Filing sales taxes is a nightmare: TaxJar gets $600k to bring automation to online retailers

MICHAEL CARNEY  for Pando.com writes: Benjamin Franklin famously said, “in this world nothing can be said to be certain, except death and taxes.” If he were alive today he might have amended that statement to say, “nothing can be said to be certain, except the complexity and misery of filing taxes.” For individuals, managing deductions and wading through exemptions is tedious enough, but for business owners, particularly those operating in multiple jurisdictions, the task is even more onerous.

TaxJar aims to solve this problem, with a focus on the sales tax liabilities of online retailers. It’s a problem that has gotten even more complicated in recent years with a number of states passing legislation to require collection. The company’s tax management software automates the process of tracking taxable transactions and filing taxes in the various state and federal jurisdictions in which they occur.

Today, the two-year-old San Diego company announced its first outside financing in the form of a $600,000 Seed round from angels including Facebook VP of Partnerships Dan Rose, Magento co-founder and COO Roy Rubin, and other executives from companies including eBay, Intuit, and ShipWire.

Currently, a large percentage of online merchants are either non-compliant with sales tax regulations or are utterly overwhelmed by the administrative burden of adhering to the law. Merchants often have to file taxes with each local jurisdiction (within each state) in which they complete a sale. Currently, the process  requires reconciling each individual transaction at the end of a tax period using super sophisticated tools like a spreadsheet listing each buyer’s billing zip code cross referenced against a municipality map. It’s the kind of work that makes Chinese water torture seem like vacation.

TaxJar aims to remove these burdens by integrating automated tax collection into marketplaces and shopping cart applications including Amazon, PayPal, Shopify, Etsy, BigCommerce, and WooCommerce, among others.

It’s a smart distribution strategy that could help the company avoid many of the horror stories typically associated with chasing small and mid-sized business (SMB) customers. Merchants pay for the service on a SaaS basis, with prices beginning at $9.95 for up to 1,000 monthly transactions (after a free 30 day trial) and increasing based on volume.

TaxJar addresses a wide range of merchants, according to co-founder and CEO Mark Faggiano, spanning from those processing “just” $100,000 in annual sales to those generating eight-figure revenues. There are upstream competitors offering comprehensive tax compliance solutions to Fortune 1,000 businesses, but the lower middle market category which TaxJar is targeting is a greenfield opportunity. It might be said that the company’s biggest competitor is the status quo, which in most cases means the above-described horor of manual bookkeeping and tax filing, or simply ignoring the problem entirely.

“This problem isn’t going away, if anything it’s getting more complicated,” Faggiano says. The company’s customers know as much and, as a result, have been more than satisfied to offload the burden. Faggiano cites the company’s sky high net promoter score (NPS) as evidence of this fact, claiming that it far-exceeds SaaS industry averages declining to reveal the exact figure.

Currently, TaxJar simply calculates a merchant’s tax liabilities in each jurisdiction at the end of each period but still requires that they manually submit filings. The company’s product roadmap calls for the addition of sales tax return e-filing, as well as an improved tax rate lookup service and support for additional sellers, Faggiano says.

As drastically as TaxJar is improving the lives of its merchants, the biggest beneficiary of this service may in fact be the beleaguered state coffers which stand to see a dramatic increase in tax revenue due to increased compliance. Many states have in the past offered financial incentives to businesses whose services that help increase tax remittance and compliance, Faggiano says, meaning this could one day represent a secondary source of revenue for TaxJar if it can receive the same treadment.

TaxJar consists of just a five person team today, but all of the team members have worked together in some capacity over the last 10 years. Faggiano explains the lean operation, saying that everyone involved is adept at both building tax and financial software and acquiring SMB customers. He points to CPO Kevin Reeth’s prior success in founding business income and expense tracking platform Outright.com (acquired by GoDaddy) and his own experience co-founding tax extension e-filing service FileLater (acquired by Banks.com) as examples of this fact.

The company is just getting started, but there’s little doubt that it’s addressing a real pain point. If TaxJar can deliver a compelling product and efficiently acquire customers, then the opportunity looks to be significant.

Filing taxes may be about as fun as getting a root canal, but it’s an unavoidable reality for the roughly 6 million SMBs operating in the US. TaxJar aims to make the process as efficient and painless as possible. No one will look forward to paying taxes, but they’ll be plenty happy to avoid the administrative tasks typically associated with doing so.

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You Can Follow Michael Carney on Twitter@mcarney.

