Monday, July 28, 2014

Travel And Entertainment: Maximizing Tax Benefits

Dan Gordon for Tax Connections writes: Tax law allows you to deduct two types of travel expenses related to your business, local and what the IRS calls “away from home.”
First, local travel expenses. You can deduct local transportation expenses incurred for business purposes such as the cost of getting from one location to another via public transportation, rental car, or your own automobile. Meals and incidentals are not deductible as travel expenses, but you can deduct meals as an entertainment expense as long as certain conditions are met (see below).
Second, you can deduct away from home travel expenses-including meals and incidentals, but if your employer reimburses your travel expenses your deductions arelimited.
Local Transportation Costs
The cost of local business transportation includes rail fare and bus fare, as well as costs associated with use and maintenance of an automobile used for business purposes. If your main place of business is your personal residence, then business trips from your home office and back are considered deductible transportation and not non-deductible commuting.
You generally cannot deduct lodging and meals unless you stay away from home overnight. Meals may be partially deductible as an entertainment expense.
Away From-Home Travel Expenses
You can deduct one-half of the cost of meals (50 percent) and all of the expenses of lodging incurred while traveling away from home. The IRS also allows you to deduct 100 percent of your transportation expenses–as long as business is the primary reason for your trip.
Here’s a list of some deductible away-from-home travel expenses:
• Meals (limited to 50 percent) and lodging while traveling or once you get to your away-from-home business destination.
• The cost of having your clothes cleaned and pressed away from home.
• Costs for telephone, fax or modem usage.
• Costs for secretarial services away-from-home.
• The costs of transportation between job sites or to and from hotels and terminals.
• Airfare, bus fare, rail fare, and charges related to shipping baggage or taking it with you.
• The cost of bringing or sending samples or displays, and of renting sample display rooms.
• The costs of keeping and operating a car, including garaging costs.
• The cost of keeping and operating an airplane, including hangar costs.
Transportation costs between “temporary” job sites and hotels and restaurants.
• Incidentals, including computer rentals, stenographers’ fees.
• Tips related to the above.
Entertainment Expenses
There are limits and restrictions on deducting meal and entertainment expenses. Most are deductible at 50 percent, but there are a few exceptions. Meals and entertainment must be “ordinary and necessary” and not “lavish or extravagant” and directly related to or associated with your business. They must also be substantiated (see below).
Your home is considered a place conducive to business. As such, entertaining at home may be deductible providing there was business intent and business was discussed. The amount of time that business was discussed does not matter.
Reasonable costs for food and refreshments for year-end parties for employees, as well as sales seminars and presentations held at your home are 100 percent deductible.
If you rent a skybox or other private luxury box for more than one event, say for the season, at the same sports arena, you generally cannot deduct more than the price of a non-luxury box seat ticket. Count each game or other performance as one event. Deduction for those seats is then subject to the 50 percent entertainment expense limit.
If expenses for food and beverages are separately stated, you can deduct these expenses in addition to the amounts allowable for the skybox, subject to the requirements and limits that apply. The amounts separately stated for food and beverages must be reasonable.
Deductions are disallowed for depreciation and upkeep of “entertainment facilities” such as yachts, hunting lodges, fishing camps, swimming pools, and tennis courts. Costs of entertainment provided at such facilities are deductible, subject to entertainment expense limitations.
Dues paid to country clubs or to social or golf and athletic clubs however, are not deductible. Dues that you pay to professional and civic organizations are deductible as long as your membership has a business purpose. Such organizations include business leagues, trade associations, chambers of commerce, boards of trade, and real estate boards.
Tip: To avoid problems qualifying for a deduction for dues paid to professional or civic organizations, document the business reasons for the membership, the contacts you make and any income generated from the membership.
Entertainment costs, taxes, tips, cover charges, room rentals, maids and waiters are all subject to the 50 percent limit on entertainment deductions.
How Do You Prove Expenses Are Directly Related?
Expenses are directly related if you can show:
• There was more than a general expectation of gaining some business benefit other than goodwill.
• You conducted business during the entertainment.
• Active conduct of business was your main purpose.
Record-keeping and Substantiation Requirements
Tax law requires you to keep records that will prove the business purpose and amounts of your business travel, entertainment, and local transportation costs. For example, each expense for lodging away from home that is $75 or more must be supported by receipts. The receipt must show the amount, date, place, and type of the expense.
The most frequent reason that the IRS disallows travel and entertainment expenses is failure to show the place and business purpose of an item. Therefore, pay special attention to these aspects of your record-keeping.
Keeping a diary or log book–and recording your business-related activities at or close to the time the expense is incurred–is one of the best ways to document your business expenses.
If you need help documenting business travel and entertainment expenses, don’t hesitate to connect with me on TaxConnections. We’ll help you set up a system that works for you–and satisfies IRS record-keeping requirements.
Dan has been preparing tax return for US Taxpayers and Expatriates since 1998 beginning with US military and Embassy mission personnel in Bangkok, Thailand. He has always loved math and took business accounting at City U. in Seattle Washington. Dan worked at Clint Gordon & Associates (Accredited Tax Consultant) were he gained his foundational knoledge of the US taxing system. You can reach Dan Gordon @ his Facebook site here.
Posted on 4:44 PM | Categories:

