Wednesday, June 18, 2014

Maximizing Retirement Savings Through Smart Tax Planning

Robert D Flach for MainStreet.com / Michael Ginsberg 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 - IRA401(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.
“Qualified” dividends are taxed at special lower capital gains tax rates, as are “capital gain distributions” from mutual fund investments. Depending on your “regular” tax bracket the rate is 0%, 15%, or 20%.
Long-term capital gains on the sale of investments are also taxed at the capital gains tax rates. You have a long-term gain if you held the investment sold for more than one year – at least a year and a day.
Qualified dividends, capital gain distributions, and long-term capital gains are also taxed at the special rates under AMT, but the income from these categories increases net taxable income, and therefore increases Alternative Minimum Taxable Income, and may cause you to become a victim of the dreaded alternative tax.
If your Adjusted Gross Income is more than $200,000 if Single or Head of Household, $250,000 if Married filing jointly or Qualifying Widow(er), or $125,000 if Married filing separately, you may be subject to an additional flat 3.8% tax on current net investment income.
Earnings from municipal bonds and funds investing in tax-exempt municipal bonds (but not capital gains, both short and long term, from the sale or capital gain distributions) are exempt from federal income tax. However, otherwise tax-exempt interest and dividends from “private activity bonds” are taxable in the calculation of AMT. And it is possible that the amount of tax-exempt interest can cause more of your Social Security or Railroad Retirement benefits to be taxed at ordinary income rates.
Taxable distributions from retirement accounts are taxed as ordinary income at “regular” tax rates, regardless of the source of the income that has accumulated within the account. Qualified dividends, capital gain distributions, long-term capital gains, and tax-exempt municipal income earned within a tax-deferred retirement account are all taxed as ordinary income when the money is withdrawn from the account.
Distributions from retirement accounts are not subject to the 3.8% tax on net investment income. But since the 3.8% tax is paid on the lesser of net investment income or the amount your AGI exceeds the threshold for your filing status, retirement account distributions may push your AGI over the income threshold and end up being subject to the tax.
Let’s say you are married and your AGI is $260,000, which includes a $12,000 taxable IRA distribution. Let’s say your net investment income is $15,000. $10,000 of the IRA distribution will be subject to the 3.8% tax. Without the $12,000 distribution your AGI would have been $248,000, and you would not have been subject to any Net Investment Income tax.
Beneficiaries who inherit assets such as stocks, bonds, mutual fund shares and real estate receive a “stepped-up” basis. The beneficiary’s cost basis for an inherited investment is generally the value of the investment on the date of death, which is the value of the investment reported on the estate or inheritance tax return(s). If my father bought 100 shares of XYZ Corp for $100 in 1980, and these shares were worth $1,000 on his date of death, if I inherit the shares and then sell them for $1,100 I have a long-term capital gain of $100 and not $1,000.
Beneficiaries who inherit retirement accounts are subject to federal income tax on distributions in the same way the deceased would have been taxed if distributions were made prior to death, regardless of the value of the account on the date of death.
For example, when a traditional IRA owner passes with a “basis” in the IRA from non-deductible contributions that has been documented on IRS Form 8606, the remaining basis is inherited by the beneficiary in proportion to the percentage of the IRA the beneficiary inherits, and the beneficiary continues to compute the taxable portion of subsequent distributions on Form 8606.
Distributions to beneficiaries from inherited ROTH accounts are totally tax free.
Strictly from a tax point of view, traditional retirement accounts should contain “fixed income” investments and investments that you anticipate will generate short-term capital gains. These investments produce income that is taxed at ordinary income tax rates. And the best place for “appreciating” investments, like stocks and mutual funds, and investments that produce “qualified” dividends and capital gain distributions is in taxable investment accounts. This way you will be able to take advantage of the tax benefit provided by the lower capital gains tax rates.
I must point out that tax-deferred accrual of income will cause money invested in traditional retirement accounts to grow faster than investments in currently taxable accounts, assuming that the taxes on current earnings are paid from the investment. And it is usually better to pay taxes tomorrow than today.
You should never invest traditional retirement account money in tax-exempt municipal bonds or mutual funds that invest in tax exempt municipal bonds. This income is, for the most part, exempt from federal income tax, while, as pointed out above, earnings accrued within a traditional retirement account will be taxed at ordinary income rates when money is taken out of the account, even if some of the earnings are from tax-exempt municipal bonds.
With ROTH accounts your goal should be to get the greatest return on investment, regardless of the type of investment. Qualified distributions from ROTH accounts are totally tax free. And they pass totally income tax free to your beneficiaries.
Of course the tax treatment of investments that I have discussed above apply to current tax law. And my discussion assumes that tax law will not change drastically in the future. However tax rates and treatments are subject to the whim of the members of Congress, and with Congress anything is possible.
Your first consideration in any financial transaction should always be economic. Taxes are second. However it is important to be aware of the tax treatment and consequences of the various types of investments and investment accounts when making financial decisions.
It is also very important to run investment recommendations from a broker or a banker past your tax professional before making any decisions. Never assume that a broker or a banker knows anything about tax law, or even takes tax consequences into consideration when recommending investments. You must always remember that a broker and a banker are basically salesmen.
Michael Ginsberg is a Real Estate and Estate Planning Attorney, Certified Financial PlannerTM  with over 25 years of personal business and investment experience.
Posted on 3:17 PM | Categories:

