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:

1. 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.
2. 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.
3. 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)
4. 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.
5. 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.
6. 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.

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:

1. CUP-Comparable Uncontrolled Price-What do you charge another un-related entity in an arm’s-length transaction?
2. 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.
3. 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.
4. 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.
5. 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.
6. 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.

1.  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.
2.  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.
3.  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.
4.  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.
5.  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.

 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.

1. 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
2. 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
3. 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
4. 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
5. 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.

Married filing jointly
$250,000
Married filing separately
$125,000
Single
$200,000
Head of household (with qualifying person)
$200,000
Qualifying widow(er) with dependent child
$250,000

The threshold amounts are indexed for inflation.

The tax is 3.8 percent of certain net investment income of individuals that have income above theses amounts starting with income earned after 12/31/2012.  It will not affect income tax returns for the 2012 taxable year that will be filed in 2013.

Estates and Trusts will be subject to the Net Investment Income Tax if they have undistributed Net Investment Income and also have adjusted gross income over the dollar amount at which the highest tax bracket for an estate or trust begins for such taxable year (for tax year 2012, this threshold amount is $11,650).

Net investment income includes interest, dividends, capital gains, rental and royalty income, non-qualified annuities, income from businesses involved in trading of financial instruments or commodities, and businesses that are passive activities to the taxpayer.  To the extent that gains are not otherwise offset by capital losses, the following gains are  items added to Net Investment Income:

• Gains from the sale of stocks, bonds, and mutual funds.
• Capital gain distributions from mutual funds.
• Gain from the sale of investment real estate (including gain from the sale of a second home that is not a primary residence).
• See New Federal Real Estate Transaction Tax for a discussion of gains on the sale of a personal residence which may be subject to NIIT.
• Gains from the sale of interests in partnerships and S corporations (to the extent you were a passive owner).

These income items are reduced by deductions that can be allocated to investment income such as investment interest expense, investment advisory and brokerage fees, expenses related to rental and royalty income, and state and local income taxes allocated to items included in Net Investment Income.

Wages, unemployment compensation; operating income from a non-passive business, Social Security Benefits, alimony, tax-exempt interest, self-employment income, Alaska Permanent Fund Dividends and distributions from certain Qualified Plans are not investment income.

Investment income that are included on your Form 1040 by reason of Form 8814 (Election to report child’s interest and dividend income) are included in calculating your Net Investment Income. However, the calculation of your Net Investment Income does not include (a) amounts excluded from your Form 1040 due to the threshold amounts on Form 8814.

For individuals, the tax will be reported on, and paid with Form 1040. For Estates and Trusts, the tax will be reported on, and paid with, the Form 1041. You will need to include the NIIT when calculating your estimated tax deposits for 2013.

Spyer’s estate’s claim was that the provisions of Section 3 of the Defense of Marriage Act (DOMA) violated the equal protection clause of the U.S. Constitution. Section 3 of DOMA defines “marriage” under federal law as a legal union between one man and one woman as husband and wife. That definition applies to the section of the Internal Revenue Code covering estate tax and the marital deduction provisions of estate tax allowing a deduction from the taxable estate for assets passing to a spouse.

Spyer’s estate argued the equal protections clause of the US Constitution, prohibited application of section 3 of DOMA. The court declined to classify homosexuals as a suspect class under the equal protections clause, but it still found the DOMA provision unconstitutional under the lower “rational basis” standard which requires only that a law have a rational basis for its classifications to withstand an equal protection clause challenge. The court thus ordered that the refund be paid to Spyer’s estate.

Interestingly the Justice Department declined to defend the DOMA, but the ruling was appealed with the Bipartisan Legal Advisory Group of the U.S. House of Representatives taking up the defense of DOMA. The Second Court of Appeals has just upheld the lower court ruling. (See Windsor v. U.S., 109 AFTR 2d ¶ 2012-870 (DC N.Y. 6/6/2012)110 AFTR 2d Para 2012-5378)

While the Windsor ruling specifically applies to federal estate tax, it could have much broader implications for same sex couples considering there are many federal tax provisions that provide benefits to married persons.  Presumably those benefits would likewise become available to same-sex married couples if the DOMA provision is invalid.  Same sex couples need to consider if they might benefit from

•  joint tax return filing rates and permissions
•  federal gift tax marital exclusion
• spousal beneficiary and rollover provisions for IRA’s and other qualified retirement plan distributions
•  portability of unified credit amounts between spouses

Claiming spousal tax benefits is not an easy task however, because the case has not reached the Supreme Court and not every federal court of appeals is obligated to follow a ruling by the Second Court.  The Second Court ruling still provides a basis for same sex couples to consider filing amended returns to claim the benefits of married status provided under federal tax laws.

As you can imagine everyone thinks their IRS issue is special and so the TAS has issued new criteria it will begin following when deciding if it should take on a case.  The TAS believes it offers the most value when it handles cases that fit one or more of the following criteria:

1. Where a taxpayer is experiencing some financial difficulty, emergency, or hardship, and the IRS needs to move much faster than it usually does (or even can) under its normal procedures. In those cases, time is of the essence. If the IRS doesn’t act quickly (for example, to remove a levy or release a lien), the taxpayer will experience even more financial harm.
2. Where many different IRS units and steps are involved, and the case needs a “coordinator” or “traffic cop” to make sure everyone does their part. TAS plays that role.
3.  Where the taxpayer has tried to resolve a problem through normal IRS channels but those channels have broken down.
4. Where the taxpayer is presenting unique facts or issues (including legal issues), and the IRS is applying a “one size fits all” approach, isn’t listening to the taxpayer, or doesn’t recognize that it needs new guidance for those circumstances.

If you are dealing with a normal processing issue, recognize that those doe sometimes take time, but the IRS will in most cases eventually resolve the problem.  If your IRS problem fits nicely into one or more of the TAS categories, then maybe you can find a friend at the IRS to help you out.