The Art and Science of Investing in the Presence of Taxes

Gregg Fisher for Forbes writes: Here we are in December, when one of the rites for many investors each year seems to be to suddenly awaken to possible year-end tax moves. Perhaps your accountant has rung to discuss which portfolio positions to sell for tax reasons. The financial press is replete with versions of “smart year-end tax strategy” articles. This is all well and good, but in this column I want to make the case that: a) investors should pay attention to tax strategies such as tax-loss harvesting during the entire calendar year, and b) investors should do a much better job of integrating their taxes and Form 1040 with their investment portfolio strategies.

I grew up immersed in taxes (my family had a tax-accounting business), and I have reviewed thousands of tax returns and also advised countless clients on investing for more than 20 years. One thing that continually strikes me is how people tend to compartmentalize their financial lives, separating their tax returns from their investment portfolios. In behavioral finance this disconnect is called mental accounting. Investors need to recognize that taxes and adroit tax management are key considerations when formulating and executing an investment strategy.

It’s What You Keep That Counts

One basic issue is that investors should focus more on their after-tax return; for taxable investors, how much an investment earns matters less than how much of that return they actually keep after taxes. You can think of it this way: unlike inflation, interest rates, market gyrations, or the returns of individual securities or active fund managers, the taxes you pay on investment gains are one aspect of investing over which you can exercise a considerable degree of control.

We can quantify the importance of adept tax management in investing. Research by Gerstein Fisher and others (for example, see Past Performance is Indicative of Future Beliefs) shows that investors typically surrender one to two percentage points of investment returns to taxes each year—which quickly adds up when compounded over a 30-year investment horizon. We believe that skillful, active tax management can add back 0.5-1 percentage points to after-tax portfolio returns each year (remember that the benefits are greater for taxpayers in higher tax brackets).

The exhibit below depicts one scenario. I calculated a popular US stock index fund’s pre-tax and after-tax returns from September 1, 1976 to December 31, 2013, using a 40% tax assumption for income and 25% for capital gains. Bear in mind that investing in index funds is one of the most tax-efficient strategies out there for stock investors. Even so, on a pre-tax basis, a $100,000 investment in the index fund compounded at 11.04% a year, multiplying to a $4.99 million terminal value, but only at 9.53% for an ending balance of $2.99 million on an after-tax basis. In sum, income taxes subtracted 1.5 points of investment gains per year and reduced gains by 40%, or $2 million. An investor can reduce those losses to taxes through skilled tax management at the portfolio level. [snip].  The article continues @ Forbes, click here to continue reading....

4 Common Expense-Tracking Pitfalls – And How to Avoid Them This Tax Season

William Olsen for AccountingWeb  writes: When it comes to gathering business records for claiming business deductions, the idea of sorting through expense receipts and “mining” for deductions makes procrastinators out of all of us.

But proper deduction tracking during the year is not as difficult as you might think. Avoiding these four common pitfalls will help you prepare better and have less tax-time stress.

1. Having an incomplete mileage log: One of the common misconceptions of mileage tracking is that you have to write down your beginning and ending odometer every time you get in and out of your car to complete a business mileage log. The truth is an ending odometer at the end of December, which becomes the beginning odometer for the start of the new tax year, is all you need. That way, you know the total miles you drove during the year. With that, your business mileage log only needs the following three things for each entry:

• Date
• Miles driven
• Description of the business purpose

2. Saving receipts: To save the receipt or not to save the receipt, that is the question.  The official rule is that a receipt is not needed unless the expense is more than $75, or it is for lodging. But that doesn’t really cover everything. There are two other circumstances when a detailed receipt is still recommended regardless of the dollar value:

• When you pay for deductible items with cash
• When the expense is not obvious

For example, if you purchase office supplies at a drug store, a detailed receipt would be needed to substantiate that the items purchased were not personal. On the other hand, a receipt for a credit card purchase of “Discount Business Cards Only” for $36 would not be necessary to prove the deduction.[snip] the article continues @ AccoutningWeb, click here to continue reading.....

3. Forgetting to record business purpose: 

4. Not “wrapping up” each week:  

H&R Block offers 10% bonus to entice more digital clients

James Dornbrook for Business Journal writes: H&R Block Inc. recently launched its redesigned online and software products for do-it-yourself tax filers while revealing a new marketing strategy designed to nab more market share on the digital filing side of the business.