Vend Point of Sale Integrates with QuickBooks Online as First POS on Intuit Apps.Com Marketplace / Integration to streamline small business retail operations

Vend, a global cloud-based point-of-sale (POS) software provider, announced its integration with Intuit’s QuickBooks Online (QBO) today. With this integration, Vend becomes the first point-of-sale solution to be listed on Intuit’s Apps.com, the next generation app store for small business applications. Launching today at Scaling New Heights in San Antonio, Texas, the Vend integration will help retailers streamline their back-office operations so they can focus on business growth.
Vend First POS Now Featured on Apps.com
Vend is the first and only POS available on Intuit’s Apps.com, providing more than 600,000 QBO users with a trusted POS solution that works seamlessly with QuickBooks Online.
“This is a key integration for Vend and QBO customers,” said Vaughan Rowsell, Founder and CEO of Vend. “We’re thrilled to join the Apps.com marketplace and the greater QuickBooks community where we can empower retailers to leverage cloud technology in order to run their businesses better.”
Intuit’s Apps.com provides small businesses and their accountants with the best tools and add-ons to manage their operations. All applications on Apps.com pass an in-house testing process to ensure the marketplace offers only the highest quality apps that integrate with QBO for a seamless business management experience.
Ronny Tey, Group Marketing Manager for QuickBooks Apps.com said, “Intuit is committed to creating a powerful ecosystem for small business management tools. The addition of Vend to the Apps.com marketplace make it even easier for small businesses seamlessly and directly integrate a powerful POS solution with their QuickBooks Online account.”
Simplified Accounting for SMB Retail
With the integration, retailers can now close their registers to have daily sales and payments data automatically synchronize inside QBO. Accountants can see the data prepared and organized in expected QBO formats, allowing them to efficiently maintain orderly books for the business. The integration also eliminates the need for paid 3rd party software connections. This marks the start of the partnership, with further integration features rolling out over the coming months.
Jo King, a QuickBooks Pro Advisor, commented, “Transactions from Vend appear in QBO just the way you'd expect, with no learning curve on the QBO side. And my clients will love the ease of using Vend. This is what we've been waiting for!”
Availability and Pricing
Available to retailers in the United States, the new integration comes at no additional cost to Vend and QuickBooks users. To find out more about how Vend and QBO can simplify small business accounting, visit www.vendhq.com/qbo to watch an informational video. Vend POS can be accessed through Apps.com here.
Posted on 3:13 PM | Categories:

5 Reasons To Ditch The Spreadsheet In Favor Of An Accounting App Today

GetApp writes: If the words “accounting software” do not immediately excite you, it’s perfectly understandable. Chances are you have not heard about the latest innovations in that area of tech. The latest cloud-based accounting apps are breathing new life into accounting in the digital space, a field formerly dominated by all those similarly-named accounting applications that you find in the electronics department at your local “big box” retailer. That is simply no longer the case – thankfully!
Those accounting applications are quickly going the way of the dodo as they are readily being replaced by software-as-a-service (SaaS) providers. SaaS uses the power of the computing cloud to put the accounting tools you need right at your fingertips, where you are in the world, with on-demand consistency. What’s more, financial reporting apps also offer the benefit of automatically updating with click-free ease.
If you’ve been using a legacy accounting application, or worse, an Excel spreadsheet, to manage your finances, now is the prime time to transition your financial reporting to the cloud. So what’s stopping you from putting your financial reporting in the cloud? Is it concerns over migration? Security? Ease of use?
Perhaps it’s some combination of all of the above. Whatever the case may be, in an effort to quell those fears and help you make a seamless transition to an accounting app, we’ve put together this list of five reasons to make the switch, sooner rather than later.

Reason #1: Modern accounting apps are more intuitive

If you think that an “app” isn’t quite an “application,” think again!
The current generation of cloud-based accounting apps boast all the features of legacy, desktop applications and a whole lot more.
Case in point: FinancialForceFinancialForce sports an intuitive, feature-rich interface that easily rivals what you might have seen in a desktop application.
But FinancialForce ups the ante by adding Salesforce support, real-time reporting, and detailed, multi-dimensional analysis, all within a single-screen interface. And that is the most striking feature of current accounting apps – they bring everything you need to a simple, easy to navigate user interface.
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FinancialForce puts everything you need all in one place.
Those old Excel spreadsheets, time-tested though they may be, just can’t compare to the ease of use of accounting apps like FinancialForce.

Reason #2: Apps put accounting on autopilot

Let’s face it, unless you are an accountant, you’d probably rather be doing something other than managing your finances. Say you’re a freelancer, for example. You’d rather be working in your craft than your accounting, right? Or, if you’re a busy owner/operator, you’d rather be keeping the wheels of business turning, right?
Accounting apps take the dread out of the financial equation.
Take an app like FreshBooks cloud accounting solution. FreshBooks is nowhere near as bogged down as legacy applications and complicated (read: always broken) spreadsheets. FreshBooks just works.
Such an app puts easy time tracking and snappy invoicing, as well as expense tracking and financial reporting, together in a super simple interface. In a nutshell, FreshBooks stands out as exemplary of the simplicity of the modern accounting app.
Even without reading the help guide, you can get started with it from day one – a testament to just how far accounting in digital has come compared with the steep learning curve of older applications (remember the first time you used Excel).
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Accounting doesn’t get much easier than it does with Freshbooks.

Reason #3: Accounting apps grow with your business

Accounting apps scale alongside your business.
Zoho Books is among the most scalable accounting apps currently offered. What’s more, Zoho makes a suite of business apps and provide an email service, making the company one of the strongest (okay, admittedly few) companies that can seriously contend with Google’s lineup.
In Zoho Books you’ll find integrated (and easy) invoicing, online payment platform integration, time and expense tracking, and totally free support. If you’re already using another Zoho product, you’ll also find it easy to access contacts and share data interchangeably with Zoho Books.
While Zoho Books is the standout offering for SMBs and freelancers, larger enterprises with team members distributed around the world will find similar features in many of the accounting apps currently on the market, but, as always, some comparison shopping is advisable.
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Zoho Books offers online payment integration by way of PayPal, Stripe, and others.

Reason #4: Accounting apps work on an international scale

Because accounting regulations vary from one locale to the next, accounting apps work with different currencies, languages, and rules. Some apps, like NetSuite OneWorld, can factor in international tax jurisdictions for more than 190 countries, making financial reporting a snap come tax season.
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NetSuite OneWorld works with international currencies and tax codes to make your global business accounting worry free.
If your business is a large organization with a global reach, you really owe it to yourself to compare the accounting apps currently on the market side-by-side.

Reason #5: The QuickBooks switch is simple

If you are among the many users of Intuit’s QuickBooks you’ll be happy to know that the company now offers QuickBooks Online, a cloud-based version of its esteemed financial reporting software.
QuickBooks Online makes it easy to send invoices, accept payments, track expenses, and even conduct payroll services inside your browser or on your Go to the full article.
Article Curated From…: Business2Community
Posted on 3:06 PM | Categories:

7 Reasons Why Cloud Accounting is better than excel

Katie Marshall on LinkedIn writes: Here’s why cloud accounting software beats Excel for bookkeeping hands down:
  1. You can get started quickly and easily, confidently: Most cloud based accounting software provides you with a really simple dashboard, so you don’t need to do a course just to navigate and operate the program. Easy online tutorials are there to help you every step of the way too.
  2. Your data is accurate: With cloud software, you can link directly to your business bank account, and your data is updated to your accounting program daily, thanks to your accounting software being securely located online.
  3. Out-of-box reports without the box: Interfacing with your bank account means no more sorting through boxes and files to find that statement you got months ago! One click and it’s right there.
  4. Up-to-date information: In just minutes you can create any information files you’re likely to need if you’re applying for finance. Great for information gathering at tax time as well.
  5. Clean audit trail: All of your financial records are at your fingertips, and your data won’t be compromised. Every business transaction is recorded, including sales contracts, payments to employees, etc. This is what potential investors want to see!
  6. It syncs with other business applications: When you use cloud-based software, you’ll be able to take advantage of apps that sync with your financial data. Inventory management, invoicing and a whole lot more can take the time and hassle out of accounting for small business.
  7. Access your data anywhere at any time: You just need an internet connection! You can also afford the same access to your authorised bookkeeper or accountant, so they’ll be able to access your financial details effortlessly with just an internet connection!
Posted on 12:34 PM | Categories: