Deductions You Can Take For Net Investment Income Tax Purposes

Lewis Saret for Forbes writes: Generally, unless specifically provided else­where by the Final Regulations, only properly allocable deductions contained in Reg. §1.1411-4(f) may be taken into account by taxpayers in determining their NII. Additionally, taxpayers should be aware that any deductions provided for in Reg. §1.1411-4(f) that exceed gross income and net gain cannot be taken into account when determining NII in any other tax year except as otherwise allowed by Code Chapter 1.

Properly Allocable Deductions

1.    Deductions allocable to gross income from rents and royalties. Deductions described in Code Sec. 62(a)(4) (i.e.,deductions attributable to rents and royalties) allo­cable to rents and royalties included in NII are taken into account in determining NII.

2.    Deductions allocable to gross income from trader trades or businesses. Trade or business expense deductions described in Code Sec. 62(a)(1) allocable to income from a trade or business described in Reg. §1.1411-5 (i.e., passive activities with respect to the taxpayer and/or trade or business of trading in financial instruments or commodities) are taken into account in determining NII to the extent the deductions are not taken into account in determining self-employment income within the meaning of Reg. §1.1411-9.

3.    Penalties on early withdrawal of savings. Penalty amounts forfeited to certain financial institutions as a penalty for premature withdrawal of funds from certain accounts, such as time savings account, certificate of deposit, or similar deposits are taken into account in determining NII.

4.    NOLs. The total Code Sec. 1411 NOL amount of an NOL deduction allowed under Code Sec. 172 is allowed as a properly allocable deduction in determining NII. For this purpose, the total Code Sec. 1411 NOL amount of an NOL deduction is calculated as follows: [snip]  The article continues @ Forbes, click here to continue reading.....

Xero and Silicon Valley Bank Partner to Offer Innovative Companies Next-Generation Financial Management

Xero and Silicon Valley Bank Partner to Offer Innovative Companies Next-Generation Financial Management Small Businesses Can Access Quick, Reliable Financial Insights Through Xero's Online Accounting Solution Integrated With SVB's Banking Platform

Today, Xero, the global leader in online accounting software, and Silicon Valley Bank, the bank of the global innovation economy, announced integration that brings Xero's latest financial management tools to startups and small businesses in both the US and UK.

By linking Xero's online accounting solution directly with SVB's online banking platform, business owners get reliable overnight delivery of the prior day's bank transactions directly into Xero's intuitive online accounting workflow. As a result, business owners can make smarter business decisions by getting an accurate and comprehensive view of their finances, without the hassle and costly mistakes caused by out-of-date cash flow balances.

"For my company, this integration is a life saver. I used to worry constantly that I didn't know my true account balances," said Benjamin McCann, co-founder at Connectifier, Inc., a venture-backed talent sourcing startup in North Beach, Calif. "Trying to get an accurate picture of our financials was a pain and we always had an out-of-date view. Now it happens seamlessly. At any point during my week, I can open up Xero and know exactly where we stand."

Starting this week, businesses using Xero in the US can sign up to integrate with Silicon Valley Bank for deposit account balances and transactions. After signing up, they will start getting bank feeds the week of August 11th. UK clients will be able to sign up later this month.

"Xero and Silicon Valley Bank have a common objective -- to make the lives of our customers easier," said Jamie Sutherland, president, Xero U.S. "In fact, it wasn't that long ago that Xero was a startup itself -- so we know all too well what it's like to be under the gun to create up-to-date financial reports for the board or quickly get an update on cash flow before making a key purchasing decision. Now with Xero's integration with SVB's banking platform, small businesses can get their up-to-date financial info faster than ever before."

"Our SVB Direct Connect platform integration with Xero is another important step in our organizational strategy to make it easy for our clients to bank with us," said Bruce Wallace, COO, Silicon Valley Bank. SVB Direct Connect enables Silicon Valley Bank clients to access their banking information through leading accounting platforms. "As the leading bank for high-growth, disruptive companies, integrating with innovative partners such as Xero is a critical strategy for SVB."

BoxFreeIT: Wave Accounting Review – Ok for Sole Traders, Falls Short for Small Business (We Respond)

Alexey Mitko  for BoxFree IT writes: When doing an app review it is always difficult to give a general recommendation, as apps are usually developed and work great for a particular kind of client. WithWave Accounting this dilemma does not exist as the app is placed firmly in the “has a couple good ideas, not ready for daily operations” category.

Wave Accounting positions itself as a collection of accounting apps for small business. Some functionality is available on the mobile device with additional features accessible through the online portal. The mobile app can send invoices from your iPhone, along with adding new client records and products or services. The app also provides provides simple cash flow analytics and a notifications centre.

Overall, the app sports a clean and fluid look but needs a bit of testing as it did not allow me to add sales tax or choose a sales account straight after downloading it on an iPhone 5C. The app proceeded to crash when I first tried to add a product but worked without problems afterwards.

The web portal gives access to more apps and functionality and positions itself as an accounting platform with invoicing, bill tracking, Yodlee bank feeds, payroll management (US and Canada only), some reporting and a paid-for services section.