The digital business for H&R Block is a huge battleground, one with lots of opportunity for growth. There were 125.8 million tax returns e-filed with the Internal Revenue Service in 2013, out of 149.22 million overall tax returns received. About 47.95 million of those e-filed returns were done by DIY filers. H&R Block software was used by 4.39 million of those DIY clients, giving it a 9.2 percent market share. The market segment leader, Intuit's Turbo Tax, logged about 29 million filers for a 60.5 percent market share.

H&R Block's strategy this year is to entice DIY filers with a bonus, which will expose them to the new tools in its software.

For tax filers who put at least $100 of their refund on gift cards for retailers such as iTunes, Target, Starbucks, The Home Depot and about 40 others, H&R Block will give a bonus of up to 10 percent. Given that the average refund issued by the IRS last year was about $2,800, that could add up to about $280.

Another new feature of H&R Block's online and software products is a tool called "Refund Reveal." The tool offers DIY filers real-time information as they fill out their returns, to help them understand the impact of how and why their refund increases or decreases depending on how they file.

"This insight into their refund empowers them as DIYers and removes the uncertainty behind how their refund was calculated," Jason Houseworth, H&R Block's president of retail and digital products, said in a release.

H&R Block (NYSE: HRB) also created functionality that allows clients to jump from platform to platform and still complete their taxes, no matter where they are in the process. So a client could start loading information from a laptop at home and finish the process on their mobile phone.

"In this mobile, always-on environment today, our customers expect to be able to start, pause and resume tax preparation at their convenience," Houseworth said in the release. "The new mobile-optimized DIY product will match the tax preparation experience to the lifestyle of each user."

FreeAgent Dominates / UK: Business Choice Awards 2014: Accounting: Winner is FreeAgent

Matthew Sarrel for PC Magazine  UK writes: Accounting tools help businesses keep track of their all-important financial transactions. While larger firms typically run highly customized solutions, small to mediums-sized businesses run off-the-shelf products to stay on top of their current financial situations.

Accounting software typically includes general ledger, accounts receivable, accounts payable, and invoicing; more sophisticated packages add payroll, inventory, and fixed asset management. Reporting and alerts are important features in accounting software so businesses can stay up to the minute with their financial status.

This edition of the PCMag Business Choice Awards focuses on accounting software and services, something essential for all businesses, or at least for those interested in documenting and understanding the relationship between income and expenses. For 27 years, we have been augmenting our hands-on, labs-based product reviews with our Readers' Choice Awards, in which PCMag readers rate the products and services they use the most. The Business Choice Awards extend the Readers' Choice Awards by garnering feedback about the hardware, software, and services our readers deploy, administer, maintain, and use in a business environment.

Our latest survey asked respondents to rate their overall satisfaction with the accounting software or service they use or manage, and the likelihood they would recommend them to others. In addition, we inquired about their satisfaction with technical support, and the overall reliability of the solution.

If you select, deploy, or administer the products in our Business Choice Awards, or if you advise or manage people in these roles, then you know how critical it is to choose the right products. The results of the PCMag Business Choice Awards survey are invaluable when doing so. And on the next page we'll reveal the best option for building a successful accounting solution for your business.

Every business needs some method of accounting for income and expenses, so there are many choices. The general ledger functions for recording income and expenses are likely to be similar between products, yet there is plenty of room for distinguishing features such as the ability to process electronic payments, sync with banks, generate invoices, manage and pay bills, and run payroll.

Perhaps the most important features of accounting software and solutions are those involving reporting. The ability to see profit and loss on your balance sheet quickly and easily is critical. Most accounting software will let you develop custom reports, like profit and loss per month by customer, and save those reports so you can run them whenever you want. The trick is to find the accounting software that offers you the features you need and doesn't charge you for those you don't.

In this year's survey for accounting software, four received enough responses to be included as finalists: FreeAgent, Microsoft, Sage, and Intuit.

Intuit is represented twice—once for its QuickBooks package for small to medium-sized businesses (SMBs), and then for its Quicken software, which managed to score enough entries via write-in vote. Quicken is typically meant for individuals, but it does have a Home & Business variation perfect for small office/home office (SOHO) businesses.

For overall satisfaction, FreeAgent takes the lead with a powerful 9.4, followed by QuickBooks at 7.4. It's worth mentioning that our winner, FreeAgent, an entirely Web- and mobile-based solution, had the fewest number of responses—but they're incredibly happy end-users.

Intuit's Quickbooks is far and away the most utilized accounting software in our survey, based on response—roughly 24 times the number of responses of FreeAgent. Such "popularity" didn't help Intuit's Quickbooks' overall score, which is a full two points lower. (If combined with Quicken, Intuit's score would be even lower, at 7.2).

¦ Red—Business Choice Winner.

The rest of the pack—Microsoft, Intuit via Quicken, and Sage, don't even measure up to what QuickBooks managed.

Reliability, the ability of the software or service to run every day and provide consistent results, loosely follows the trend of overall satisfaction. FreeAgent is out front with a noteworthy 9.5, followed by QuickBooks at 8.0.

Looking at tech support, we see a slightly different story. FreeAgent is again the best, despite the fact that one-third of its customer base has required tech support. (That's still not as bad as Sage, with 41 percent of its users needing tech support. Sage also has the worst rating for tech support.)

Note that Intuit's Quicken—again, focusing more on consumers—has the lowest number of people who need tech support at 17 percent—but the rating it gets for support is also the worst among all the software in this survey, at a dismal 3.7 out of 10.

Turning to the important question of how likely users are to recommend an accounting software or service to a colleague, we see a large range in responses. The highest score goes to FreeAgent with a 9.5, again far outpacing the competition in this survey. This question is used to calculate the Net Promoter Score (NPS), which shows a large spread between the likelihood to recommend different accounting solutions. FreeAgent's NPS score of 92 percent puts it into an eschelon with companies like Apple and Canon, which get great NPS scores consistently in our surveys. In fact, a 92 percent gives FreeAgent a special title—the highest NPS score we've seen in any of our surveys all year long. (The only other company that came close? Bose got an 86 percent NPS in our Readers' Choice survey...for headphones!)

The other recommendation scores and NPS scores are nothing to write home about; in fact, only Intuit's QuickBooks managed even a positive NPS (14 percent); the other three vendors got negative NPS scores, which means they're actively being denigrated by users more often than not.

Business Choice Winners: Accounting

FreeAgent

FreeAgent dominates our Business Choice Awards survey for accounting software and solutions. Customers of the little company for SMB accounting are highly satisfied across the board, even if one-third of them need tech support. Even then, they've made it the most highly recommended product we've seen all year long.

Methodology

We email survey invitations to PCMag.com community members, specifically subscribers to our Readers' Choice Survey mailing list. The surveys are hosted by SurveyMonkey, which also performs our data collection. This survey was in the field from October 31, 2014 to November 24, 2014.

Respondents are asked to rate their accounting software or service provider. They are asked multiple questions about their overall satisfaction with the solution, as well as experiences with technical support within the past 12 months.

Because the goal of the survey is to understand how the accounting solutions compare to one another and not how one respondent's experience compares to another's, we use the average of the accounting solutions' rating, not the average of every respondent's rating. In all cases, the overall ratings are not based on averages of other scores in the table; they are based on answers to the question, "Overall, how satisfied are you with your accounting software or service?"

Scores not represented as a percentage are on a scale of 0 to 10 where 10 is the best.

Net Promoter Scores are based on the concept introduced by Fred Reichheld in his 2006 best seller, The Ultimate Question, that no other question can better define the loyalty of a company's customers than "how likely is it that you would recommend this company to a friend or colleague?" This measure of brand loyalty is calculated by taking the percent of respondents who answered 9 or 10 (promoters) and subtracting the percent who answered 0 through 6 (detractors).

If you would like to participate in PCMag's monthly Readers' Choice surveys and to be eligible for our monthly sweepstakes promotion,please sign up today.

"After much research and analysis of accounting mobile apps, we recommend FreshBooks for iOS and Android as the best accounting mobile app for small businesses". - Business News Daily

Sara Angeles for Business News Daily writes: Mobility is key for busy small business owners. If you're always on the go, having to set aside time to sit down at a computer to do your accounting is both inconvenient and inefficient. Being able to access your accounting software on your mobile phone or tablet, however, lets you manage your finances wherever you go, anytime you need to.

