Cloud Accounting Strategy – Do it Once, Do it Right

FROM INTUIT.COM

There is no denying that cloud accounting software is the way to go for the progressive accounting firm and their increasingly tech savvy client-base.  It’s ease of use, accessibility and integrations with a range of solutions makes it a far more compelling proposition for most of your clients than the desktop status quo.

The explosion of cloud accounting solution globally presents a once-in-a-generation opportunity for our traditional, often slow-to-move industry to really undergo genuine transformation.  Data, digitisation and value-added services are all client engagement opportunities made easy and smart by cloud solutions.

How to Hit the Ground Running with Cloud

It is mission critical to have a robust cloud strategy in place to ensure that your firm makes the most out of delivering this option to your customers. The selected cloud solutions must maximise value for them and you.

Your cloud strategy should aim to deliver positive outcomes such as:

1. More engaged customers, inspired by your proactivity and use of best-of-breed technology such as Spotlight Reporting
2. More engaged staff members, encouraged to be working for a progressive practice
3. Access to new fee opportunities, because you should be targeting a massive return on investment
4. Process improvement, shaving hours off compliance, reporting, data capture and administrative processes
5. Cost savings, as you retire redundant processes, systems and on-premise technology.

But the starting point for any great strategic plan is to discuss, debate and plan.  Have a robust planning process – giving it sufficient time, band-width and openness – is all-important.  You want to only do this once, do it right.

Defining a Cloud Strategy

Your cloud strategy should encompass:

1. Clear quantitative objectives - fee growth and increase in average revenue per customer, for example.
2. Outward-facing success metrics - customer satisfaction, new customers attracted, marketing KPI improvement.
3. Having a ‘cloud champion’ at each layer of the organisation, including full Partner buy-in. The cloud champion should know most of the tools, so needs the time to research and play. A great resource for this is the Quickbooks apps page.
4. Research on what leading peer firms are doing - seek compelling examples.
5. Your own robust assessment of the leading cloud accounting software available. Choose based on experience and recommendation, not a sales pitch.
6. Investment in deployment. Staff time, training, events, marketing, sales and other ‘non-technical’ activity are often overlooked or starved of oxygen - don’t make that mistake.
7. Team engagement and involvement - the strategy needs co-ownership.
8. A partnership model. Who can be ‘suppliers for life’? Seek industry partners who genuinely understand the industry and want your firm to succeed.

10 Benefits To Having A 529 Plan

It seems like there are more and more days that are national this or national that day.  May 15th is National Chocolate chip day as well as National Nylon Stocking Day.  Later this month, it will be May 29th or 529 day.  This day is recognized in our industry since 529 plans are the most popular college savings accounts in our country.  College tuition rates have historically risen about 5-6% per year on average and the price of a four-year public university is estimated to reach $140,000 by the year 2020 and almost double that for a private university.  As many people graduate from colleges around the country this month, some will enter the real world with huge student loans while others will begin the next season of their lives with no debt.  While it’s too late for them to save for college, there may be many of you that still have time to save for college for your children, grandchildren or even great grandchildren.

Here are ten reasons why many parents and grandparents have selected these plans to help invest for their loved one’s future college expenses.

1. It can pay for more than just tuition.  Withdrawals can be used for any qualified higher education expense, including tuition, fees, supplies, books, computers, room and board, etc.
2. You have the ability to change the beneficiaries. The beneficiary can be changed to a member of the immediate or extended family including siblings, grandchildren, nieces, nephews, and cousins.
3. You have control of the assets.  The account owner – not the beneficiary-maintains control of the assets, including how and when they will be used.
4. You have contribution flexibility.  Some 529 accounts allow you to contribute as little as $50 per month to an account.  Most plans allow account owners to contribute up to $300,000 per beneficiary over the lifetime of the account.
5. There is a wide range of schools that accept funds from 529 plans including any postsecondary college, university or vocational schools.
6. There are no income restrictions.  Anyone can open a plan regardless of their income.
7. There are multiple investment options.  Most 529 plans offer a wide range of investment choices allowing you to invest your assets in the portfolio that best suits your college investing goals.
8. As you might expect, many 529 plans offer features that make them a convenient way to save for college, including monthly automatic investment plans and portfolios that automatically rebalance as the beneficiary gets closer to college.
9. The earnings in the accounts growth tax free.  Earnings are free from federal income tax when withdrawn for qualified higher education expenses.
10. 529 plans can help with estate planning.  Five years’ worth of gifts can be made at once to a 529 plan without owing federal gift tax, as long as no other gifts are made to the same beneficiary over the five years.