Some functions are done well. For example, CSV imports include very accessible step by step instructions, and receipts processing is a step above the digital storage seen in other accounting platforms.

However, a couple of features require a redesign and additional thought. To name a few:

1. No Credit Notes

While I could raise an invoice with a negative amount as a total, I wasn’t able to offset it against another invoice without using a clearing account. Credit notes are an essential feature in invoicing but are apparently missing from Wave.

2. No Custom Invoices

Invoices are not freely customisable, you need to adhere to one of the three templates provided. While not all businesses need invoices with a custom layout, the feature is common across cloud accounting platforms.

3. No Audit History

There is no audit history yet you are able to invite additional collaborators to your business account.

4. No bulk invoices or bills

There is no way to bulk upload invoices or bills. This can be problematic if your invoices are generated by another system or if you have a large number of invoices you need to key in.

5. Slow reconciliation

The bank reconciliation is not entirely intuitive. It relies on a tabular format and may take additional time if volume of transactions is significant.

In terms of pricing the basic version of Wave is free. The money is made on advertisements, higher than average credit card processing fees and product recommendations.

A special note to put credit card processing charges in perspective. The 2.9 percent charge that Wave asks for credit card processing compares with 2.7 percent for Stripe and 2.4 percent for PayPal. For a small business in Australia that turns over $300,000 per year a 0.2 percent difference would mean $600 per year and a 0.5 percent difference would add up to $1,500.

Wave’s functionality is sufficient for a freelancer with straightforward affairs, not a small business owner. Other cloud accounting applications offer functionality and refined user interfaces that are ahead by several years of development.

Alternative platforms are usually not free to use but would provide a scalable solution for your business and additional options when it comes to structuring your business processes.

It remains to be seen if Wave is able to catch up, but it probably has a brighter future concentrating its development efforts for businesses that do not require payroll.

(we actually took the time to comment on this review)

1. Lance Smith says:

   Your comment is awaiting moderation. 
   

   July 16, 2014 at 9:51 pm

   >”Wave Accounting positions itself as a collection of accounting apps for small business”.

   Actually no. Wave positions itself as apps for micro-businesses, there is a tremendous difference between the micro business market and small business market. Wave clearly says on their site “Made specifically for entrepreneurs, freelancers, consultants and small businesses with 9 employees or less.”

   >higher than average credit card processing fees

   In the U.S. Stripe’s published fee is exactly the same as Wavehttps://stripe.com/us/pricing
   and Paypal if your processing under $3000 USD/mo.https://www.paypal.com/webapps/mpp/merchant-fees Again, we’re talking about the micro business market – not small business. Furthermore you should subtract the monthly subscription fee over the course of 12 months from the final calculation you present as a frame of reference. Not doing so makes your point inaccurate, which it is (inaccurate).

   >Wave’s functionality is sufficient for a freelancer with straightforward affairs, not a small business owner.

   You’re essentially saying Wave delivers on whom they say they are made for, “Made specifically for entrepreneurs, freelancers, ….”

   >Other cloud accounting applications offer functionality and refined user interfaces that are ahead by several years of development. Alternative platforms are usually not free to use but would provide a scalable solution for your business and additional options when it comes to structuring your business processes.

   Disagree with your interface comment, and a start up venture or micro-business uses tools that are efficient and meet their needs today, not tools that are designed for where they hope to be down the line, a place they may never even get to. Wave is not trying to be the tool for your business if it is fortunate enough to grow into a small business with 20 or 30 employees. There is nothing that would make Wave more happy than to see a client launch and operate their business with Wave and then grow out of Wave into Intacct or NetSuite, etc. That happening would equate to “mission accomplished”. Most all accounting apps are a fit for period of time, a phase of business cycle, etc. and not meant to be lifetime solutions for the business as it grows.

   >It remains to be seen if Wave is able to catch up, but it probably has a brighter future concentrating its development efforts for businesses that do not require payroll.

   Here in the U.S., Wave payroll is awesomehttps://www.waveapps.com/payroll/

   >the app is placed firmly in the “has a couple good ideas, not ready for daily operations” category.

   No, it’s placed in the “micro business” category which apparently is a business space you are unfamiliar with. Please visit Wikipedia,http://en.wikipedia.org/wiki/Micro-Business You’ll learn for example in the U.K. there are around 4.5 million micro enterprises (0-9 employees) which represents 95% of all UK businesses.

   Wave is not perfect but it’s also not what your review presents it to be. We serve with Wave clients and have to present work around solutions for time tracking, inventory management, CRM, business intelligence / analytics and so forth. But we do much of that for our Xero and QBO clients as well. I understand shortly Wave will be releasing their API and months later I’d imagine a rather diverse eco-system will emerge. Wave does have 2 million users out there and I understand over 1,000 new users sign up each day.

   Anyway – we like BoxFree IT here in the U.S. – all the best!

   Lance Smith
   WaveCFO.com

   Reply

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5 Amazing Accounting Apps Any Small Business Should Take Advantage Of

Warren Brown for Jkengitech writes: What do all small businesses have in common? If they don’t take control of their finances they end up going under and it happens more often than you think. Don’t fall victim to the same fate as you will kick yourself, but you shouldn’t need to worry about messing up anyway. There are a lot of great accounting apps out at the moment to help you get your finances in check and we’ll look at a few now.

Shoeboxed

Do you have any idea where they came up with the idea for their name? If you do it’s because you’re guilty of throwing your receipts into a shoe box, which is great as they’re all in the same place although your bookkeeper won’t be happy with you when tax time rolls around. Now they’ve made it easy for anyone to keep a copy of every single business receipt because you just snap a photo of it and it will be stored away inside the app, plus you can get expense reports at any moment with a few clicks of a button.

Easy Books

If you’re only running a small operation you might not want to use a full-blown bookkeeping solution as they’re powerful and hard to get your head around, so something like Easy Books is a great alternative. Just because it’s not full of a thousand advanced features you’ll never use it doesn’t mean it’s not a professional business solution, but you’ll be able to keep track of all your financial affairs easily and you won’t waste a lot of time every day as entering information into the app is quick and painless.

Fresh Books

In the past you would always leave a paper trail and all your books would be thrown in a drawer, so you’ll feel a lot better now that all of your important financial information can be stored in the cloud. Fresh Books is one of the most popular pieces of accounting software in the world and you can use it for multiple things, such as sending invoices to your clients and tracking the amount of time you spend on everything. Even though it’s a premium solution it’s easy to use once you play around with it for a while.

Kashoo Accounting

Kashoo Accounting is another one of those all-in-one accounting solutions you will love and it’s packed with a lot of pro features. If you currently have an accountant or a business partner they’ll be able to access the exact same information as you which can make things easier. The offline access is beneficial when you want to work on something even if you don’t have access to the internet, so it means you won’t have any excuses if you don’t manage to get everything taken care of before tax time.

inDinero

There are a lot of accounting services out there that will help you save a lot of money, but at the end of the day it’s ultimately your responsibility to save as much as possible by keeping track of your expenses. You’ll be able to do it a lot easier if you download inDinero because all your business accounts and credit cards can be stored in the same place. You will see what is going out and you can set up alerts to remind you how much is actually coming in and going out of your accounts on a regular basis.

Make your life easier

If you can get on top of your finances it’s more likely your business will be able to survive any heavy hits. You never know when something bad might happen, so start using these apps today and at the very least you’ll know what is happening with your money.

Tax Tips: Review limits on Section 529 contributions

Barry Dolowich for the Monterey Herald writes: Question: We were just blessed with our first grandchild and would like to set up a college fund for our new prince. We were recently advised that we could open a "Section 529" plan to safely invest for our grandson's college expenses. Can you please provide us with the basics of this type of plan and any tax consequences?

Answer:  Internal Revenue Code Section 529 college savings plans are state-sponsored plans designed to encourage residents to save for college. Regardless of age and income, anyone can make contributions to a 529 plan on behalf of a beneficiary. However, there are three limitations relating to contributions to a 529 account:

• Gifting limit. Since Section 529 does not impose an annual contribution limit on 529 plans, contributors need to be aware of the federal gift tax exclusion. To avoid gift tax or a reduction in the lifetime gift or estate exclusion, contributors may take advantage of the 2014 annual gift exclusion of $14,000 per beneficiary, or $28,000 for married couples.

• Special gifting provision. Section 529 allows a special gifting provision that is not available in any other estate planning vehicle. A contributor may front-load the gift by contributing five years of annual gifts in one year, or contribute $70,000 on behalf of a beneficiary to a 529 plan in one year, $140,000 for married couples. When taking advantage of this provision, the contributor is required to file Form 709, a gift tax return, with the IRS.

• Account limit. To prevent accumulating more money than needed to send the beneficiary to college, the account limit, which varies by state, is generally in excess of $200,000. Once the contributions and earnings in a 529 plan reach the account limit, new contributions cannot be made to the plan.

Although contributions to 529 plans are not federally income tax deductible, some states provide a deduction or credit for residents who participate in their state's 529 plan. This deduction or credit varies from state to state.

Accumulations or earnings on contributions to a 529 plan are not subject to federal income tax while they remain in the account. When distributions are used for qualified higher education expenses at an eligible educational institution, they are federally income tax free. If a distribution is taken from a 529 plan and is not used for a qualified expense, the portion of the distribution representing earnings is subject to ordinary income tax and a 10 percent penalty. Exceptions to the penalty include distributions pursuant to the death of the beneficiary, disability of the beneficiary, or receipt of a tax-free scholarship or educational assistance allowance by the beneficiary that exceeds the distribution.

Qualified higher education expenses generally include tuition, books, supplies, equipment and, in many cases, room and board.

Because contributions to a 529 plan are considered gifts, the assets are removed from the contributor's estate. Another unique feature of the 529 plan is that although contributions are gifts, the account owner (contributor) maintains control of the account for the life of the account. This control, coupled with the special gifting provision, makes the 529 plan a viable estate planning tool for those who want to help send a child to college.

Barry Dolowich is a certified public accountant in Monterey, CA