The problem with most accounting mobile apps, however, is that they lack many of the functions business owners need. They typically offer the bare minimum features, limiting capabilities to  just a few accounting tasks like creating and sending invoices, tracking expenses and viewing customer information. FreshBooks solves this problem by offering many of the same time-saving featureson its mobile app as those in its nonmobile version, making it our top choice for the best accounting mobile app for small business.

Why FreshBooks mobile app?

A comprehensive accounting mobile app  

Just because a software goes mobile doesn't mean it has to compromise on the features business owners need the most. Although the majority of accounting software products have mobile apps, what makes FreshBooks stand out is that it offers a comprehensive set of time-saving accounting tools. FreshBooks mobile lets you perform a wide range of accounting tasks on your phone or tablet, such as create and send invoices and estimates, track and organize expenses, record hours, view and edit customer information, manage projects, generate reports and more.

Read on to find out why the FreshBooks mobile app is our top pick for the best accounting mobile app for small business.

Ease of use

FreshBooks describes itself as a "simple and intuitive" cloud-based accounting software that is easily accessible across all your devices. To see just how easy it is to use the app, we decided to find out for ourselves.

Downloading and installing the FreshBooks mobile app was a breeze, and we were able to set up our account in just a few minutes. We liked that the signup doesn't require a credit card — simply enter your company name, first name, last name, email address and password.

We were also impressed with the app's dashboard. It features a very clean, no-fuss layout that immediately shows you the most critical information and functions right when you log in. For instance, the top bar highlights your outstanding balance, and below that are icons for the most frequently used tasks: invoices, clients, time tracking and expenses. Other features like project management, estimates and reports are on the next page.  

Overall, we found the FreshBooks mobile app to be as easy and intuitive to use as the company claims. And because it offers such a user-friendly interface, its many functions can help you save time both in terms of its offered capabilities and how easy it is to navigate the app.

To try the FreshBooks mobile app yourself, sign up for a free 30-day trial. You can also learn more by checking out these tutorial videosor attending one of their free webinars.

Time-saving features

When we asked small business owners what they sought most in accounting software, the general consensus was that it should save time and take the stress out of managing finances. FreshBooks accomplishes this with its cloud-based software and applies the same principle to its mobile app.

Besides being able to do your accounting anytime, anywhere that's convenient for you, here are four other ways that we found the FreshBooks mobile app helps save time and makes accounting as stress-free as it can possibly be.

1.    Invoicing - Easily create, send and manage invoices on the go, straight from your phone and tablet. Start by adding your client's name, line items and any terms or notes. When we spoke with a FreshBooks sales rep, we discovered that you can also set additional options and information, such as discount rates, issue date, invoice numbers and more.

2.    Get paid faster - The sales rep also told us that FreshBooks makes it easy to receive funds from clients, and the same capabilities are also available on the app. When you create an invoice, you can also toggle an option to accept credit card payments so clients can pay online directly from the invoice. Another payment option is PayPal, which you can set up under the Settings menu. Each invoice can also track how much clients have paid and any outstanding balances, so you don’t have to manually keep track yourself.

3.    Expense logging - Quickly track expenses wherever you are. The app also lets you categorize expenses, as well as link them to any associated clients and vendors. One handy feature we liked is the ability to take a photo of receipts and attach it to the corresponding expense — this is both convenient and helps you stay organized by going paperless.

4.    Seamless integration with your phone and across functions - The FreshBooks mobile app can also save you time by working together with your device and streamlining the different functions. For example:

• Need to add a new client? Skip manual data entry and import the information directly from your phone's contacts.
• Did a client accept a project estimate? Don't create a new invoice from scratch — just go to the estimate and convert it into an invoice.
• Want to know how much to charge for a project? Let the app do the number crunching for you. Create a new project from the Projects section, input your rates, and then automatically link billable hours to each project or task using the Time Tracking function. If you have expenses, you can also attach them to invoices to automatically add these costs to the client's bill.
• Need to view or edit a recent invoice, client, expense or other information? No need to open each function. Just tap on "Recent Activity" at the upper left corner to easily find what you're looking for.

Customer service

If you need help using FreshBooks' mobile app, customer support is easily accessible. Tap on the "Help" link at the upper-right corner and immediately get access to all of the company's support contact information. This may not seem like such a big deal, but it's a breath of fresh air compared with other providers that require you to dig through their website for a phone number or email address to reach a real person.