Prudential white paper examines key financial planning considerations for same-sex couples in wake of Windsor decision

Prudential white paper examines key financial planning considerations for same-sex couples in wake of Windsor decision -  White paper takes in-depth look at implications of Windsor on workplace benefits, financial planning for the Lesbian, Gay, Bisexual, and Transgender (LGBT) community

A new Prudential white paper, “Financial Planning Considerations for Same-Sex Couples After Windsor,” explores how this past year’s landmark decision to overturn Section 3 of the Defense of Marriage Act (DOMA) has helped level the playing field for legally married same-sex couples. As a result of the Windsor decision, same-sex marriages lawful under state or a foreign jurisdiction are now recognized for federal tax purposes. The white paper provides an overview of workplace benefits and financial planning strategies that same-sex couples may want to consider post-Windsor.

“It’s important for same-sex couples who are already married or contemplating marriage to become aware of the many workplace benefits and financial planning strategies that are now available to them as a result of the Windsor decision,” says James Mahaney, author of the paper and Vice President, Strategic Initiatives at Prudential. “These benefits have the potential to make a significant impact on the financial health of same-sex couples.”

The Windsor decision is named after Edith Windsor, the plaintiff in United States v. Windsor, a federal case that resulted in the overturning of DOMA, the law that required the federal government to deny marital benefits to gay and lesbian couples who live in states that allow such unions.

According to the white paper, depending on the employer, same-sex married couples might now gain access to spousal healthcare benefits, including health coverage, Flexible Spending Accounts, Health Reimbursement Accounts, and/or Health Savings Accounts. The white paper also encourages same-sex married couples to meet with a tax professional to review whether filing amended federal tax returns for prior years is beneficial, as they may be able to claim a refund for federal taxes paid on imputed income related to healthcare benefits previously purchased for a same-sex spouse. A spouse in a same-sex marriage now has improved survivor benefits for defined benefit and defined contribution retirement plans. In addition, they may gain access to group life insurance coverage through a spouse’s employer.

The paper points out that the federal recognition of same-sex marriages isn’t all positive from a financial perspective, as some married couples will pay higher federal taxes, while others may see their ability to qualify for a child’s college financial aid reduced.

“This decision affects the LGBT community immensely and it has really made a difference in my life,” says Debra Abbott-Walker, a manager of Agency Recruiting for Prudential. “Now I know that if something happens to me or my wife, our children will receive survivor benefits.” According to Abbott-Walker, she and her wife, Jennifer expect to save about $1,500 a year by filing their federal taxes jointly. Like Abbott-Walker and Jennifer, many same-sex married couples paid more in federal taxes prior to the Windsor decision because they were required to file as single, despite their marital status.

In addition, the white paper suggests that same-sex couples review their financial planning options as it relates to Social Security, IRAs, taxes and estate planning, and update their beneficiary on retirement accounts to their spouse. Couples should check to see if they can make deductible contributions to a regular IRA, or whether a Roth IRA or Spousal IRA might now be available. Same-sex married couples should revisit their estate planning, as they now are able to pass assets to a spouse without incurring federal estate taxes via use of the unlimited estate tax marital deduction.

“It is important for the financial services industry to be aware of the impact that theWindsor decision has on the individuals they serve,” explains Brad Snyder, director of Institutional Giving for The Lesbian, Gay, Bisexual & Transgender Community Center in New York City. “This paper is another example of Prudential's long-standing commitment to the LGBT community and an essential tool for same-sex couples as they navigate through the many workplace benefits and financial strategies available to them as a result of the historic ruling."

Neither Prudential nor its representatives are authorized to provide tax or legal advice or financial advice. Any tax information provided is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties under the Internal Revenue Code. You are encouraged to consult your tax, financial and/or legal advisors for advice regarding your particular situation.

How Much the Marriage Tax Penalty Will Cost You / Your spouse's high income might be nice – until it bumps you into a higher tax bracket.

Jim Wang for US News World Report writes: Marriage is a wonderful thing, right?  It is … unless you’re talking taxes.   When talking about marriage and money, most experts talk about the tax advantages of getting married. However, these tax advantages are often only available to married partners with large disparities in income.

Sadly, spouses who earn similar amounts of money – especially those who are considered high earners – are often subject to a marriage tax penalty.

What is the marriage tax penalty?

When you marry, you have the option of filing your tax return jointly, or filing separate tax returns. The marriage penalty takes effect when the taxes you pay jointly exceed what you would have paid if each of you had remained single and filed as single filers.