U.K. / Accountancy's rising star looks for £3.3m through crowdfunding / CLEAR BOOKS

Kevin Reed for AccountancyAge.com writes:  Tim Fouracre , founder and CEO of cloud-based accounting software business Clear Books, is looking to raise the funds by offering 275,000 shares at a subscription price of £12 per share when it goes live on to the general public from 4 August, and is initially open to existing shareholders.

Fouracre, an accountant listed onAccountancy Age's 35 under 35 for 2014, launched Clear Books' own crowdfunding platform, a method that keeps down the cost of fees.
"If you enjoy investing in small British businesses, you can do so from just £12. Our customers are small business owners and entrepreneurs who know our company intimately - they rely on our software every day to run their own businesses," said Fouracre. "It's a wonderful validation of our mission, to help small businesses in the UK, that these entrepreneurs continue to invest and support Clear Books as we grow."
Clear Books has increased its customer base from 5,000 to more than 7,000 small businesses since September 2013, and increased its monthly revenue from £60k to £100k, achieving a 74% increase in annual revenue to the financial year 31 March 2014.
Last month was chosen as the cloud accounting provider to Santander's iBusinessHub. The iBusinessHub offers bundled packages of small business software exclusively to Santander's 250,000 small business customers in the UK.
Posted on 9:48 AM | Categories:

Sage Continues Collaboration With Microsoft to Serve Small and Medium-Sized Businesses / Sage Set to Announce Continued Product Advancements With Microsoft Support at Annual Sage Summit in Las Vegas

Sage North America today announced continued focus on providing cloud-delivered exceptional user experiences to small and medium-sized businesses through close collaboration with Microsoft Corp. This collaboration builds on a number of years of innovation and close ties between the two organizations -- ties that have led to product advancements that enable Sage customers to manage their businesses with greater efficiency anytime, from anywhere, through solutions that enable -- not constrain -- today's growing businesses.
"Sage and Microsoft share a common goal of supporting small and medium-sized businesses. The advancements that help us move toward this common goal will be showcased at this year's Sage Summit, which is shaping up to be a transformative experience for our small and medium-sized business attendees," said Gabrielle Boko, executive vice president of marketing, Sage North America. "And this is just the beginning, as Sage looks at more ways to work with Microsoft to better support small and medium-sized businesses, helping them to achieve their goals and follow their dreams."
Sage has already been working in collaboration with Microsoft to bring innovative solutions to small and medium-sized businesses on a global basis, including Sage 300 Online, Sage 100 Online and Sage Construction and Real Estate Solutions in North America. A key example of the joint innovation that is in development is the interoperation of the Microsoft Cortana personal digital assistant and Sage 100, which was recently spotlighted at the Microsoft Worldwide Partner Conference, and will be showcased this week at Sage Summit. Sage Summit will focus on creating a dialogue for small and medium-sized business owners, to address critical issues like customer acquisition and retention, growing sales and maximizing profit margins. Those in attendance at the event will have the opportunity to take in a variety of perspectives from a high-powered roster of business thought leaders including: Earvin "Magic" Johnson, chairman and CEO of Magic Johnson Enterprises; Biz Stone, cofounder of Twitter cofounder/CEO of Jelly Industries; Susan Solovic, renowned small business expert and author; and more.
In an effort to include as many small and medium-sized businesses in the conversations as possible, Sage will offer live streaming of daily keynotes at the conference. Tuesday, July 29, Wednesday, July 30, and Thursday, July 31, interested parties may visitwww.SageSummit.com to gain access to keynote conversations featuring Sage executives and top business leaders, or for more information about the conference.
Posted on 9:45 AM | Categories:

Capital Gains and Losses: Short-Term and Long-Term / Explained

Mike Piper for the Oblivious Investor writes: When you sell something (such as a share of stock) for more than you paid for it, you’re generally going to be taxed on the increase in value. This increase in value is known as a “capital gain.”

The amount of gain is calculated as the proceeds received from the sale, minus your “cost basis” in the asset.

What is “Cost Basis”?

In most cases, your cost basis in an asset is simply the amount that you paid for that asset. (Note: This includes any brokerage commissions that you paid on the transaction.)
EXAMPLE: Lauren buys a share of Google stock for $250, including brokerage commissions. She owns it for two years and then sells it for $400. Her cost basis is the amount she paid for it: $250. Her gain will be calculated as follows:
$400 (proceeds from sale)
$250 (adjusted cost basis)
= $150 (capital gain)

Long Term Capital Gains vs. Short Term Capital Gains

The rate of tax charged on a capital gain depends upon whether it was a long term capital gain (LTCG) or a short term capital gain (STCG). If the asset in question was held for one year or less, it’s a short term capital gain. If the asset was held for greater than one year, it’s a long term capital gain.
STCGs are taxed at normal income tax rates. In contrast, LTCGs, are taxed at the same rates as qualified dividend income. That is, any long term capital gains that fall in thehighest (39.6%) tax bracket will be taxed at a rate of just 20%, any LTCGs that fall in the 25-35% tax brackets will be taxed at a rate of just 15%, and any LTCGs that fall in the 10% or 15% tax brackets will not be taxed at all.
An important takeaway here is that if you’re ever considering selling an investment that has increased in value, it might be a good idea to think about holding the asset long enough for the capital gain to be considered long term.
Note that a capital gain occurs only when the asset is sold. This is important because it means that fluctuations in the value of the asset are not considered taxable events.
EXAMPLE: Beth buys ten shares of Honda Motor Company at $25 each. Five years later, Beth still owns the shares, and the price per share has risen to $45. Over the five years, Beth isn’t required to pay any tax on the increase in value. She will only have to pay a tax on the LTCG if/when she chooses to sell the shares.

Taxation of Mutual Funds

Mutual funds are collections of a very large quantity of other investments. For instance, a mutual fund may own thousands of different stocks as well as any number of other investments like bonds or options contracts.
Each year, a mutual fund (like any other investor) is responsible for income tax on the net capital gains it incurred over the course of the year. However, instead of the mutual fund paying those taxes itself, each of the fund’s shareholders pays taxes on her share of the related gains. (Every year, each shareholder’s portion of the gains will be reported to her on Form 1099-DIV sent by the fund company.)
What makes the situation counterintuitive is that, in any given year, the capital gains realized by the fund can vary (sometimes significantly) from the actual change in value of the shares of the fund.
EXAMPLE: Deborah buys a share of Mutual Fund XYZ on January 1 for $100. By the end of the year, the investments that the fund owns have (on average) decreased in value, and Deborah’s share of the mutual fund is now worth $95.
However, during the course of the year, the mutual fund sold only one stock from the portfolio. That stock was sold for a short term capital gain. Deborah is going to be responsible for paying tax on her share of the capital gain, despite the fact that her share in the mutual fund has decreased in value.
Note how even in years when the value decreases, it’s possible that the investors will be responsible for paying taxes on a gain. Of course, the opposite is also true. There can be years when the fund increases in value, but the stock sales made by the fund result in a capital loss. And thus the investors have an increase in the value of their holdings, but they don’t have to pay any taxes for the time being.

Capital Gains from Selling Your Home

Selling a home that you’ve owned for many years can result in a very large long-term capital gain. Fortunately, it’s likely that you can exclude (that is, not pay tax on) a large portion — or even all — of that gain.
If you meet three requirements, you’re allowed to exclude up to $250,000 of gain. The three requirements are as follows:
  1. For the two years prior to the date of sale, you did not exclude gain from the sale of another home.
  2. During the five years prior to the date of sale, you owned the home for at least two years.
  3. During the five years prior to the date of sale, you lived in the home as your main home for at least two years.
Note: To meet the second and third requirements, the two-year time periods do not necessarily have to be made up of 24 consecutive months.
For married couples filing jointly, a $500,000 maximum exclusion is available if both spouses meet the first and third requirements and at least one spouse meets the second requirement.
EXAMPLE: Jason purchased a home on January 1, 2011. He lived there until May 1, 2012 (16 months). He then moved to another city (without selling his original home) and lived there until January 1, 2013. On January 1, 2013 Jason moved back into his original home and lived there until October 1, 2013 (9 months) when he sold the house for a $200,000 gain.
Jason can exclude the gain because he meets all three requirements. The fact that Jason does not have 24 consecutive months of using the home as his main home does not prevent him from excluding the gain.

