Xero has reported an operating and investing cash flow of NZ$-22.9 million for the quarter ending December 2014, despite seeing an 81 percent increase in receipts from customers compared to the same period the previous year.

Leon Spencer for ZD Net writes: New Zealand cloud accounting company Xero has reported a negative net operating cash flow of NZ$-8.5 million for the quarter ending December 31, 2014.

According to the Auckland-based company's unaudited quarterly results (PDF), Xero received NZ$32.5 million in receipts from customers, but spent over NZ$44 million on expenses, including staff costs, advertising and marketing, and other working capital.

Xero reported NZ$26.4 million in negative cash flow for the year to date, despite receiving NZ$83.9 million in customer receipts for the nine-month period.

The company's total operating cash flow for the quarter came to NZ$-22.9 million, a greater cash outflow than the NZ$-22.6 million it recorded in the September quarter,

Its total operating cash flow and investing cash flow for the year to date came to NZ$-62.8 million.

The results come as Xero continues its aggressive expansion into the Australian market and further afield, in countries such as the United States and the United Kingdom.

In Australia, the company has been working to wrest small and medium-sized business customers away from the local incumbent MYOB; in September last year, Xero indefinitely extended its free MYOB-to-Xero conversion service. (snip). The article continues @ ZD Net, click here to continue reading....

2015 IRA deadlines are approaching

Gary Mitchell for The Meridian Star writes: Financially, many of us associate April with taxes – but we should also associate April with important IRA deadlines.

    — April 1 is the absolute deadline to take your first Required Mandatory Distribution (RMD) from your traditional IRA(s).

    — April 15 is the deadline for making annual contributions to a traditional or Roth IRA.

    Let’s discuss the contribution deadline first, and then the deadline for that first RMD (which affects only those IRA owners who turned 70? last year).

    The earlier you make your annual IRA contribution, the better. You can make a yearly Roth or traditional IRA contribution anytime between January 1 of the current year and April 15 of the next year. So the contribution window for 2014 is January 1, 2014- April 15, 2015. You can make your IRA contribution for 2015 anytime from January 1, 2015-April 15, 2016.

    You have more than 15 months to make your IRA contribution for a given year, but why wait? Savvy IRA owners contribute as early as they can to give those dollars more months to grow and compound. (After all, who wants less time to amass retirement savings?)

    You cut your income tax bill by contributing to a deductible traditional IRA. That’s because you are funding it with after-tax dollars. To get the full tax deduction for your 2015 traditional IRA contribution, you have to meet one or more of these financial conditions:

    — You aren’t eligible to participate in a workplace retirement plan.

    — You are eligible to participate in a workplace retirement plan, but you are a single filer or head of household with modified adjusted gross income of $61,000 or less. (Or if you file jointly with your spouse, your combined MAGI is $98,000 or less.)

Xero says customer sales rise 79% in first 9 months of its financial year

Tina Morrison for NZ News UK writes: Xero, the cloud-based accounting firm, said customer sales are tracking 79 percent ahead of the year earlier in the first nine months of its financial year, in line with its revenue growth forecasts.

The Wellington-based company had $83.9 million of receipts from customers in the nine months ended Dec. 31, up from $46.7 million in the year earlier period, it said in a statement. In the third quarter ended Dec. 31, receipts rose 81 percent to $32.5 million from the same quarter a year earlier, it said.

The unprofitable accounting software developer is foregoing profits as it invests in growth. It's forecast to post a loss of $56.5 million this financial year ending March 31, from a loss of $35 million last year, according to analysts polled by Reuters. Total revenue is expected to jump 80 percent to $126.3 million, according to the analyst forecasts.

Xero had $147.8 million of cash to fund its growth at the end of the third quarter, down from $170.8 million at the end of the second quarter, it said today. The company in October 2013 raised $180 million in new capital to fund its US growth plans and is eyeing a US listing after it reaches annual revenues of US$100 million.

During the third quarter, it paid $5.3 million in cash and 238,490 in shares for Seattle-based online payroll software company Monchilla. The acquisition took its total operating and investing cash outflow to $22.9 million in the quarter, from $22.6 million in the second quarter. Had it not been for Monchilla, the cash outflow would have declined from the earlier quarter, it said.

Xero shares are the worst performer on the NZX benchmark NZX50 Index the past year, having lost 62 percent of their value. The stock last traded at $15.64.

XERO: High risk stock dubbed the "Apple of Accounting" / Its 12-month price target for Xero is NZ$19.

Tony Featherstone for TheBull.com.au writes: Small-cap fund managers are scouring the market for high-potential “disruptors”: the next Seek, REA Group or Carsales.com that can shake up industries and deliver exponential profit growth. The great challenge, of course, is buying them at a realistic valuation.