The marriage penalty is the opposite of what many call the marriage bonus. In a marriage bonus situation, you pay less in taxes as a result of your married status. The marriage bonus is most likely seen in partnerships where one spouse earns significantly less than the other. Situations in which one spouse stays at home or has a part-time job rather than a full-time job are most likely to result in a marriage bonus.

If you take a look at the internal revenue service tax brackets, you’ll notice that the brackets for married filing jointly is not double that of single filers for every income range.

2014 Income Tax Brackets and Rates	Single Filers	Married Filing Jointly	Married Filing Separately
Rate	Taxable Income Range	Taxable Income Range	Taxable Income Range
10 percent	$0 to $9,075	$0 to $18,150	$0 to $9,075
15 percent	$9,076 to $36,900	$18,151 to $73,800	$9,076 to $36,900
25 percent	$36,901 to $89,350	$73,801 to $148,850	$36,901 to $74,425
28 percent	$89,351 to $186,350	$148,851 to $226,850	$74,426 to $113,425
33 percent	$186,351 to $405,100	$226,851 to $405,100	$113,426 to $202,550
35 percent	$405,101 to $406,750	$405,101 to $457,600	$202,551 to $228,800
39.5 percent	More than $406,750	More than $457,600	More than $228,800
Source: Internal Revenue Service

For those with low incomes, the marriage penalty doesn’t usually apply. For tax year 2014, the 15 percent tax bracket tops out at $36,900 in annual taxable income for single filers, while the upper limit is exactly twice that for married couples.

Things change in the 25 percent tax bracket though. For a single filer, this bracket ends at an income of $89,350. If you simply doubled that number to get the top amount for joint filers, you’d see $178,700. But, unfortunately, that’s not how it works.

For 2014, the 25 percent tax bracket ends at $148,850 for married couples filing jointly. Thus, they find themselves penalized for their combined income.

If you make $50,000 in taxable income and your partner makes $15,000 working part time, you benefit from marriage. As a single person, your $50,000 income would put you in the 25 percent bracket while your partner paid in the 15 percent bracket. Marriage, though, brings you down to the 15 percent bracket, since your combined income of $65,000 is within ranges.

As your incomes climb, and as partners see more parity in their earnings, the marriage penalty becomes more pronounced. Take the top tax bracket: As a single person, your income has to be at least $406,750 to reach the 39.6 percent level. If you are married filing jointly, you end up in the highest tax bracket when your combined income reaches at least $457,600. That’s a difference of $50,850.

If you and your partner each earn $300,000 a year, filing individually would put you each in the 33 percent bracket. File jointly, though, and now you’re in the 39.5 percent bracket.

Other Penalties

Other penalties include phase outs for certain credits and deductions. Phase outs for personal exemptions and itemized deductions in 2014 begin at $250,000 adjusted gross income for singles and $300,000 for joint filers.

You can see how the marriage penalty can impact your ability to reduce taxable income. Also, new taxes on investing and Medicare as a result of the Affordable Care Act impact married couples considered high earners, since the threshold is $200,000 for singles and $250,000 for joint filers.

So, if you and your partner both make $150,000, neither of you is subject to the new taxes as singles, but as joint filers you are subject to the new taxes (depending on how much of your income comes from wages versus investing).

The bottom line: As you prepare to tie the knot, it makes sense to consider the tax implications of your marriage. In some cases, you can benefit with the married filing separately status. Filing separately doesn’t bring the brackets in line with single filers, though, and you have to figure out how to divide up your deductions.

Consult a tax professional to help you run the numbers to see whether or not filing separately would help you reduce your marriage tax penalty.

You can follow Jim Wang on Twitter Here.   Jim Wang's Google+ Site is Here.

Seven Facts about Dependents and Exemptions

Ashleigh Rhodes for TaxSlayer.com writes: There are a few tax rules that affect everyone who files a federal income tax return. This includes the rules for dependents and exemptions. The IRS has seven facts on these rules to help you file your taxes.

1. Exemptions cut income.   There are two types of exemptions: personal exemptions and exemptions for dependents. You can usually deduct $3,900 for each exemption you claim on your 2013 tax return. Exemptions amounts are reduced for taxpayers whose adjusted gross income is above certain levels, which is determined by your filing status.

2. Personal exemptions.   You can usually claim an exemption for yourself. If you’re married and file a joint return you can also claim one for your spouse. If you file a separate return, you can claim an exemption for your spouse only if your spouse had no gross income, is not filing a return, and was not the dependent of another taxpayer.