The primary downside to a 529 plan is that you risk income tax and a 10% penalty on the account earnings if you take out 529 money for a purpose other than college.  Another negative is that there is a possible loss of value of the contributions you make since they can be invested in the stock market and bond market. As with other investments, there are generally fees and expenses associated with participation in a 529 plan. Most states offer their own 529 programs, which may provide advantages and benefits exclusively for their residents. The tax implications can vary significantly from state to state.

So while you’re celebrating National Paper Clip day on May 29th of this month, try to remember that saving for college expenses can help tremendously down the road.  Saving for retirement and saving for college expenses for children and grandchildren are two of the biggest goals that clients work with us on.  

How Many IRAs Should You Have?

FROM MORNINGSTAR.COM

Generally, the fewer the better: Fewer accounts to track, fewer required minimum distributions to compute, fewer beneficiary designation forms to fill out. But despite the dream of simplicity, most people end up with multiple accounts.

Start with the IRAs you cannot combine: If you have a Roth IRA and a traditional IRA, they obviously must be in separate accounts. If you own an IRA you established for yourself and an inherited IRA, those cannot be combined. In fact, you cannot combine an IRA you inherited from one decedent with an IRA you inherited from another decedent.

If you have a business that contributes to a SEP-IRA, the SEP-IRA must be separate from your other traditional IRAs.

That's it (I think) for the legally mandated separate IRAs.

Keep Rollover and Contributory IRAs Separate?An IRA that has received no contributions other than rollovers from qualified retirement plans is called a "rollover" IRA. An IRA to which you have ever made any "regular" (i.e., annual-type nonrollover) contributions is called a "contributory" IRA--even if it also contains one or more rollovers from qualified plans.

There are three reasons offered for keeping your rollover IRAs "pure" and uncontaminated by "regular" contributions--but only one of those reasons is valid!

Not a valid reason: Once upon a time, a rollover IRA was the only type of IRA that could be "rolled over" into a qualified plan--but that rule was repealed in 1992.

Also not a valid reason: Some people mistakenly think that if they make aftertax (nondeductible) contributions to a separate IRA, they can later withdraw those contributions from that particular separate IRA tax-free. Sorry, it doesn't work that way. For purposes of determining what portion of any IRA distribution is considered a tax-free return of the individual's nondeducted contributions, all of that individual's IRAs (whether rollover or contributory) are considered to be one giant single IRA. And the proportion of the distribution that is tax-free is based on the portion of the combined balance of all of the person's IRAs that is represented by aftertax contributions.

So, nowadays there is absolutely no tax difference between these two types of IRAs--but federal bankruptcy law does distinguish, which leads to the valid reason: There is an unlimited bankruptcy exemption for (noninherited) rollover IRAs. The exemption for "contributory" IRAs is very generous but not unlimited. It's possible some states' creditor exemption laws make similar distinctions. So someone who has an eye on potential creditors might therefore want to keep his or her rollover IRA(s) "pure" (not "contaminate" them with any regular contributions).

Different IRAs for Different Death Beneficiaries?In some cases, it's desirable to have separate IRAs payable to different beneficiaries. Someone who is leaving an IRA partly to charity and partly to human beneficiaries might consider having separate IRAs, one payable to the human beneficiaries and one payable to the charities. That way, the desire of the human beneficiaries to use the life expectancy payout method for their share of the IRA money is not put at risk by having nonindividual beneficiaries on the same account.

It is perfectly possible to name both humans and charities as beneficiaries on the same IRA, and obtain the life expectancy payout for the individual beneficiaries, for example by establishing "separate accounts" after the participant's death or simply paying off the charities before the "beneficiary finalization date." But those approaches do have deadlines, and there is always the risk that litigation or mistake or some other cause could result in missed deadlines. Naming only individual beneficiaries on a separate IRA established for them, while naming charities on a different IRA, avoids this risk.

Similarly, if you have multiple beneficiaries who can't get along with each other, you might want to leave each one his or her own separate IRA.

Investment Reasons to Have Separate IRAs?If you are subject to taking RMDs, and you have an IRA investment that you think has a real risk of becoming worthless, keep it in a separate IRA. That way, if it does radically shrink in value, your RMD from that particular IRA will be the RMD computed in the usual way or the total value of the account if less. At least you will benefit from your lost investment by having a reduced RMD!

I recommend avoiding any investment that has a high potential of causing a prohibited transaction. If you ignore this advice, then I recommend keeping the potentially PT-causing investment in an IRA separate from your other more traditional IRA investments. The occurrence of a PT disqualifies the entire account. If a PT does occur, it is better to have only the separate IRA holding the PT-causing investment disqualified than to lose qualification for all IRA assets.

If you hold annuity contracts, it is likely that the insurers who issue the contracts will set up each contract as a separate IRA. Or maybe you just like to have accounts with multiple financial institutions to get the benefit of advice or other advantages each one may offer.

Cleaning Up the Mess Left by DIY Tax Software

More and more taxpayers are turning towards do-it-yourself tax software to prepare and file business and individual income tax returns.

With every passing year, our offices receive an ever-increasing number of calls asking for help fixing previously self-filed returns. Consumers of these products are beginning to treat tax preparation software as virtual tax return preparers. As the IRS has focused on increased regulation for paid providers of tax return services, I believe the Service’s scope should include tax preparation software providers as well.

The security of taxpayer accounts and personal information has been a top priority of the IRS for e-file providers since the electronic filing program’s inception. Publication 4557, Safeguarding Taxpayer Data, and Publication 4600, Safeguarding Taxpayer Information were published to provide guidance and best practices. However, in 2015, Intuit’s TurboTax systems were reportedly hacked, leading to many fraudulent returns being filed without the taxpayers’ knowledge.

The repercussions of the fraudulent returns left fraud victims having to manually file their tax returns, file police reports detailing possible identity theft, and monitor their credit reports for any other signs of their information being used. Despite the security breach, no penalties were imposed against Intuit. The company was only instructed to prepare a list of changes to reduce tax fraud by the next filing year.

Tax preparation software providers need to apply the same strict data-handling guidelines to self-preparation tax software as do the professional tax preparers.

Another significant issue with do-it-yourself software is the consumer’s reliance on it to do the impossible and apply the voluminous amount of tax law to their individual scenario. Without a firm grasp of the ever-changing tax law, individuals are relying heavily on the automated prompts within the system to help guide them, further creating the illusion that preparing and filing income tax returns is simple in all cases.

Granted, a tax return may be simple, and the software utilized may be sufficient, in some cases. However, even in straightforward scenarios, costly mistakes can and do happen. A client of ours, for example, forgot to enter the city tax that was withheld from them, costing them approximately $4,000 while self-preparing a very simple return. Additionally, what most fail to realize about tax audits and proceedings is that the burden of proof, unlike the legal system, fall on the taxpayer to show the reason why certain deductions were taken or key information was omitted from the return. Consumers of these tax products need to be reminded that relying on prompts from the software does not constitute a viable defense.

Another case involved both a business and a personal income tax return, and arose from the taxpayer’s limited knowledge of Schedule K-1s, the IRS’s ability to cross reference documents, misclassifying large expenses, and misrepresented 1099 filings. The taxpayer had not included Schedule K-1’s on his personal return after preparing his own business’s return. The taxpayer failed to realize that the IRS operates on a matching system in which it matches third-party filings with an individual’s return. The mismatch of the K-1 that was present on the S corporation return, but not found on the client’s 1040, triggered a correspondence audit. In yet another example, the client incurred over $161,000 worth of penalties and interest over multiple years, and had to spend over $30,000 in accounting fees over a number of years, working with the IRS and states, to remove the incorrect penalties and amend six years of business and individual tax filings.

The cause? The client used self-preparation tax and payroll software, and assumed their company was correctly filing partnership and payroll forms for years. In fact, the client had been sending in payroll tax deposits, but not filing all of the forms consistently, omitting filing for the periods where no payroll tax was due. The client was unaware of a requirement that mandated taxpayers to file zero payroll forms. Since the IRS had not received zero payroll forms, the tax liability from prior periods was assumed for the periods with missing tax forms. Aside from missing forms, the client was also unaware that an employee had a certain type of visa status that exempted an employer from certain payroll taxes. Presenting this information helped to show that a payroll tax overpayment existed on the account, helping to reduce their penalties and interest.

Taxpayers should be made aware that the software they are using and relying on to prepare and file their taxes may not adequately report their tax liability to comply with tax laws. Furthermore, taxpayers may inadvertently be leaving more of their money on the table due to the automated software. ABC News recently showed a segment on how one family’s refund amounts differed when using do-it-yourself tax software, a storefront tax preparer and a tax accountant. Their highest refund was calculated by the tax accountant. The family admitted to having overlooked a key item within the tax software, which the tax accountant had found for them. By engaging in an open dialogue with a tax professional, the family was able to more than double their tax refund amount.

