Deductr tracks expenses, activity with a strong tax focus

Yardena Arar for PC World writes: The web is brimming with finance tools for the self-employed, but few are as laser-focused on minimizing tax-time angst as Deductr. It’s available as either a paid service (Deductr Pro) or an ad-supported free version that provides the same basic functionality for those willing to forgo transaction downloads and other automated help.

As the name might suggest, Deductr’s main mission is to help you track deductible business expenses as you incur them (as opposed to waiting until April 14th to go through piles of bank statements, receipts, and car logs). But it also provides tools for keeping records to help convince the IRS you are running a business (in case you are audited).

It’s not a full-blown accounting service: There’s no help with invoicing, inventory or payroll, for example, although the company says it plans to add these features as for-fee add-ons to Deductr Pro down the line. But Deductr does let you enter income and charitable deductions in order to get a complete picture of what your tax liability might look like.

For the same reason, Deductr when you first sign up asks you to fill out a questionnaire about your business that covers everything from use of a car or home to whether you have employees or pay for medical insurance. It’s the only business accounting service I’ve used that ever asked whether I was on my spouse’s health insurance plan (I am), or was paying for my own.

However, you don’t have to provide complete details to start entering expenses in Deductr. Its register looks a lot like the ones you see in any finance app, with fields for date, payees, amount paid, category and notes. Clicking the category field produces a drop-down menu of Schedule C (sole proprietor) deduction categories, which you can edit if need be (for example, I added web hosting as a subcategory under utilities). Deductr recommends using the notes field to explain the business reason for the expense.

Deductr also offers Activity and Calendar features, meant to create a sort of diary showing what you were doing for your business (default categories include administrative and sales). The idea here is that you might someday need proof that you were engaging in a business, as opposed to a hobby, and written records help.

Deductr also helps you track business use of your car. You can manually enter travel data, but if you download a free companion mobile app (iPhone or Android), it can record mileage using the built-in GPS receiver. It can also photograph receipts to attach to transactions (in Deductr Pro only), and you can use it to record activities and expenses. Deductr automatically syncs data from the mobile app with the web service.

Deductr’s reporting features are minimal, but may suffice for many people. They include projections for profit and loss and tax rates, and year-to-date deductions (neatly organized by Schedule C category), activity logs, mileage, and medical expenses.

If you spring for Deductr Pro ($19.95/month or $199/year), you can link your account to your financial institutions and download bank and credit/debit card transactions, which saves time on manual entry. Pro also offers phone support (versus chat or email only for the free version), and—as mentioned earlier—the ability to link receipts to transactions, and the promise of support for eventual add-ons.

Like any financial management service, Deductr is only as good as the data you put into it. At the end of the day, you still have to categorize your transactions, and there’s no automation to help (like you get with QuickBooks): Deductr doesn’t automatically categorize recurring transactions.

You can do some of what Deductr does with free expense reporting tools such as Expensify or Concur, and there are less expensive small-business bookkeeping tools such as Outright. But Deductr does a good job of covering all the deduction bases, and its simplicity and ease of use might well make tracking expenses, activities and mileage less daunting than it is with more sophisticated and feature-rich competitors.

Six Principles for Smart Tax Management

Tara Thompson Popernik for The AllianceBernstein Blog on Investing writes:   It is well known that taxes began to take a bigger bite out of income for the well-off in 2013. Top marginal tax rates rose, and some exemptions and deductions were phased out. What is less well known is that investors spending from their portfolios—even those investors whose tax rates didn’t rise—may be facing higher tax bills, too.

Historically low interest rates continue to depress the tax-exempt income from municipal bonds, so many investors spending from their portfolios have to sell assets to replace lost income. Given the stock market’s terrific gains over the past five years, selling stocks generally means realizing taxable capital gains, and most investors have few or no tax-loss carryforwards left from the dark days of 2008 and early 2009 to offset those gains.

Thus, smart tax management is more important than ever. Here are six key principles to keep in mind when considering tax-related strategies for 2014. It’s not too soon to begin.