3. Exemptions for dependents.  You can usually claim an exemption for each of your dependents. A dependent is either your child or a relative that meets certain tests. You can’t claim your spouse as a dependent. You must list the Social Security number of each dependent you claim. See IRS Publication 501, Exemptions, Standard Deduction, and Filing Information, for rules that apply to people who don’t have an SSN.

4. Some people don’t qualify.  You generally may not claim married persons as dependents if they file a joint return with their spouse. There are some exceptions to this rule.

5. Dependents may have to file.  People that you can claim as your dependent may have to file their own federal tax return. This depends on many things, including the amount of their income, their marital status and if they owe certain taxes.

6. No exemption on dependent’s return.  If you can claim a person as a dependent, that person can’t claim a personal exemption on his or her own tax return. This is true even if you don’t actually claim that person as a dependent on your tax return. The rule applies because you have to right to claim that person.

7. Exemption phase-out.  The $3,900 per exemption is subject to income limits. This rule may reduce or eliminate the amount depending on your income. See Publication 501 for details.

You an visit Taxslayer.com here.

Seven Tax Tips for the Self-Employed

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Ginita Wall, CPA, CFP for Intuit writesAh, the joys of being self-employed, going to work in your home office in your pajamas, with nary a boss or employee to deal with.

Some self-employeds fit that image, while other small business owners have formal offices and employees and infrastructure. But whichever business model is yours, TurboTax can help you file your taxes.

Here are seven tax tips to help you cope as the tax deadline approaches:

1.  Take a deduction for your home office. Many business owners shy away from the home office deduction because they are  afraid they will be audited. But deducting a home office won’t cause an audit, as long as the home office is helpful and appropriate for your business. It must be a space that is used only for business, but it doesn’t have to be a full room.

So if you have a corner of the living room that’s used exclusively and regularly for an office, by all means, take the deduction for home-related expenses such as rent, mortgage, insurance, utilities, repairs and maintenance and the like.  Beginning in 2013, the IRS now allows you to take a Simplified Home Office Deduction to reduce record keeping.  You are allowed a flat tax deduction up to $1,500 based on $5 per square foot for up to 300 square feet.  TurboTax walks you through both methods.

2.  Deduct equipment and supplies you use. If you use a computer for business you can take a deduction in the year you purchase it. But remember, it has to be used  exclusively for business. If it is the only computer in the house and the kids use it for homework, a deduction isn’t appropriate. Deduct all other equipment and supplies you use for the business – make the effort to keep the receipts and add them up at tax-time. If you toss a $10 receipt in the trash, it’s like throwing away 4 dollar bills, and you wouldn’t do that, would you?

3.  Let Uncle Sam pay part of your auto costs. If you use your vehicle for business, take a tax deduction for the mileage at 56.5 cents per mile. But be sure you keep records: a listing or daily calendar in which you jot down the mileage and purpose of the trip is sufficient. Commuting costs aren’t deductible, so the mileage from your home to your normal place of business isn’t deductible. If your office is at home, you’re in luck, since your mileage is deductible from your garage door to your business destination and back again.

4.  Your meals may be deductible. The costs of business meals are deductible, as are the costs of meals while you are traveling on business, though you are allowed to write off only 50% of the total costs. Again, record-keeping is key – keep a list or diary of the expenses and business purposes of the meals and keep your receipts. Lodging and other travel expenses while away on business are also deductible, so keep track of all your travel-related costs.

5.  Contribute to retirement plans. A huge benefit of being self employed is having an array of retirement plans available to you. The simplest is the IRA, but you are limited to contributing $5,500 plus another $1000 if you are 50 or older. An alternative is the SIMPLE: You can contribute up to $12,000 to a SIMPLE plan, plus another $2,500 if you are 50 or older. Or if you want to make greater tax-deductible contributions, you can set up a SEP-IRA and contribute up to 25% of your salary to $51,000. If you have no employees you can create an individual 401(k) and contribute up to $17,500 ($23,000 if age 50+).

6.  Hire your kids. If your children are old enough to work in your business, they can do jobs such as filing, computer input, distributing flyers, etc., then you can pay them for their labor and take a deduction. Since they are working for you, there isn’t any social security tax on their wages if they are 17 or younger and your business isn’t incorporated. And they can earn up to $6,100 without having to file a tax return. Even if they save the money for college or contribute it to a Roth IRA, you’ll get the deduction, so it is a great way to benefit your child’s future while decreasing your tax liability.

7.  Deduct your health insurance. If you are self-employed and paying for your own health insurance, that insurance is fully deductible on your tax return, as are the costs for your dependents’ insurance coverage.

Running a small business may be complicated, but with a little advance planning you can make the most of the tax benefits. TurboTax will walk you through your self-employment income and tax deductions to make sure you get back every dollar you deserve.

You can learn more about the author Ginita Wall here.

The author Ginita Wall can be reached at her LinkedIn Page Here.

401K and High Compensated Employee Status

Over at Bogleheads we came across the following discussion:  401k and HCE Status by BanditKing

I noticed a ~$3000 dip in my 401k last night and apparently it turns out I hit some "Highly Compensated Employee" threshold and Fidelity did a withdrawl and mailed me a check.

I'm having a little bit of a hard time understanding what this means. I didn't exceed my $17,500 contribution for last year and I couldn't find a lot I understood googling around except a reference to "$115,000" as a 2013 limit (and 2014 having that same limit). If it matters, in 2013 I made about $140k and in 2012 about $150k (but wasn't contributing as much to my 401k that year, only the minimum to get full match).

Question 1: How do I make sure to maximize my contribution in 2014? So I need to base my witholding on a presumed income of $115k and ignore anything in excess?

Question 2: Presumably this refund I got issued is considered taxable income, so do I have to claim it on my 2013 taxes and file an amended return? Or can I take care of it as 2014 income and worry about it next tax season.

I haven't contacted my HR with any questions, because I'm not 100% sure what to ask, but if need be I can. Their knowledge/responses to 401k questions have been somewhat lacking when I've talked to them in the past.

BanditKing

Posts: 188

Joined: 30 Oct 2013

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Re: 401k and HCE Statusby livesoft » Tue Mar 11, 2014 6:24 pm

This is really no problem. You will not have to amend your past tax returns. A similar thread helps explain some of your questions. The thread is

viewtopic.php?f=10&t=134782&p=1991952 and the last post was just a few hours ago. There are many such threads like it on the forum. I suppose there will be many more as this is the time in March when the audit results from the plans are complete and lots of folks are getting "cash back" from their 401(k) plans.

It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.

livesoft

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Re: 401k and HCE Statusby mah001 » Tue Mar 11, 2014 6:52 pm

2--Sounds like the $3,000 is taxable in 2013. Earnings, if any, are taxable in 2014 and subject to 10 percent early distrib penalty unless there's an exception. 1099 for the 3000 will contain a code indicating 'taxable in 2013.'. Separate 1099 issued for the earnings. This assumes the 'plan year' ends 12/31/13. Sounds like the plan failed the ADP test and is distributing the excess contribution ($3,000) within 21/2 months, thereby avoiding filing F. 5330 with payment of 10 per cent excise tax. I failed to mention this in the other thread, pending passage of 3/15 and additional facts, i.e. did you get the money within a day or two of 3/15?

1--Calculate net percent of pay you deferred in 2013, after accounting for the 3,000 returned, and assume this year's allowable percentage will be in proximity----------unless the plan has changed its methodology or is otherwise able to provide you a more precise number to aim for.

mah001

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Re: 401k and HCE Statusby livesoft » Tue Mar 11, 2014 6:54 pm

The previous reply by mah001 very likely has incorrect information, so don't believe it without verification from other sources.

It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.

livesoft

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Re: 401k and HCE Statusby mah001 » Tue Mar 11, 2014 7:39 pm

Sorry about that. Maybe the taxability issue is something that changed after 2008. See I.R. Reg 1.401(k)-2. I guess one must research everything about pensions before speaking. I do still stick with my response to OP Question no, 1.

mah001

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Re: 401k and HCE Statusby BanditKing » Tue Mar 11, 2014 9:18 pm

Thanks all. I think I've got a better handle on this after responses here, in the other thread, and some more research. Just was kind of a shocker as I had no idea it could happen after I shuffled around so much to max my 401k last season and had no idea this kind of thing even happened. Plus it makes me wonder about our 401k plan in general, but that's another analysis for another day.

I'll take this refund and dump it 100% into municipals in my taxable account, which I'm underallocated on right now anyways (yes I know I have to pay taxes on it eventually).

BanditKing

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Re: 401k and HCE Statusby livesoft » Tue Mar 11, 2014 9:22 pm

When this happened to me, I just considered it deferred compensation somewhat like getting last year's bonus paid in this year. Sure it sucks to pay taxes when you didn't expect it, but at least you paid no penalty. I would just max out contributions for 2014 as well and get the check next year if it happens again.

It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.

livesoft

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Re: 401k and HCE Statusby BanditKing » Tue Mar 11, 2014 9:23 pm

Yup, that is my plan. Max it and then get the refund differential next march.