Until the IRS requires all tax preparation software providers be held to the same standards of paid tax professionals, we must continue to advocate for our clients and those burned by do-it-yourself software. It is up to us to remind taxpayers to seek professional help with their tax issues to avoid costly mistakes. The services of tax professionals may seem more expensive upfront than do-it-yourself tax software at first glance. To overcome this obstacle, it is important to showcase the value in choosing tax professionals who not only provide peace of mind, quality of service, and thorough investigation and resolution of their tax issues, but also perform in-depth tax research and perform representation services. As tax professionals, we need to keep the dialogue open with our clients and those attempting to navigate through tax laws on their own, and remind them of the value we bring.

Why You Should Think About Your 2016 Income Tax Now

FROM:  http://www.consumerreports.org/

Now that a few weeks have passed since you filed your 2015 income tax return, it can be tempting to put paying Uncle Sam out of your mind until next year. Before stashing the file, however, taking another look at your returns could offer some important tax planning lessons that can make tax time next year a less stressful (and less costly) process.

“When everything is fresh in your mind is really the time to plan for 2016,” says Gil Charney, director of the Tax Institute at H&R Block.

Using your 2015 income tax returns as a starting place, here are six smart tax moves to consider right now:

1. Adjust your withholding. While it may have been fun to figure out what to do with your big income tax refund (the average taxpayer’s was more than $2,700 in 2015), lowering your withholding will give you access to more of your hard-earned money throughout the year. Alternatively, if you got slammed with an unexpectedly high tax bill, you may want to increase your withholding. Request a W-4 form from your human resources department to make the change.

If you’re in the midst of any big life changes that could affect your tax bill, such as getting married, buying a house, or having a baby, you may also need to change your withholding. “Many people fill out their W-4 when they start working with an employer, and then they don’t update it to reflect changes in their income or family situation years later,” says New York CPA Alan Straus.

2. Get organized. Whether you filed your income tax returns on your own or worked with an accountant, you probably spent serious time hunting down documentation and records at tax time. Instead of scrambling again next year, spend some time now starting a 2016 tax file for things like receipts for charitable donationsor business expenses.

3. Increase your contributions to tax-advantaged accounts. Tax-deferred contributions to retirement accounts not only help secure your financial future, but they also provide an important opportunity to lower your taxable income. This year you can stash up to $18,000 ($24,000 for those age 50 or older) in a 401(k) tax-free. If you’re not maxing out your contributions, see if you can increase the amount that you put away each month, making sure to save at least enough to get the maximum employer match. “For high earners, deferring the maximum amount could push you into a lower tax bracket,” says Susan Allen, a senior manager with the American Institute of Certified Public Accountants.

4. Make sure your savings are working for you. You know that most savings accounts today offer laughably low rates—0.13 percent is typical for bank savings accounts, and 0.23 percent for one-year CDs but you may not realize how paltry they are until you total it up at tax time. Use that as motivation to shop around to make sure that you’re getting a competitive savings rate—and consider whether you could shift some of those assets into other investments. If you have more than about six months’ worth of expenses sitting in a savings account, you may want to discuss with a planner whether there’s a better place to put some of that money, given your financial goals and risk tolerance.

5. Consider bunching medical expenses this year. Medical expenses must total more than 10 percent of your adjusted gross income in order to qualify for deductions. (For individuals age 65 or older—or households in which one spouse is 65 or older—the threshold this year is 7.5 percent of AGI.) That’s a high threshold, especially for healthy families, but if you’ve already had a big medical expense this year or anticipate one, you might consider scheduling other pricey medical procedures (think dental work and elective surgery), so that you can write them off this year on your income tax as well. You’ll also want to save receipts for all your out-of-pocket spending on prescriptions and doctor’s visits this year. Check IRS publication 502 to make sure the medical expense qualifies. Cosmetic procedures and most nonprescription medications, for instance, don't.

6. Lock in some capital losses. If you ended up with a big capital gains tax bill last year, it might make sense to harvest some tax losses now to offset future gains. Given the recent market gyrations, you may have stocks that you can sell to lock in a loss while rebalancing your portfolio. Or, you have enough time left in the year to wait 30 days and then repurchase the same stock. “However, you need to stay invested,” says California-based CPA Larry Pon. “Taking a loss and then leaving your money in cash will not help with your investment goals.”