Consider cloud-based accounting software provider Xero. One investment bank bullishly dubbed it the “Apple of Accounting” in 2013 and said it could become a $10 billion, NASDAQ-listed stock within five years. At one point, Xero’s valuation was 13 times greater than the well-established, profitable Reckon. Even by tech standards, it was heady stuff for a loss-making company that is hard to forecast.

Right on cue, Xero fell from a 52-week high of $42.96 to $14.96 as concerns about its prospects in the United States intensified, and as the market finally realised too much upside was factored into the share price. After slumping to $13.76 in September, the share price has formed a base.

Chart 1: Xero (in $A)

Source: ASX

That’s good news for prospective buyers. Xero has terrific potential and now a share price closer to reality. It’s an interesting idea for experienced investors who are comfortable with higher-risk stocks and able to hold Xero for at least 3-5 years as it realises its global potential.

Xero has long-term attractions. Its cloud-based accounting receives plenty of plaudits for its simplicity and useability. A friend of this author, and a hard judge to please, gave rave reviews about the Xero interface. Like many small enterprises, his is hooked on its software.

Another valuable trait is Xero’s potential to change the relationship between companies and their external accounting advisers by allowing online collaboration through the cloud. Potentially, Xero’s cloud-based software could help accountants spend more time on higher-value advisory work and less on manual accounting issues.

The size of the global SME market – and potential uptake for cloud-based accounting software – is another huge tailwind for Xero. It had 158,000 paying customers in Australia at September 2014, from 79,000 a year earlier. Subscription revenue for the six months to September 30 was $52 million, from $28.1 million for the same period in FY13.

Rapid customer and revenue growth is needed to justify the high valuation. But Xero has only scratched the surface in a giant global market for SME cloud-based accounting software. Its market share in Australia is about 8 per cent and less than 1 per cent worldwide.

Xero recently passed 400,000 paying customers and processed NZ$250 billion of transactions and 95 million invoices in 2014. It has already become a big business, despite having tiny market shares in Australia, the UK and US.

CEO Rod Drury wrote in late December: “… Our focus until now has been to establish Australia and the UK as our next growth engines. Having delivered that, our focus is now on the US. We are making good progress in getting our operating team in place. The small-business cloud market is still in its infancy: of the addressable market of hundreds of millions of small businesses, only a small percentage currently use cloud software.”

Like all good software providers, Xero benefits from recurring revenue, high margins and potentially has a capital-light business model. It’s pouring money into recruitment, product investment and, more recently, marketing – exactly as it should for a product in the early adopter phase in Australia.

Local industry dynamics could work in its favour. The likely multi-billion-dollar float of accounting software provider MYOB this year will provide a new yardstick for valuations. And greater industry competition could lead to mergers and acquisitions among smaller competitors.

Xero’s US strategy is gaining momentum, off a low base. An upgraded version of its payroll offering in the US, allowing customers to electronically pay tax and make tax filings, has been well received. The plan is a nationwide rollout by the end of 2015, from three states now.

Some brokers blamed Xero’s initial weak payroll software for its lower-than-expected customer-acquisition rates in the US. Xero’s payroll features have high uptake in Australia it believes they will gain similar traction in the US.  

The astute acquisition in November of Monchilla, a Seattle-based company that developed online payroll software, has boosted its prospects in the vital US market. Xero said Monchilla had solved the complexity of electronic state-based payroll filings and that it would strengthen its offering as the US SME sector begins to embrace cloud-based accounting software.

It’s too soon to tell if Xero will lift customer-acquisition rates in the US, based on the upgraded payroll software and national rollouts strategy. But brokers such as Macquarie Equities Research view the changes favourably; it lifted its Xero recommendation this month from underperform to neutral. Its 12-month price target for Xero is NZ$19.

Macquarie wrote: “At NZ$16, we think the risks around Xero’s share price are more evenly balanced.  … As a result, we think clients that have a zero weight should consider starting to build a position and reduce their underweight position around these levels.”

Or put another way, it is time to build a position, cautiously, in one of the market’s more interesting “disruptors” after it has fallen sharply from its peak, and is starting to build a base on its chart, before the next, slower move higher.

Unusual But Legitimate Tax Deductions

William Hartsock for LegalInkMagazine.com writes: Unusual But Legitimate Tax Deductions

As a small business owner, there are many deductions that you may be surprised to know even exist. Although small business owners tend to typically try to “fly under the radar” and avoid raising any red flags to the IRS, there are quite a few legitimate deductions that you should consider taking on your tax return. Here, we will discuss 10 unusual but legitimate deductions that can end up saving small business owners money on their tax bill.

1. Home Office Deduction

The home office deduction is slightly controversial, but it is legitimate and should be considered. Generally, the home office deduction is thought to be a “red flag” deduction to the IRS because it requires a space in the home that is exclusively dedicated to the business operations. In other words, you cannot deduct a home office if it solely consists of a small space in your family room or den. The burden of proof rests with the taxpayer to show that the deduction is legitimate. The “red flag” does mean that it can elevate your chances of being audited, but as long as your claim is legitimate you are in the clear.

2. Insurance Premiums

If you are self-employed and paying for your own health insurance, your health insurance premiums are 100 percent deductible, subject to certain limitations.  The primary limitation on the deductibility of health insurance premiums is that the deduction cannot be more than the net profits of the business. It is also disallowed if the individual taxpayer claiming the deduction had the opportunity to be covered under another health plan, for example, their spouse’s health insurance plan.

3. Child Labor Deduction

A deduction that typically surprises small business owners is the child labor deduction. If you operate a sole proprietorship or a partnership in which you and your spouse are the only partners, then you may deduct salaries that you pay to your children (aged 17 and younger) employed by the business. Moreover, there is no need to pay Social Security taxes for children employed who are under the age of 17.

4. Travel and Meal Deductions

One of the greatest and possibly underutilized deductions available to small business owners relates to travel. Specifically, when a small business owner travels for a business-related purpose, the entire cost of lodging is deductible on the business owner’s tax return. Many small business owners do not realize that the cost of lodging is 100 percent deductible, so they skimp on their accommodations instead of staying in a nice place!  Similarly, the costs of travel and incidentals incurred during the course of the trip – other than meals – are fully deductible.

5. Guard Dog Deduction

Another unusual but legitimate small business deduction is the guard dog deduction.  If you use a guard dog to protect your small business premises, then you may deduct the cost of feeding and maintaining the dog. This includes vet bills, food, training and toys. In order to legitimately claim this deduction, you cannot simply try to pass the family dog off as a guard dog. The guard dog must also be a member of a traditional “guard dog” breed, such as German Shepherd, Doberman Pinscher or Rottweiler.

6. Bad Debt Deduction

Sometimes, businesses expect income from particular transactions, but never actually receive the income. This scenario is referred to a bad debt. An example of a bad debt occurs where a business provides goods or services to a customer, invoices the customer, but never receives payment.  When a small business incurs bad debts, the amount can be deducted at the lower of fair market value or face value.

7. Legal Fees for Illegal Activity

Another surprising deduction allows small business owners to deduct all legal fees associated with defense work completed for criminal proceedings against the business owner. Thus, if you are a small business owner and you are prosecuted for a criminal offense related to your capacity as the business owner, your legal fees and expenses are deductible. These legal costs are deductible regardless of the outcome of the case.

8. Cosmetic Surgery

In a famous case, a stripper attempted to deduct the cost of her breast-enlargement surgery on the grounds that it was necessary for her to successfully operate in her profession. Amazingly, the court allowed the deduction as valid. This case set a precedent for other interesting and related tax write-offs in the entertainment industry.

9. Private Airplane Deduction

Sometimes, a business just needs to use a private jet! The IRS allows small businesses to deduct the costs associated with the use of a private jet if the taxpayer can demonstrate that the plane was used for a purpose that directly impacts the “bottom line” of the business. Legitimate uses of a private place can include the transport of goods for meetings or conventions, or transport of people for these purposes.

10. Lawn Care Deduction

The lawn care deduction can apply to small businesses with stand-alone storefronts or to small business owners who operate out of their own home office. If the maintenance of the lawn surrounding the business has the ability to impact customers’ perception of the company, and in turn affect the success of the business, then lawn care expenses can be deducted. Here, business owners can reasonably claim that customers will judge the look of the lawn to be indicative of the quality of services rendered by the business.

Bits and Bytes: Check out these five apps to survive tax season

Robert Evatt for TulsaWorld.com writes: Everyone's W2 should be either in your hand or on its way. Time to get cracking on those tax forms -- even though most of us will probably procrastinate, at least a little.

I can understand the urge. Tax forms can be complicated, details change every year and many of us have to determine what information we need to tackle that beast.

While it's impossible to take all the frustration out of tax time, a number of apps out there can help you along the way. Here's some you might find useful.

TaxACT Express (iOS, Android, web):H&R Block and TurboTax are still the big names in e-filing, but if you'd like to try something a little different, TaxACT is a fine alternative. TaxACT Express only supports relatively uncomplicated returns like other free services, but it's a little more comprehensive than the others.

