Maximizing Retirement Savings Through Smart Tax Planning

Robert D Flach for MainStreet writes:  Careful planning of how you invest your retirement savings can help to maximize your net after-tax yield, both for yourself and your beneficiaries.

Let's look at the various types of investment accounts.  First there is the currently taxable liquid investment account. Interest and dividends on this type of account are fully taxed when earned, except for tax-exempt municipal bond interest and dividends from muni bond funds. Capital gains, and losses, are taxed, or deducted, when an investment is sold.

Next there are the multitude of traditional retirement accounts - IRA, 401(k), 403(b), 457, SEP, Keogh, SIMPLE, etc.

• Contributions are usually currently tax deductible, at least on the federal level, either by way of being "pre-tax" or via a deduction on the Form 1040. Current earnings are tax-deferred. Distributions from these accounts are usually fully taxed. If there is a basis in the account from non-deductible contributions distributions will be partially tax free. Premature withdrawals, taken prior to reaching age 59.5, and excess contributions are penalized.

And finally there are ROTH IRA, 401(k), and 403(b) accounts. Contributions are never tax deductible, but, as with traditional retirement accounts, current earnings are exempt. If the account is held for at least five years distributions are totally tax free.

Now let us look at how different types of investment income are taxed.  Interest, dividends, and short-term capital gains (on the sale of investments held one year or less) are generally taxed as ordinary income. The tax on this type of income depends on your "regular" income tax rate – from 10% to 39.6%. If you are in the 25% federal tax bracket you will pay $250 in tax on income of $1,000. If you are a victim of the dreaded Alternative Minimum Tax (AMT) you will pay either 26% or 28% tax on this income. [Snip]  The article continues @ MainStreet, click here to continue reading the article...

Avalara TrustFile Wins Innovation Award for Simplifying Sales Tax Reporting & Filing

Avalara, Inc., (http://www.Avalara.com), a leading provider of cloud-based software that delivers a broad array of compliance solutions related to sales tax and other transactional taxes, today announced that Avalara TrustFile™ (http://www.trustfile.com), a free sales tax reporting and filing solution for online sellers, has won the CPA Practice Advisor Tax and Accounting Technology Innovation Award. 

"The Innovation Awards are focused on shining a spotlight on technologies that are proving exceptionally useful for accounting firms, or for the clients they serve and advise," said Isaac M. O'Bannon, managing editor of CPA Practice Advisor. "Avalara has long been an innovator in technologies for businesses, and its redesigned TrustFile system, which received the Innovation Award this year, continues this trend, helping small businesses be more productive and profitable, streamlining their sales tax reporting and filing."

TrustFile provides detailed sales tax reporting information across more than 12,000 tax jurisdictions in the United States, helping online sellers know exactly where, when and how much to file. Ecommerce business owners can use TrustFile to determine whether or not they are collecting the right amount of sales tax in each individual state, and then store a record of their sales tax history securely in the cloud.
TrustFile supports Fulfilment by Amazon sellers with timely, accurate information on sales tax collection requirements based on Amazon's business presence in states or municipalities where a seller's customer may reside. With support for PayPal, TrustFile adds another layer of integration to make managing sales tax simple. 

Additionally, Avalara's free TrustFile solution allows uploads and reconciling of sales transaction for merchants using Etsy, eBay, Shopify, Bigcommerce, Big Cartel, WooCommerce, and HighWire - as well as .csv files uploaded from virtually any platform an ecommerce seller selects to run their business. Users simply import transaction history and TrustFile creates a detailed sales tax filing report. Sellers can also keep track of how much sales tax has been paid in case of an audit. 

"A few cloud-based services exist to help small ecommerce companies with the pain of handling sales tax reporting requirements, but at a cost," said Webb Stevens, Head of Product at Avalara. "We're pleased to eliminate this obstacle by providing our TrustFile solution free of charge. It's our way of helping budding ecommerce businesses get a foothold in a risk-free way." 

Avalara will be demonstrating its TrustFile solution at booth # 1229 at the Internet Retailer Conference + Exhibition held at Chicago's McCormick Place West June 10 – 12, 2014.

About Avalara
Avalara helps businesses of all sizes achieve compliance with sales tax, excise tax, and other transactional tax requirements by delivering comprehensive, automated, cloud-based solutions that are fast, accurate, and easy to use. Avalara's end-to-end suite of solutions are designed to effectively manage complicated and burdensome tax compliance obligations imposed by state, local, and other taxing authorities in the United States and internationally.

Avalara offers hundreds of pre-built connectors into leading accounting, ERP, ecommerce and other business applications. The company processes millions of tax transactions for customers and free users every day, files hundreds of thousands of transactional tax returns per year, and manages millions of exemption certificates and other compliance related documents. Founded in 2004 and privately-held, Avalara's venture capital investors include Battery Ventures, Sageview Capital, Arthur Ventures, and other institutional and individual investors. Avalara employs more than 700 people at its headquarters on Bainbridge Island, WA and in offices across the U.S. and in London, England and Pune, India. More information at: http://www.avalara.com

Mind the Tax Gap: Advisors believe in tax-aware investing, but do they walk the talk? / Advisors believe taxes have a major impact on many investors’ outcomes, but how do they tackle this issue with clients?

Frank Pape for Russell Investments writes: Advisors know the importance of considering and managing tax implications when it comes to planning sound financial strategies, but many can do more to raise this important topic with clients. By taking a more hands-on approach to tax management, advisors can help preserve the investment assets and the emotional loyalties of their clients.

Taxes can directly affect investment outcomes, especially given some of the developments in recent years. The expiration of the 2001 tax cuts means the highest marginal tax rate returned to 1990s levels, and individuals filing jointly earning over $250,000 now pay a 3.8 percent Medicare tax on investment income, as well. Moreover, many investment returns coming out of the 2008 financial crisis gave many investors a substantial “tax holiday” by providing losses to offset against future capital gains, but that reprieve has likely ended with the market’s prolonged recovery since 2009.

With these increasing tax impacts in mind, we recently surveyed advisors in our Financial Professional Outlook and asked about their tax management practices. Eighty six percent of advisors said tax-managed strategies are important or critical to their businesses— but only 29 percent said they’ve started a conversation about it with their clients during the last quarter, and only 10 percent say that their clients have raised the subject. Likewise, some 38 percent of advisors did not respond when asked about how they calculate after-tax returns and another 16 percent said they don’t do after-tax calculations at all.

The basics of being tax savvy 
Many advisors are looking to better connect their tax-aware beliefs and their practices. As a starting point, advisors should make a point to understand the basics of each client’s total tax situation, including:

• Federal and state tax rates
• Medicare tax, if applicable
• Capital gains tax exposure

Advisors also need to understand not simply the aggregate rate-of-return of a client’s portfolio in a given year, but also if that return included any distributions and related tax impact. The character of those distributions — whether capital gains qualify as long-term or short-term, for instance — can make a big difference.

Consider the three hypothetical asset accounts below for a client in the current top marginal tax rate (now 43.4 percent, including the Medicare tax). All three pools of assets are valued at $100,000 and appreciated in 2013 in line with the U.S. equity market with a 33 percent rate-of-return.¹ We will assume a long-term capital gains tax of 23.8 percent and a short-term capital gains tax of 43.4 percent.

Account A, which deferred all gains, earned $33,000 in after-tax wealth. Meanwhile, Account B distributed 20 percent of its returns as long-term capital gains, paying $6,331 in taxes and earning only $26,669 in after-tax wealth. Account C distributed 20 percent of its returns as short-term capital gains, netting $21,456 in after-tax returns.
In other words, how gains are distributed can have a major impact on after-tax wealth. Deferring or reducing taxable distributions can have a powerful effect, and there are strategies that can help advisors and their clients navigate these decisions effectively.
Braving the great divide: CPAs and advisors
Many advisors are wary of wading into the complexities of tax policy and the letter of tax law — who can blame them? But developing tax insights can be an important differentiator in how an advisor provides value to their clients.

A collaborative relationship with clients’ accountants or tax professionals can also help advisors stay up-to-speed on their clients’ tax situations and goals. Likewise, accountants often benefit from consulting with advisors for clarity surrounding a client’s investment goals, transactions and distributions.

By considering a client’s overall tax situation, an advisor can protect existing wealth and open new avenues of potential growth. As a start, advisors can discuss tax-aware products, such as municipal bonds and tax-managed mutual funds, educate themselves and their clients on rebalancing strategies, and include tax professionals in the conversation.

Possible next steps for advisors
Ultimately, the most important thing advisors can do to encourage tax-aware investing is to bring it up with their clients for whom these strategies may be appropriate. Our Financial Professional Outlook survey showed that while advisors understand that taxes matter to bottom-line returns, some may be looking for new and better ways to help their clients in that regard.

Many financial advisors face more pressure than ever to deliver a higher level of service to their clients, and helping clients manage taxes effectively can be an excellent way to add value. With the right approach, advisors can help increase their clients’ after-tax wealth while also strengthening relationships for the benefit of their businesses.

Australia / MYOB enhances cloud offering with minority stake in POS start-up, Kounta / MYOB & Kounta to launch integrated online accounting & POS solution for SMEs

Australia’s leading business solutions provider MYOB has announced it has purchased a minority stake in Kounta, a high growth start-up that provides cloud-based Point of Sale (POS) solutions. The investment was for an undisclosed sum.

The partnership will see MYOB and Kounta launch an integrated online solution for MYOB clients that combines accounting and POS later this year, to make it easier and more efficient for small and medium businesses to run their stores and manage their business. The solution will integrate with MYOB’s popular cloud accounting solutions MYOB Essentials and MYOB AccountRight.

MYOB General Manager, Connected Services, Andrew Birch says the investment is a key strategic move that will solidify the accounting software provider’s position in the retail POS, mobile payments and e-commerce space.

“We’re very pleased to announce our partnership with Kounta, a successful start-up renowned for its flexible and scalable online POS solutions. Typical POS systems are made up of a mix of both hardware and software from different vendors. This will be a total solution from MYOB and fully integrated to eliminate compatibility and syncing risk between systems. Seamless integration ensures the data is reliable, accurate and up-to-date as a client can work from and maintain its customer and stock information all in one place and in real-time.

“The MYOB-Kounta partnership is integral to our vision of making cloud accounting easy for every business. The partnership also reinforces MYOB’s continued commitment to servicing the Australian and New Zealand SME market,” says Mr Birch.

Kounta Founder Nick Cloete says, “Over the past few years Kounta has worked hard to re-imagine the way retailers do things at Point of Sale and it’s great to see such established and innovative companies like MYOB validating, investing in and supporting this new approach.

“Kounta remains committed to an open platform and will continue to design and develop intuitive Point of Sale solutions with the ability to extend functionality through integration partnerships with all other leading online and mobile services like accounting, payments, loyalty, inventory, e-commerce and more.”

Founded in 2012, Kounta powers stores around the world and offers the flexibility of both online and offline access on multiple platforms such as iPads, Android tablets, Mac, Windows and the existing POS equipment retailers already have. Its flexible API allows for seamless integration with MYOB cloud accounting solutions.

MYOB is already implementing a number of initiatives to bring connected services and solutions to SMEs. This includes popular mobile payments solution MYOB PayDirect, and an easy-to-use website builder MYOB Atlas.

Each year MYOB invests more than $35 million in research and development specifically to provide superior solutions that meet the needs of Australian and New Zealand business owners and their business advisors.