FreshBooks offers both phone and email support. Its customer support representatives are friendly and knowledgeable, and they were able to answer our many questions with patience and without pushing the product or pressuring us to upgrade our trial account. Keep in mind, however, that support is only available Mondays through Fridays from 8 a.m. to 8 p.m. EST. This is an important detail, particularly if your business doesn't stop after regular business hours.

In addition to one-on-one customer support, FreshBooks offers a collection of helpful resources so you can find answers and learn more about the product yourself. This includes a Quick Start Guide, FAQ section, a blog with helpful accounting and business tips, tutorial videos and free webinars.

Limitations

Although FreshBooks offers the best accounting mobile app, it isn't without its drawbacks. Two major limitations we came across have to do with its reporting capabilities and app availability.

When we tested the app, we found that to view reports, you'll have to leave the app. After selecting the reports function from the main menu, the app lists a few of the more than 20 types of reports the software can generate, including profits and losses, tax summary, expense reports and revenue by client. But it also tells you that "reports look best on your computer." To view these reports, you'll have to choose whether you'd like receive them by email or launch Safari to access them on the mobile Web version of the software. As a user, you may find that this defeats the entire purpose of having a mobile app, even if it does give you access using your mobile browser.

Another chief drawback of using the FreshBooks mobile app is its availability. Currently, the FreshBooks mobile app is only natively available on iOS and Android. Windows Phone and BlackBerry users will have to use third-party clients — such as FreshBooks 7 for from the Windows Store and ReportAway! for FreshBooks from the BlackBerry Store — to access FreshBooks on their mobile devices.

Cost

FreshBooks offers some of the most competitive pricing models for accounting software, making it an affordable option for small businesses. The sales representative we spoke with confirmed that the mobile app is free to download, though you'll have to purchase a FreshBooks subscription to use it for your business.  There is no separate plan just for mobile accounting, however. Pricing to use the app is included in the monthly subscription, which gives you access to both the software and the mobile app under one monthly fee.

FreshBooks' pricing is primarily based on the number of clients and number of users. Plans start at $9.95 per month, but is limited to five clients and a single user. If you're just starting out, the $19.95 per month plan may be a more suitable option, as it gives you a higher limit of 25 clients.

For most small businesses, however, the sales rep recommends the $29.95 per month plan, which includes an unlimited number of clients, project management, team capabilities and an access for one additional staff member.

We chose Freshbooks from a pool of the dozens of payroll services we considered. To read our full methodology and for a more comprehensive list of accounting software, visit our best picks page

How to Harvest Year-End Capital Gains

MICHAEL KITCES for the Wall St Journal writes:  Since 2008, those taxpayers whose income falls within the bottom two tax brackets–up to $36,900 of taxable income for individuals, or $73,800 for married couples–are eligible for a 0% federal tax rate on long-term capital gains. However, the rate only applies to income that actually falls within the bottom two brackets–once income rises over $36,900 for individuals ($73,800 for married couples), capital gains are once again taxed at 15% (ultimately rising to a rate as high as 23.8% at top income levels). On the one hand, this favorable rule allows lower-income individuals to avoid taxation on their long-term capital gains (and qualified dividends). Yet on the other hand, for those whose income may just be “temporarily” low due to any number of life circumstances (from unemployment to a bad business year to retirement itself), being in the bottom two tax brackets–and eligible for the associated 0% federal tax rate on long-term capital gains–is a limited-time opportunity to take advantage of, by deliberately harvesting capital gains.

The good news is that while it can be a bit of a nuisance to harvest capital losses–due tothe 30-day “wash sale” rules, which creates a loss harvesting risk that the investment will have materially changed in value in the meantime–it’s rather easy to harvest a capital gain. Sell the investment that’s up in value, and buy it back again. If it’s a mutual fund, it can be done on consecutive days. If it’s a stock or ETF, you may only be out of the market for minutes or even just mere seconds! Congress does not have a rule that says “Oh, you sold the investment, but since you bought it back again you don’t have to pay your taxes.” You do. Except for those in the lower tax brackets, this can actually be great tax planning.

Imagine an investor who has an ETF that was purchased for $10,000, and it is now up to $18,000 in value, an 80% gain thanks to the great run in the stock market in recent years. The investor sells the ETF for $18,000, and buys it back again immediately for $18,000. As a result of this transaction, the cost basis of the investment will be increased from the original $10,000 to its “new” purchase price of $18,000, and the investor will face an $8,000 long-term capital gain. Except if the investor is in the bottom two tax brackets, the federal tax rate on the gain is 0%, and the step-up in basis—which, in turn, reduces the magnitude of any future capital gains and saves money down the road as well–is free!

Of course, the reality is that the cost of harvesting a long-term capital gain isn’t always a perfectly free $0 impact. There may be some transaction costs to consider (from trading fees to bid/ask spreads), some people may face a small state income-tax liability, and although the capital gains rate is 0%, it is still income and as a result can impact other income-related tax calculations (from phasing out the premium assistance tax creditto the phase-in of taxation of Social Security benefits and more).

Nonetheless, in a world where the only other way to get a step-up in basis is to dieowning the investment, the opportunity to harvest long-term capital gains at a near-$0 cost is highly appealing. But since it only works to the extent that the taxpayer’s income–including the capital gain itself–stays within the bottom two tax brackets, it is a limited opportunity that both caps out each year and vanishes if it is unused. So if you ever find yourself in the bottom tax brackets while holding investments that are up in value, don’t let the opportunity go to waste–make sure you harvest those 0% capital gains, at least to the extent you can!

Michael Kitces is a Partner and the Director of Research for Pinnacle Advisory Group, and publisher of the financial planning industry blog Nerd’s Eye View. You can follow him on Twitter at @MichaelKitces, or connect with him on Google+.

7 Facts About After-Tax IRA Rollovers

Ed Slott for ThinkAdvisor writes: As advisors, third-party administrators and recordkeepers digest the Internal Revenue Service’s recently issued new rules on after-tax rollovers, experts continue to provide guidance on the rules, which IRA guru Ed Slott says are “new territory.”

In its Notice 2014-54, released in mid-September, the IRS issued a new rule allowing participants in a 401(k), 403(b) or a 457 plan to take a distribution of after-tax money and convert it to a Roth IRA tax-free.

Slott, who runs IRAhelp.com, released in his October IRA Advisor newsletter detailed information about the new rule, which he told ThinkAdvisor in a previous interview answers "one of the most common, if not the most common, question that he gets from advisors."

He explains in his newsletter that the most important takeaway for advisors from the IRS notice “is clearly the ability for clients with both pre-tax and after-tax money in their employer plans, like 401(k) and 403(b) plans, to allocate the pre-tax and after-tax portions of plan distributions to different retirement accounts.”

The notice says it will generally apply to distributions taken in 2015 or later, but “it also says taxpayers can apply a reasonable interpretation of the existing rules, including the guidance in this notice, so practically speaking, the guidance is effective immediately.”

While the allocations of pre-tax and after-tax money described in Notice 2014-54 can theoretically be made to any type of retirement account, Slott continues, “the most beneficial for clients will be to allocate the pre-tax portions of a distribution to a traditional IRA rollover, while at the same time, allocating the after-tax portion of a distribution to a Roth IRA conversion. By doing so, clients will be able to retain the tax-deferred status on the pre-tax portions of their distributions and simultaneously convert only the after-tax portions of their plan distributions, tax-free.”

Slott also points out that the Notice has “an additional benefit” for those with both appreciated employer stock in their plans, as well as after-tax funds.

For some time, a number of plan administrators have allowed clients to use after-tax money to reduce the taxable portion of a net unrealized appreciation (NUA) transaction (to offset the ordinary income tax owed on the cost of the shares) on a non-pro-rata basis.

Now, says Slott, “it appears that argument is all but settled for good,” as under Notice 2014-54, pre-tax money is allocated first to direct rollovers, next to 60-day rollovers and finally, to any amounts not rolled over. “If that’s the case, then the reverse must also be true,” Slott explains. “After-tax portions of a distribution must first be allocated to amounts not rolled over, then to 60-day rollovers and only after that to direct rollovers. Since, by definition, appreciated company stock is not rolled over in an NUA transaction, if the other plan assets (i.e., mutual funds) are rolled over – either via direct rollover or a 60-day rollover the after-tax funds have to be allocated to the NUA shares.”

Slott says advisors should take note of the follwing seven facts about the new rule and its guidance:

1. In Notice 2014-54 the IRS confirmed that clients with both pre-tax and after-tax money in their employer plans can allocate the pre-tax portions of their plan distributions to traditional IRA rollovers and after-tax portions of their distributions to tax-free Roth IRA conversions.

2. Clients who took plan distributions prior to the issuance of Notice 2014-54, as well as those taking such distributions before the end of the year, can generally use a reasonable method to allocate pre-tax and after-tax funds.

3. Notice 2014-54 doesn’t change the way plan money is distributed. Such distributions are still made on a pro-rata basis from the money in a participant’s account that’s eligible for distribution.

4. The guidance in Notice 2014-54 does not apply to IRA distributions.

5. Pre-tax portions of a plan distribution are allocated first to direct rollovers, then to 60-day rollovers and finally, to amounts not rolled over.

6. Many plans only allow participants to make one direct rollover per distribution. In such cases, clients wishing to segregate their pre-tax and after-tax funds to do tax-free Roth IRA conversions should directly roll their pre-tax funds to a traditional IRA and do a 60-day rollover of their after-tax funds to a Roth IRA.

7. The ability for a plan participant to make after-tax contributions is largely up to the plan. Such contributions are not subject to the $17,500 cap on pre-tax/plan Roth salary deferrals, but are subject to the $52,000 overall limit (2014 cap and overall limit).

Dec 9, 2014 / XERO stock is rated an average 'sell' based on five analyst recommendations compiled by Reuters, with a median price target of $18.50.

Paul McBeth Yahoo Finance writes: US fund manager Fidelity Investments, with US$4.9 trillion under management, has built up a substantial shareholding in local software developer Xero.

The global investor has taken a 5.4 percent stake in Xero, making it the fifth biggest shareholder in the accounting software firm, according to a filing with the NZX. Since Sept. 25, Fidelity, via its FMR LLC unit, has been buying shares in Xero between $15.84 and $21.61 a share, and holds 6.9 million shares in the Wellington-based company.

That ranks the fund manager behind chief executive Rod Drury's holding at 17 percent, Craig Winkler's 14 percent stake, Boston-based Matrix Capital's 9.8 percent holding, and Silicon Valley investor Peter Thiel's 6.7 percent investment.

Shares of Xero fell 2.9 percent to $16.01, and have plunged from a peak of $45.99 in March when it was caught up in a global sell off of momentum stocks in the biotech and IT sectors, and as investors weigh up the software developer's plans to expand in North America.

The stock is rated an average 'sell' based on five analyst recommendations compiled by Reuters, with a median price target of $18.50.

US investment giant Fidelity Investments has taken a 5.4 per cent stake in accounting software developer Xero

Christopher Adams for the New Zealand Herald writes: US investment giant Fidelity Investments has taken a 5.4 per cent stake in accounting software developer Xero in a move the New Zealand firm's boss, Rod Drury, says is a solid endorsement of the company's prospects.

Boston-based Fidelity, which holds roughly US$1.7 trillion in mutual fund assets, purchased 6.9 million Xero shares at prices ranging from $21.61 to $15.84 a piece between September 25 and December 4, according to a substantial security holder notice filed with the NZX today.

The Wellington-based technology firm's stock has taken a hammering this year, plunging from a record $45.99 in March to close as low as $15.85 on October 30.

In addition to a global sell-off of growth-focused stocks, Xero shares have also been hit by investor disappointment over the company's North American growth.

Drury said Fidelity was seen as one of the world's most sophisticated investors.

"Everyone wants to have them on their [share] register," he said. "While there has been a lot of people talking down Xero, it's really interesting that they've been building up their position. That would seem to be a pretty good endorsement for our long-term prospects."

Drury said other international funds, which he wouldn't name, were also buying up Xero stock.

While Xero is active in four main markets - New Zealand, Australia, the United Kingdom and US - its North American prospects are the main focus for the market.

Xero added 8000 US customers in the six months to March 31 this year, but that growth slowed to only 4000 new US clients in the six months to September 30, prompting downgrades from equity analysts.

In October the company reported annualised revenue of $132.3 million, an 87 per cent increase on the same time a year earlier.

Xero, whose shares recently traded at $16.18, posted a $24.5 million loss for the six months to September 30, compared with a $17.1 million loss in the same period of 2013.

Fidelity has also built up a more than 9 per cent stake in NZX-listed, Christchurch-based healthcare distributor Ebos Group.