In addition to the usual W2 and dependent information, TaxACT Express can also handle education credits, retirement contribution credits and a few others. The streamlined app is easy to use, and you can move back and forth between mobile and web if you need to dig up information.

Be aware that while filing your federal return is free, you'll be charged $7.99 to file the state return.

TaxACT Inc., free

Quick Tax Reference (iOS, Android): Even if you use an accountant to file, you'll still need to gather up the information he or she will use and what you should expect. If you're not up on the latest tax code changes, Bloomberg's Quick Tax Reference can help.

This app can give you a quick view of tax rates, expensing limits, investment limitations and others. It includes information for every year back to 2011, if you're feeling masochistic and want to find out how your rates have changed.

Bloomberg BNA, free

Ask an Tax Preparer (iOS, Android): Maybe you think you've got a handle on most of your tax return but you're not sure if that new squirrel feeder in the yard is deductible. Rather than pay for an appointment to answer one question, you can ask it to this crowdsourced app.

The app can let you drill down from a range of topics, and you can ask a new question within that category or scroll through to see if your question has already answered. If all else fails, the app also lets you search for an accountant near you.

CPAdirect Marketing Inc., free

iDonatedit (iOS, Android): Deductions don't have to be from cash payments. You can deduct things you've donated to places like Goodwill. The only problem is coming up with a way to figure out the dollar amount you've donated without making auditors suspicious.

iDonatedit works to give you a documented list of everything you've donated and also lets you estimate how much those old bell-bottomed jeans were actually worth. When you're done, you can email the report directly to your accountant.

BMG Certified Public AAccountants LLC, $2.99

Slice (iOS, Android, web): Slice is designed as a smart shopping assistant with features such as price monitoring, barcode scanning, shipment tracking and budgeting. Why am I mentioning it here? It can also be used to keep track of items that can be deducted.

The app syncs up with email accounts and can automatically detect which of them are receipts for online purchases. Now that you have an accounting of everything you've bought, you can determine what you can deduct.

Project Slice Inc., free

---

Tax rivalry ramps up

H&R Block and Intuit, makers of TurboTax, have been at each other's throats for years. But this year the rivalry reached a new level with a botched stealth price increase for TurboTax.

TurboTax charges for more complicated returns and has different pricing levels. This year TurboTax removed schedules C, D, E and F — those cover small businesses, capital gains, supplemental income and farming respectively — from its $34.99 TurboTax Deluxe package and moved them to more expensive levels. The last three forms now require an additional $20, while small businesses now have to shell out an additional $40.

Customers were ticked off, and H&R Block pounced with an offer to convert any TurboTax customer affected by the move to its software, all for free. TurboTax had to apologize to its users in an email, which also offered $25 refunds to 2013 customers affected by the 2014 price hike. If you're in this jam, you'll have to pay the elevated price, then request the refund after you've filed.

In the tax world, even apology offers are complicated.

Internal Revenue Service Say’s to Hold On to Your Tax Return’s Paperwork

The Conservative Read writes:  Question. How long should I keep old tax paperwork? 

A. The Internal Revenue Service suggests keeping tax records for at least three years after the filing date. That’s the time period the IRS typically has to examine filed paperwork or perform an audit on taxpayers, and also the time allowed for you to file an amended return should you discover errors on a past return. 

If you own a business, it’s advisable to keep supporting documents for tax returns for six years. Keep the actual tax returns indefinitely because you’ll need them if you apply for new loans or disability insurance.

 In other tax-related news, lawmakers in December extended a number of popular tax breaks that people can take on their 2014 returns. Among them:

• If you are 701/2 or older, you could have donated up to $100,000 directly from your IRA to a charity in 2014 without paying income tax on the distribution.

• Taxpayers can choose to deduct either state and local sales taxes or state and local income taxes — a boon to those living in states without an income tax.

• Up to $4,000 in college tuition and fees from 2014 can be deducted for those within certain income limits.

• Filers can deduct up to $2 million of mortgage debt forgiven by a lender on a principal residence in 2014. Forgiven debt is generally taxed as income.
• Tax preparers encourage early filing, particularly if you are expecting a refund, to help reduce your risk for identity theft.
  Your tax return can only be filed once a year, Steber says: “The earlier you file, you lock out all that information from some fraudster using it. It stops any ID theft cold.”
  So how long will it take to collect your tax refund? IRS officials say most electronic refunds will be processed and issued within three weeks. Paper returns that typically take up to six weeks could now take seven weeks due to budget cuts and reduced staffing.
  For more information on the Affordable Care Act and taxes, visit healthcare.gov or the IRS website.