Capital Losses

Of course, things don’t always go exactly as planned. When you sell something for less than you paid for it, you incur what is known as a capital loss. Like capital gains, capital losses are characterized as either short-term or long-term, based on whether the holding period of the asset was greater than or less than one year.
Each year, you add up all of your short term capital losses, and deduct them from your short term capital gains. Then you add up all of your long term capital losses and deduct them from your long term capital gains. If the end result is a positive LTCG and a positive STCG, the LTCG will be taxed at a maximum rate of 20%, and the STCG will be taxed at ordinary income tax rates. If the end result is a net capital loss, you can deduct up to $3,000 of it from your ordinary income. The remainder of the capital loss can be carried forward to deduct in future years.
EXAMPLE 1: In a given year, Aaron has:
$5,000 in short term capital gains,
$3,000 in short term capital losses,
$4,000 in long term capital gains, and
$2,500 in long term capital losses.
For the year, Aaron will have a net STCG of $2,000 ($5,000-$3,000) and a net LTCG of $1,500 ($4,000-$2,500). His STCG will be taxed at his ordinary income tax rate, and his LTCG will be taxed at a maximum rate of 20%.
EXAMPLE 2: In a given year, Sandra has:
$2,000 in short term capital gains,
$3,500 in short term capital losses,
$3,000 in long term capital gains, and
$5,000 in long term capital losses.
Sandra has a net short term capital loss of $1,500 and a net long term capital loss of $2,000. So her total capital loss is $3,500. For this capital loss, she can take a $3,000 deduction against her other income, and she can use the remaining $500 to offset her capital gains next year.
So what happens when you have a net gain in the short term category and a net loss in the long term category, or vice versa? In short, you net the two against each other, and the remaining gain or loss is taxed according to its character (that is, short term or long term).
EXAMPLE 1: In a givne year, Kyle has:
$5,000 net short term capital gain and
$4,000 net long term capital loss.
Kyle will subtract his LTCL from his STCG, leaving him with a STCG of $1,000. This will be taxed according to his ordinary income tax bracket.
EXAMPLE 2: In a given year, Christopher has:
$3,000 net short term capital loss and
$6,000 net long term capital gain.
Christopher will subtract his STCL from his LTCG, leaving him with a LTCG of $3,000. This will be taxed at a maximum of 20%.
EXAMPLE 3: In a given year, Jeremy has:
$2,000 net short term capital gain and
$3,000 net long term capital loss.
Jeremy will subtract his LTCL from his STCG, leaving him with a $1,000 LTCL. Because this is below the $3,000 threshold, he can deduct the entire $1,000 loss from his ordinary income.
EXAMPLE 4: In a given year, Jessica has:
$2,000 net long term capital gain and
$4,000 net short term capital loss.
Jessica will subtract her STCL from her LTCG, leaving her with a $2,000 STCL. Because this is below the $3,000 threshold, she can deduct the entire $2,000 loss from her ordinary income.

Simple Summary

  • If an asset is held for one year or less, then sold for a gain, the short-term capital gain will be taxed at ordinary income tax rates.
  • If an asset is held for more than one year, then sold for a gain, the long-term capital gain will be taxed at a maximum rate of 20%.
  • If you have a net capital loss for the year, you can subtract up to $3,000 of that loss from your ordinary income. The remainder of the loss can be carried forward to offset income in future years.
  • Mutual fund shareholders have to pay taxes each year as a result of the net gains incurred by the fund. This is unique in that taxes have to be paid before the asset (i.e., the mutual fund) is sold.
  • If you sell your home for a gain, and you meet certain requirements, you may be eligible to exclude up to $250,000 of the gain ($500,000 if married filing jointly).
Posted on 9:24 AM | Categories:

Qlik launches data visualisation app for beginners / Delivers drag-and-drop interface for data visualisation and exploration in Windows