Nine Facts about the Adoption Tax Credit

If you are adopting a child this year, you may qualify for a tax credit. Here are nine things you should know about the adoption credit.

1. Credit or Exclusion. The credit is nonrefundable. This means that the credit may reduce your tax to zero. If the credit is more than your tax, you can't get any additional amount as a refund. If your employer helped pay for the adoption through a written qualified adoption assistance program, you may qualify to exclude that amount from tax.

2. Maximum Benefit. The maximum adoption tax credit and exclusion for 2016 is $13,460 per child.

3. Credit Carryover. If your credit is more than your tax, you can carry any unused credit forward. This means that if you have an unused credit in 2016, you can use it to reduce your taxes for 2017. You can do this for up to five years, or until you fully use the credit, whichever comes first.

4. Eligible Child. An eligible child is an individual under age 18 or a person who is physically or mentally unable to care for him or herself.

5. Qualified Expenses. Adoption expenses must be directly related to the adoption of the child and be reasonable and necessary. Types of expenses that can qualify include adoption fees, court costs, attorney fees, and travel.

6. Domestic or Foreign Adoptions. In most cases, you can claim the credit whether the adoption is domestic or foreign. However, the timing rules for which expenses to include differ between the two types of adoption.

7. Special Needs Child. If you adopted an eligible U.S. child with special needs and the adoption is final, a special rule applies. You may be able to take the tax credit even if you didn't pay any qualified adoption expenses.

8. No Double Benefit. Depending on the adoption's cost, you may be able to claim both the tax credit and the exclusion. However, you can't claim both a credit and exclusion for the same expenses. This rule prevents you from claiming both tax benefits for the same expense.

9. Income Limits. The credit and exclusion are subject to income limitations. The limits may reduce or eliminate the amount you can claim depending on the amount of your income.

Don't hesitate to call if you have any questions about the adoption tax credit

Tax Season Remains Open For Many Tax Exempt Organizations

Although the filing deadline for individuals has passed, tax season isn’t over just yet. Monday, May 16, 2016, marks the filing deadline for many tax-exempt organizations.

Information returns for tax-exempt organizations (called the 990-series) are due on the 15th day of the fifth month after the close of the tax year. When the 15th falls on a holiday or Saturday or Sunday, the date moves ahead to the next business day. In 2016, May 15, the traditional due date for tax-exempt organizations with a calendar year end falls on a Sunday: those organizations have until May 16, 2016, to file for the 2015 tax year.

This deadline used to apply only to organizations with significant receipts and/or assets but that changed in 2006. The Pension Protection Act of 2006 made it mandatory for most tax-exempt organizations to file an annual information return or notice with the IRS regardless of how much (or little) income the organization receives. Failure to do so for three consecutive years will result in an automatic loss of tax-exempt status unless exempted from filing requirements (for example, churches and certain church-related organizations are not required to file annual reports).

The normal filing requirements are as follows:

You will not receive a confirmation e-mail that the form 990-N has been filed. However, you can check the status of your filing by going to the form 990-N site and logging in. Click over to “Manage Form 990-N Submission” and you should see the status for your organization, including whether your form was accepted or rejected. If your submission was rejected, click on the “Submission ID” link for more information.

If you need more time to file any of the form 990-series other than the form 990-N, you can obtain an extension. There is no extension available for the form 990-N (e-Postcard) but there is also no penalty if you file the form 990-N late. Remember, however, failure to file any of the form 990 series (990, 990-EZ or 990-N) for three consecutive years will result in an automatic loss of tax-exempt status. If that happens, your organization will not be eligible to receive tax-deductible contributions and your organization will have to file for reinstatement – even if the organization was not originally required to file an application for exemption. Reinstatement can be time consuming and expensive.

Some folks, including tax professionals, who are still not familiar with the updated rules are advising small organizations that they don’t have to file if their receipts are minimal. This is not true. You must file unless otherwise exempt.

Remember that forms 990, 990-EZ and form 990-PF must be made available for public inspection (that’s likely why the NFL opted out of status). Information on the form 990-N is also available to the public via the Exempt Organizations Select Check tool on the IRS website. That means that you should not include Social Security Numbers (SSNs) of officers, donors, clients or other individuals on the series 990 forms.

If you have questions or require assistance, be sure to check with your tax professional.