Don’t let the tax tail wag the investment dog. Maximizing after-tax investment returns within the investor’s risk and return objectives should be the goal, not minimizing taxes per se. After all, the best way to minimize taxes is to have no income. Investors who invest their entire portfolio in tax-exempt bonds may pay no tax on their investments, but they are unlikely to obtain the long-term growth they need.

Avoiding tax is permanent; deferring tax just kicks the tax can down the road—possibly to a time when tax rates may be higher. Tax-loss harvesting, while often beneficial, just defers tax to a future year. Sometimes, the transaction costs or bid-ask spreads may eat up most or all of the benefit.

Tax laws change, although not as often as it may seem. It may be prudent not to rely too much on any one tax-related investing or gifting strategy. Roth conversions, charitable remainder unitrusts, donor-advised funds and private foundations are among the often-valuable strategies with legislative risk.

Maintaining liquidity is important. Paying tax up front in a Roth IRA conversion or front-loading gifts to a 529 account may increase long-term after-tax wealth, but both strategies may leave an investor without easy access to needed funds.

Costs matter, too. Some tax-related strategies, such as a charitable remainder unitrust, require up-front or ongoing legal and accounting fees; they are generally most economical when applied to large amounts. Similarly, private foundations may maximize control over philanthropic gifts, but they are generally economical only for very large charitable programs. And today, high guarantee fees make some variable annuities unattractive.

Different taxes may require different strategies. Some strategies address federal income taxes; others address federal gift, estate and generation-skipping transfer taxes, or the many types of state and local taxes. Sometimes, a strategy that reduces one tax may increase another. It’s particularly important to watch the intersection of the income and estate tax regimes.

Every taxpayer’s goals and circum­stances are different. The state you live in, the number of dependents you have, and your tax bracket, total wealth, embedded gains and losses, and time horizon will determine whether these strategies are likely to work for you. 

Bernstein does not offer tax, legal or accounting advice. In considering this material, you should discuss your individual circumstances with professionals in those areas before making any decision.

Tara Thompson Popernik, CFA, CFP, is Director of Research for the Wealth Planning and Analysis Group at Bernstein Global Wealth Management, a unit of Alliance Bernstein

The Power of Tax Deferred Investing in the New Tax Environment / For many taxpayers, the biggest tax hike was most likely on investment income

Brandon Buckingham and Jill Perlin for WealthManagement.com write: With the 2013 tax season behind us, many Americans are reflecting on how much more they paid in taxes compared to years past.  As a result of the recent tax changes under the American Taxpayer Relief Act (ATRA), the top federal income tax rate increased from 35% to 39.6% for those that make over $400,000 (single filer) or $450,000 (joint filer).    

For many taxpayers, the biggest tax increase was most likely on their investment income. The tax rates for long term capital gains and qualified dividends went from 15% to 20% for those in the top tax bracket.  In addition, 2013 was the first year certain investment income became subject to the 3.8% Medicare surtax.  With the additional surtax, the top tax rate for long-term capital gains and qualified dividends increased from 15% to 23.8%, a 59% increase.  The top tax rate for short-term capital gains, interest and ordinary dividends increased to 43.4%. 

The taxes an investor pays annually on capital gains, dividends and interest can significantly erode a portfolio’s return in the future.  In addition, if the capital gains, dividends and interest are being automatically reinvested, the investor is paying taxes on money he/she isn’t currently using.  While clients can’t eliminate all investment-related taxes, they can control them and improve a portfolio’s efficiency.  If the investments are for retirement, it may be better to defer taxes until that time.  The fundamental value of tax deferral is simple – the longer you defer the tax obligation and keep money invested, the better.  

One solution offering tax deferral is a variable annuity.  A variable annuity can help clients accumulate wealth very tax efficiently because gains that remain in the contract are not taxed every year.  In addition, if the annuity is not part of a tax-advantaged retirement plan, there are generally no contribution limits, further illustrating the power of tax deferral.  In addition, clients can transfer funds between investment options on a tax-free basis, meaning that changes in investment objectives or time horizons need not cause an investor to payout taxes before it’s time to put the savings to use.