Brian Karlovsky (ARN) for Arnnet.com writes: Business intelligence firm Qlik has launched its new data visualisation app which delivers a drag-and-drop interface for business users to rapidly create interactive visualisations, reports, and dashboards.
It includes the Qlik patented data indexing engine to give users the ability to explore their intuition and the relationships that exist in the data, uncovering the hidden associations and insights that may otherwise be overlooked, according to a company statement.
Qlik Sense Desktop delivers a drag-and-drop user experience for data visualisation, exploration, and storytelling capabilities in a standalone, installed Windows client, according to a company statement.
It allows for the assembly and navigation of visualisation apps that can be saved as local files to be shared and opened by other users.
New users can get started by simply dragging an Excel document right into the application, or by tapping into multiple data sources used within the business.
It is free for personal and business use, with no limits on the number of apps that can be created and no restrictions on file sharing.
The complete Qlik Sense offering, expected to be released in September, will be server-based, enabling server side development from any device, flexible mobile use, collaboration and sharing, custom development and data integration.
It will also have enterprise capabilities, data security, and data and application governance. All of the firm's offerings index the data to allow users to immediately begin exploring and visualising data.
Qlik chief technology officer, Anthony Deighton, said Qlik Sense Desktop was a great way to show people who were new to Qlik the power and control you can feel by exploring your own data to make it meaningful, visual, and even fun.
"Our continued commitment to simplicity and ease of use to put users in control is delivering on the promise of true self-service BI," he said.
Qlik chief marketing officer, Rick Jackson, said QlikView had brought BI out of the back-office and into the front lines of business, as analysts created powerful guided analytics for every conceivable business process.
“With Qlik Sense, we now address the widespread desire for rapid data visualisation, dashboards, and visual reporting," he said.
"This combination provides businesses with broader access to data visualisation and discovery that can be leveraged to improve both top-line and bottom-line results for any company.”
Posted on 6:33 AM | Categories:

Five things your accountant should be doing for you besides your taxes

DAVID MCKELLAR for Smart company australia writes: In addition to filing your tax return and BAS statements, your accountant should be acting as a trusted advisor, delivering valuable advice across business functions to help improve your profits, reduce your costs and streamline your business.
Your accountant should be available to you year-round, know your business inside out, and offer regular advice that assists you to improve your profits and grow your business.
Anything less is simply not good enough.
Here are the five key things your accountant should be doing for you besides your taxes:

1. Benchmarking

To outpace your competitors, you must know how they are operating. Your accountant should be examining your competitors and reporting back about how you stack up on sales volume, market reach, production costs and overheads, staffing costs and turnover, pricing, and profitability.  This vital intelligence will identify your pain points, show you where you can cut costs, reveal market gaps in your sales strategy, and help you set a highly effective business strategy.

2. Budgeting

Most business owners can tell you about the soul-destroying feeling of watching your budgets blow out and your profits dwindle away with them. Your accountant is a key player here. Utilise their deep knowledge of your business and market position to help set achievable budgets and revenue targets that you can rely on. They should be able to help identify your costs, forecast your sales and implement and monitor a realistic budget aligned with your financial goals.  

3. Cost reduction

Your costs can have as much impact on your profits as your overall revenue, yet many business owners neglect to keep a close eye on costs. Consult your accountant to help implement an effective cost reduction strategy based on prior benchmarking intelligence. You’ll want to focus on improving the management of existing contracts, reducing waste and overheads, and boosting productivity across your organisation.

4. Pricing advice

Setting price points can make or break your business. Too high and you’ll price yourself out of the game; too low and your profitability could take a fatal hit. This is another area your accountant should be consulting on. Again, intelligence taken from prior benchmarking should place you well for setting competitive price points, while understanding what it will take to achieve your specific business goals will help keep enough meat in your bottom line.  

5. Succession planning

Whether your plan is to sell your business, leave it to your kids or retire as a silent partner, all business owners need an effective exit strategy. Your accountant should be your go-to adviser here with extensive knowledge about tax compliance, tax minimisation strategies, business valuation, due diligence and estate planning.   
If your accountant is not stepping up to the plate in these five key areas, perhaps it’s time to ask yourself if they really are worth the invoices they send.
David McKellar is a chartered accountant and director of accounting firm Allied Business Accountants.
Posted on 6:31 AM | Categories: