Update on cloud accounting apps

Posted on March 23, 2013 by RivesCPA

It is time to update my summary of online/cloud/SaasS bookkeeping apps. This was originally an answer to a question on Quora about what is the best cloud accounting solution for a small business. The answer is that the best solution is one that the small business can and will actually use. There are a number of cloud based accounting solutions, but each tends to be popular with certain types of small business owner. I am not a fan of one size fits all when it comes to bookkeeping, but I am a fan of doing something.

I have published this list before, but like everything that happens in the world of the internet things evolve rapidly. I do expect we will soon see some serious fallout among the cloud based accounting apps because user count is the key to success and ability to monetize your product or at least have the financial backing to keep it updated and operating correctly are important to survival.

Some of the more popular cloud based apps (the ones I see in my firm on a regular basis) are:

XERO: http://www.xero.com Started out being very popular in Europe and Australia markets, but now widely used in the US. A very good product that is relatively easy to use. The monthly subscription makes it one of the more expensive entry level options, but you do get a lot of functionality for the price.
Waveaccounting: http://www.waveaccounting.com True double entry accounting and it’s free. I think it is easy to use, but I am a CPA and not everyone agrees with me on that. It is free so all it costs is some time to check it out. They have had some problems with their app in the past and closed their API with Freshbooks, but still a widely used app for SMB bookkeeping mostly due to the price.
Quickbooks: http://www.quickbooks.com In my opinion one of the more complicated applications, but they have HUGE market share and obviously work for a lot of small businesses, plus there is a whole secondary market built around supporting small business owners on Quickbooks. The online version of Quickbooks did not make a good first impression, but Intuit has made significant improvements in the product and it is now in my opinion one of the better values in online bookkeeping and offers a lot of functionality for a reasonable price. (and I can get an additional discount off that already reasonable price)
InDinero: http://www.indinero.com Not true double entry accounting, but their hook is it is very simple for the non-accountant to use. It creates a balance sheet, but really it works more like a checkbooks register. If your business is simple that may be all you really need.
Outright: http://www.outright.com Also not true double entry accounting, but again it is very easy to use and to set up. Works great for sole proprietors/freelance workers who want to spend minimal time on bookkeeping. That is definitely their niche. They are very popular with small ecommerce sellers. Outright was acquired by GoDaddy in 2012, so the product has backing now, but it also is monetized so that you pretty much have to buy the monthly subscription now to have much functionality.
Freshbooks: Online Invoicing, Accounting & Billing Software Freshbooks started out as an invoicing and billing platform, but they have now added checkbook integration and basic general ledger ability to categorize balance sheet, income and expense transactions. The GL functionality is not as good as some of the other apps mentioned, but the invoicing and billing are so great that if those functions are critical to your business it deserves a look.

There are numerous others, but these are the ones I run into most often. Most of them have a free trial option, and are pretty easy to set up and test out. I usually suggest my clients narrow the list to two that look appealing and play around with them to see which works best for their unique situation or make an appointment to talk to me and see what I recommend for your particular business.

Tagged with: bookkeeping, cloud accounting, entrepreneur, small business, startup
Posted in Accounting, Startup

Transfer pricing of tangible goods between controlled businesses

Posted on March 17, 2013 by RivesCPA

The Internal Revenue Service has adopted specific regulations to govern how related businesses should determine pricing and allocate profits among related businesses. This is of particular interest to US businesses that are controlled by non-US taxpayers either directly or through related non-US businesses and which sell goods sourced by the non-US taxpayers into the US market through a controlled US entity.

Don’t assume that just because one pricing method is listed that means it can be the basis for your pricing structure. Some people read the regulations too literally, normally jumping to method 6, and want to base their pricing on some other convoluted methodology because it gives them the best answer to minimizing their US tax liability. In fact the regulations specify that each pricing scheme and resulting allocation of profits must use the “best method” available to determine the pricing of goods exchanged between controlled entities. In practical application, you will likely want to apply the methods in the order they are listed below, only considering the next method in the list if for some reason the lower numbered pricing structures will not work with your situation.

Summary of pricing methods:

CUP-Comparable Uncontrolled Price-What do you charge another un-related entity in an arm’s-length transaction?
The resale price method- Similar to CUP method in that it looks to see if the pricing results in a comparable gross profit margin on the part of the US business to what would be achieved in a comparable arm’s length transaction.
The cost plus method-Looks at pricing from the view of the non-US selling entity to see if it is achieving a comparable markup or gross profit as would be achieved from selling to an unrelated entity in an arm’s-length transaction.
The comparable profits method-Also measures profits, but from the viewpoint of are the gross profits achieved comparable to unrelated third parties who engage in similar selling activities under similar circumstances with un-related third parties.
The profit split method-Basically this method looks to determine if the allocation of combined profit or loss between the two related entities is reasonable relative to the value of each entity’s contribution to achieving that profit.
Unspecified methods-The catchall if none of the above methods is appropriate or there are other factors that must be taken into consideration to arrive at a reasonable price level for the related entities.