Variable annuity investment options have evolved greatly over the years.  Early generations of variable annuities had few options and focused on more traditional strategies.  Today, variable annuities typically offer a wider line-up of investment choices, which spans a broader array of asset classes, and offer greater diversification. ¹   Lots of clients want to be invested in the best performing asset class all the time.  We know that is a highly unlikely outcome.  As the chart below illustrates, a diversified portfolio can have less volatility and smoother performance over time.

In addition, variable annuity investment options may include strategies typically available only to large institutions, such as endowments and pension funds.  Beyond traditional equities and fixed income strategies, a variable annuity may also offer portfolios that have global exposure, as well as alternative investments.  Alternative investments have become more popular, as they tend to move independently from traditional assets.  This can help dampen volatility and help smooth investment returns over time.  Examples of alternative investments include commodities, Real Estate Investment Trusts (REITs) and hedge fund strategies.

The recent tax increases for investment income may require a fresh look at more tax efficient investment alternatives. Many investors just spent countless hours and dollars finding ways to maximize their allowable income tax deductions and exclusions.  Those will affect their income for that year only.  Tax deferral, by contrast, affects taxes over many years.  Talk with your clients and their tax advisors, and review clients’ recent tax returns.  In particular, focus on lines 8a, 8b, 9a, 9b and 13 on IRS Form 1040 – taxable and tax-exempt interest, ordinary and qualified dividends, and capital gains and losses.  Large numbers on these lines may help identify assets that could be repositioned to a variable annuity, and provide greater tax efficiency. After all, one of the main goals of retirement planning is to end up with the most after-tax money as possible. 

¹ Diversification does not assure against loss in a declining market.  Asset allocation is a method of diversification that positions assets among major investment categories. Asset allocation can be used to manage investment risk and potentially enhance returns. However, use of asset allocation does not guarantee a profit or protect against a loss. Inclusion of a subaccount in an asset allocation model does not indicate that it is superior to a subaccount not included in a model.

Alternative investments  include a high degree of risk and may increase the risk, size, and velocity of investment losses. Although certain alternative strategies seek to reduce risk by attempting to reduce correlation with equity and bond markets, no guarantee can be given that such efforts will be successful. The fees and expenses associated with alternative investments are generally higher than those for traditional investments.

A variable annuity is a long-term investment designed for retirement purposes. Investment returns and the principal value of an investment will fluctuate so that an investor's units, when redeemed, may be worth more or less than the original investment. Withdrawals or surrenders may be subject to contingent deferred sales charges.

Annuity contracts contain exclusions, limitations, reductions of benefits and terms for keeping them in force. Your licensed financial professional can provide you with complete details.

Prudential Annuities and its distributors and representatives do not provide tax, accounting, or legal advice. Please consult your own attorney or accountant.

Investors should consider the contract and the underlying portfolios' investment objectives, risks, charges and expenses carefully before investing. This and other important information is contained in the prospectus, which can be obtained on the prospectus page or from your financial professional. Please read the prospectus carefully before investing.

Commodities Risk – Commodities may experience more volatility than investments in traditional securities due to changes in overall market movements, commodity index volatility, changes in interest rates, or factors affecting a particular industry or commodity, such as weather conditions, livestock disease, embargoes, tariffs, acts of terrorism, and international economic, political and regulatory developments.

Hedge funds may involve a high degree of risk. They often engage in leveraging and other speculative investment practices that may increase the risk of investment loss. They can be highly illiquid and are not required to provide periodic pricing or valuation information to investors. They may involve complex tax structures and delays in distributing important tax information and are not subject to the same regulatory requirements as mutual funds. They often charge high fees which may offset any trading profits, and in many cases the underlying investments are not transparent and are known only to the investment manager.

International Equity/Debt Risk – In addition to risks inherent to investment in equity and fixed income securities, investments in international equity and debt securities involve risk of exposure to: changes in currency exchange rates, differing regulatory and taxation requirements, alternative financial reporting standards, and political, social and economic changes which may adversely affect the value of a portfolio’s international securities. International markets are generally more volatile than U.S. markets and have less publically available information. These risks are heightened for investments in the securities of emerging market issuers.

