thanks Duckie!

My 403b doesn't have many options...I was in a lifecycle fund that did abysmal last year but changed it to some decent mutual funds with fees ranging from .8-1% (my Vanguard rollover ranges from .05-.22%). I suppose the fees are still low, but if I ever changed jobs I'd have to either leave the money in the 403b or I'd rollover to an IRA again and be in the same position I'm in now, no?

NYCInv

Re: Need Advice - Maxed out 401k, Phased Out Roth

by Duckie » Thu Jan 23, 2014 6:11 pm

NYCInv wrote:My 403b doesn't have many options...I was in a lifecycle fund that did abysmal last year but changed it to some decent mutual funds with fees ranging from .8-1% (my Vanguard rollover ranges from .05-.22%). I suppose the fees are still low, but if I ever changed jobs I'd have to either leave the money in the 403b or I'd rollover to an IRA again and be in the same position I'm in now, no?

List your current 403b and potential 457 options (names, ticker symbols, and especially expense ratios). Let's see what you could have. And if you change jobs maybe your new job has a better employer plan and you could roll it there.

Is your 457 plan a governmental plan or not? It makes a big difference.

Duckie

Re: Need Advice - Maxed out 401k, Phased Out Roth

by Meg77 » Thu Jan 23, 2014 6:40 pm

I wouldn't worry about it at this point. You're 29 and will probably have lots of different employers and retirement plans and tax brackets over the course of your life. I don't see any reason to convert anything to Roth right now and pay taxes, especially since you can't afford the tax bill anyway (which makes it kind of a moot point - there's definitely no reason to pay taxes from the IRA and pay the penalty just to convert).

Keep doing what you are doing - max out your employer plan and contribute what you can to your Roth. When and if you can roll your Vanguard IRA into a decent employer plan, do so and start doing a backdoor Roth IRA. In addition, remember that there may be future years where your joint income is low you'll qualify to contribute directly (he gets laid off, you take time off with a new baby, things happen) and can also take advantage of a Roth conversion then.

Make sure you have plenty of liquidity though too. I'm getting married in April and both of us having access to enough cash to do the things we want to do has mattered a lot more than optimizing our retirement account structures (i.e. I haven't pushed him to do a backdoor Roth yet since we just drained most of our liquidity buying a house and are currently focused on figuring out how to afford furniture, a honeymoon, etc without throwing off our long term goals). Just my two cents! Best wishes on your engagement. 

"An investment in knowledge pays the best interest." - Benjamin Franklin

Meg77

Posts: 441

Joined: 22 May 2009