For more details-Download the text of the regulations and discussion of transfer pricing methods.

Tagged with: business, nonresident alien
Posted in Tax

5 Good Reasons to E-File Your Tax Return

Posted on January 30, 2013 by RivesCPA

If you haven’t tried IRS e-file before, now is the time. Most taxpayers – more than 80 percent – file electronically. The IRS has processed more than 1 billion individual tax returns safely and securely since the nationwide debut of electronic filing in 1990. Fewer people file a paper tax return every year. Here are five good reasons to e-file your tax return:

Accurate and complete. E-file is the best way to file an accurate and complete tax return. Tax returns that are incomplete or include errors take longer to process.
Safe and secure. Tax preparers and software companies who e-file must meet strict guidelines and provide the best in encryption technology. You receive an acknowledgement within 48 hours that the IRS received your tax return. If the IRS does not accept your tax return, you will receive notification and can quickly correct your return and resubmit it.
Faster refunds. An e-filed tax return usually means a faster refund compared to a paper return. The IRS issues most refunds in less than 21 days. If you choose direct deposit, your refund goes directly into your bank account. Combining e-file with direct deposit is the fastest way to get your refund. About three out of four taxpayers who file receive a tax refund. Last year the average refund was about $2,700.
Payment options. If you owe tax, you can e-file early and set an automatic payment date anytime on or before the April 15 due date. You can pay by check or money order, by debit or credit card, or by transferring funds electronically from your bank account.
It’s easy. You can e-file on your own through IRS Free File, the free tax preparation and e-filing service available exclusively at IRS.gov. You can also use commercial tax preparation software or ask your tax preparer to e-file your return. And, if you qualify, IRS Volunteer Income Tax Assistance and Tax Counseling for the Elderly partners will e-file your return for free.

Tagged with: Form 1040, taxes
Posted in Tax

Simplified Home Office Deduction

Posted on January 16, 2013 by RivesCPA

As part of its efforts to simplify tax reporting, the IRS will offer a new simplified Home Office Deduction beginning with 2013 tax returns (the one you will file in April 2014). To qualify for a home office deduction, a business owner must maintain an area of their home that is used “exclusively” for business and it must be the principal place of business. Employees who have a home office must also use the space for the convenience of the employer and must not rent a portion of the home to the employer. Many people do not realize that they do NOT need to have a separate room in their home to qualify for a home office deduction, just an area of the home that is devoted exclusively to home office use. If you use your spare bedroom as an office, but your mom also sleeps there when she visits, then the space is not used “exclusively” for business.

With improvements in technology and the growing trend in working virtually, the Treasury Department estimates that as much as 52% of small business are now operated from a home office. The new home office reporting is designed to make it easier for taxpayers who qualify to take a tax deduction for use of the office space in their home. Currently you have to fill out a 43 line form, number 8829, to calculate the home office deduction. Beginning with the 2013 tax return, you will have the option to use a much simpler form and you can deduct $5 per square foot of home office space for a tax deduction of not more than $1,500.

The existing requirements to qualify for a home office deduction still apply, but you no longer have to track your actual expenses and complete the entire 8829 form in order to benefit from the tax deduction.

Tagged with: small business, tax deductions
Posted in News and Updates, Tax

The fall off the fiscal cliff was not as hard as it could have been

Posted on January 3, 2013 by RivesCPA

As a result of last minute wrangling and voting, Congress extended many of the lower tax rates and exemptions that were scheduled to expire on December 31. Here is a summary of the key provision from the “American Taxpayer Relief Act” of 2013:

Individual tax rates stay at 10, 15, 25, 28, 33 and 35 percent with a new tax rate of 39.6% .
The top rate applies to income levels above:
Joint Filers $450,000
Single Filers $400,000
Head of Household $425,000
Married separate filers $225,000
Personal exemptions phase out by reducing your personal exemptions by 2% for every $2,500 that AGI exceeds:
$300,000 for joint filers
$275,000 for head of household
$250,000 for single filers
$150,000 for married filing separate
Itemized deductions phase out by reducing you itemized deductions by 3% of the amount by which AGI exceeds:
$300,000 for joint filers
$275,000 for head of household
$250,000 for single filers
$150,000 for married filing separate
Capital gains, including qualified dividends, will be taxed at:
0% for those in the tax brackets below 25%
15% for those in the brackets from 25% to 35%
20% for those in the 39.6% bracket
Estate and gift tax rates increase to 40% instead of 55% and the unified credit for estate and gift tax exemption stays at $5 million and that amount if now indexed for inflation. Portability of unused credit between spouses is also retained.

There are some other minor extensions such as the 5 year period for taxation of built-in gains for S Corporations and extension of tax free distributions from IRA to charities. Probably the biggest item that was not extended was the payroll tax cut, so effective January 1 FICA taxes taken out of employees paychecks went back to 6.2% which combined with Medicare tax is now 7.65% again and the combined self-employed tax rate will go back to 15.3% for 2013.

Tagged with: taxes
Posted in Tax