Real Estate Investment Trusts (REITs) Risk – Exposure to REITs involves risks such as refinancing, economic conditions in the real estate industry, changes in property values, dependency on real estate management, and other risks associated with a portfolio that concentrates its investments in one sector or geographic region.

Annuities are issued by Pruco Life Insurance Company (in New York, by Pruco Life Insurance Company of New Jersey), Newark, NJ (main office) and distributed by Prudential Annuities Distributors, Inc., Shelton, CT. All are Prudential Financial companies and each is solely responsible for its own financial condition and contractual obligations. Prudential Annuities is a business of Prudential Financial, Inc.

Intuit - Multi-Year Multiple Expansion Leaves Shares Expensive As Tax Season Has Ended

The Value Investor @ Seeking Alpha writes: 

Summary

• Intuit just finished a solid tax season.
• Yet the outlook for the already seasonally weak fourth quarter is soft.
• Shares relied on multiple expansion in recent years for their returns, outpacing operational growth.

Intuit (INTU) the provider of financial management solutions for small businesses, consumers and financial providers released its so-important third quarter results which cover the tax season on Tuesday after the market close.

The results were largely in line with consensus estimates both in terms of revenues and earnings as a weak guidance for the already seasonally soft fourth quarter put pressure on shares.

Third Quarter Headlines

Intuit reported third quarter revenues of $2.39 billion which is up 14% compared to last year.

Reported net earnings improved by nearly 20% to $984 million, coming in just shy of a billion. Thanks to modest share repurchases, the growth in earnings per share was more pronounced. Earnings per share advanced by 25% to $3.47 per share.

Strong Tax Season

Intuit reported 8% sales growth for its small business operations, driven by the performance of the management solutions subdivision.

The consumer side of the business fared even better with a reported 13% revenue growth. The number of TurboTax units being delivered online rose by 14%.

The professional tax business was the best performing business, displaying a 32% jump in revenues thanks to aggressive customer acquisition strategies.

A Peak Into The Final Quarter

For the current fourth quarter, Intuit anticipates revenues of $683 to $713 million and foresees GAAP operating losses between $26 and $46 million. This implies that losses are seen between $0.10 and $0.12 per share.

This guidance is quite weak as Intuit previously anticipated a loss of just $0.02 to $0.04 per share on revenues of $710 to $720 million.

Based on the revised fourth quarter outlook, annual revenues are foreseen between $4.475 and $4.505 billion which would represent a 7-8% growth rate. GAAP operating earnings are seen at $1.325 to $1.345 billion which translates into GAAP earnings between $3.08 and $3.12 per share.

Valuing The Business

Intuit ended the quarter with $2.6 billion in cash, equivalents and investments. Total debt stands at $0.5 billion, resulting in a net cash position of $2.1 billion. Note that due to the seasonality of the business cash holdings tend to peak in the third quarter.

At $74 per share, Intuit is valued at $21 billion. This values operating assets at roughly $20 billion, the equivalent of 4.4 times annual revenues and 22-23 times GAAP earnings.

Intuit pays a quarterly dividend of $0.19 per share for a yield of merely 1.0%.

Waiting For Good Times

Intuit's business typically peaks in the second and in particular the third quarter as consumers and small businesses prepare their tax filings ahead of the deadline.

Intuit's offerings including TurboTax aid those individuals in preparing their tax filing as well as identifying tax savings. Potential savings and simplicity of the software outweigh the costs for consumers who file their taxes through TurboTax or seek a professional adviser.

Yet with the tax filing season being over, Intuit is facing slow months again as the business continues to lose money ahead of the next tax filing season.

Concerns about softness to come is the main overhang of the earnings release despite the marketing talk of the company's successful transition to the cloud as well as outpacing growth in non-tax related businesses.

The company has a long term track record of growing its revenues in a profitable manner while retiring its share base gradually. While shares traded in a $20-$30 range between 2004 and 2009, shares have tripled ever since. This made shares too expensive to my taste trading at earnings multiples in their low twenties.