Is the Cloud Ready Yet? Let’s Ask the Accountants

This is a guest post submission from Hunter Richards, who blogs about online accounting software. The original article has a survey which asks whether or not accountants are recommending the cloud. It’s located here: Is the Cloud Ready Yet? Let’s Ask the Accountants.

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Technology enthusiasts have long praised the cost savings and simplicity of cloud computing, but accounting firms may still require convincing. I tracked down some professionals to ask about their impressions of the cloud. There are a few remaining doubts, but current trends suggest that all of these doubts will soon be alleviated.

“I’m a firm believer in [the cloud] – I really am,” says Carolyn Duffy, who directs business advisory services for Hein & Associates. “But if I had some special legacy system, I would have to look at the integration issue.”

Concerns from accounting firms about integration—or software customization, cost or IT services quality—should grab software makers’ attention, given accounting firms’ history of influencing clients’ software-purchasing decisions. The list of concerns may initially seem troubling for cloud adoption, but vendors are quickly releasing new services and products that ease these doubts.

Customization
“If you have a secret sauce in how you want to handle some orders or how you handle your pricing, then often times the cloud might not be the best way to do that,” says Doug Wiescinski, a partner at accounting firm Plante & Moran.

Accountants often cite customization problems as a reason to avoid the cloud, but software vendors such as NetSuite and Intacct have already gotten the message and have built customization tools. As more of these hit the market, the process could be easier in the cloud than it’s ever been for on-premises systems.

Data Integration
“Every additional outsourced app brings another set of steps to go through to create and delete accounts and a new ID and password for the employee to have to remember,” says John Neall, chief information officer of accounting firm UHY. “That may not seem like a lot. But when you multiply that by the number of apps that employees are required to run, it becomes very time consuming just to maintain operations.”

Cloud applications have typically offered limited application programming interfaces (APIs), middleware and other integration tools that are widely available for on-premises systems. But a number of new middleware offerings, such as Informatica, SnapLogic and Dell’s Boomi, are beginning to fill the void with mature APIs and other products – so integration is also becoming more convenient.

Cost
“The pricing models [of the cloud] have been inconsistent,” says David McDonald, a senior managing consultant at BKD, another accounting firm. “Usually, once you get to the five-year range, your TCO is higher for the cloud versus on-premise. And you own nothing.”

Some accounting professionals warn that cloud systems can incur a higher total cost of ownership (TCO) than on-premises alternatives, despite its ability to save money with lower up-front costs. But the on-premises approach is often not an option for smaller firms without the up-front cash for professional IT resources. The nature of smaller, recurring payments actually empowers these businesses to use software when it’s otherwise impossible.

IT Staffing
“The added benefit of a team of [in-house] IT professionals that care about the business” can be much more valuable than services from “a vendor hosting thousands of other clients,” says UHY’s Neall.

Accountants also recommend comparing outsourced IT services with the value of a dedicated in-house team. Businesses have a love-hate relationship with IT, so they may prefer to shift that function to the software vendor; this concern is unlikely to have a major deterrence effect.

Software selection is never easy, but moving to the cloud is looking better and better. If accounting firms’ current hesitations are any indication, then the doubts about cloud computing are more vulnerable than ever.

Mandatory Electronic Filing of FTDs—This is a Good Thing

Today’s edition comes from guest blogger, Vickie, Lambert, CPP:

Effective January 1, 2011, the IRS adopted the Financial Management Service (FMS) decision to discontinue the system of processing federal tax deposit coupons. In other words, the IRS is no longer allowing businesses to make employment tax deposits with PAPER coupons. For this move I say to the IRS—BRAVO! I applaud the IRS for moving forward in using 21st century technology.

But not everyone felt this way when the IRS first announced this planned moved. In the guidelines for this new requirement the IRS explained why the decision was made and addressed the various arguments for moving in this direction.

Three main arguments were offered against this new procedure.

1. Placed an undue burden on small businesses. In this day and age most businesses have computers. And since the IRS offers their Electronic Federal Tax Payment System (EFTPS) for free to all businesses this argument really was not well founded. But even if a business does not have an internet accessible computer it does have a phone line. Again since the IRS offers their ACH deposit method which only requires the use of a phone line to schedule a payment through EFTPS this argument fell flat. To take it one step further to ensure access, the IRS increased their support service for this deposit method to 24/7 year-round.
2. Will increase errors in deposits therefore increase the need for the IRS to respond to requests for penalty abatements thus negating any cost savings to the IRS. This argument was not supported by the IRS’s statistics. In fact, their statistics show that businesses that make their FTDs electronically have significantly lower error rates than paper coupon filers.
3. Why not just continue offering the paper coupon option? What is the drawback to having both? The IRS determined that more and more financial institutions are no longer accepting the coupons so continuing their use simply keeps an archaic system going for no purpose. If they were left as an option it would negate the decision to cease processing them even though they are no longer being used.

The one major change to this new regulatory requirement that will put some burden on former paper files for the short term is the change in the definition of legal holidays. Prior to this change a legal holiday included state-wide holidays since local financial institutions would be closed. Now the definition of legal holiday is consistent with all other returns.

So for once I can actually say good job IRS for modifying and upgrading regulations to keep in line with modern technology and for doing away with old and outdated methods.

Vicki M. Lambert, CPP
www.thepayrolladvisor.com

2011 Paycheck Changes

By now, most employees in the United States have received their first paycheck of 2011.  About the same time the first check is received, payroll departments across the country were deluged with questions about the changes on employee checks.  This edition of the blog should help to clear up some of the confusion regarding a couple of these changes.

The Making Work Pay Credit is gone!  The implementation of this tax cut was sloppy anyway.  Single folks received up to $400 of tax cuts per year factored into their withholding.  Married folks received twice this amount or up to $800.  There was an upper limit to allowable income.  The credit itself was described in detail in a blog post almost two years ago.  In the tax cut bill that Congress finally passed in mid December, the Making Work Pay credit was happily missing.  That means however, that employees of nearly every income level will see their Federal Income Tax withholding increase for 2011.  It’s quite a shock in the amount of increase.  However, there are no more funny games to play when preparing your tax return or figuring out your W-4 values.  In summary, most employees will see their Federal Income Tax Withholding line increase.

Part two of the changes to employee checks this year has to do with the Social Security component of FICA withholding.  Normally, Social Security withholding is 6.2% of taxable wages up to a base.  That base is $106,800 per year as it has been for 3 years now.  Employers must match the 6.2% value meaning total Social Security taxes are actually 12.4% of taxable wages up to the base or up to $13243.20 per year per employee.  Self employed individuals paid the entire 12.4%.  This is a lot of money!  The above referenced tax cut bill cut the employee portion of Social Security by 2 percentage points.  Now the total is 4.2% up to the base.  Employers still are required to pay their portion at 6.2%.  Self-employed individuals now pay only 10.4% as well.

PaycheckCity, a site run by Symmetry Software (my day job employer), had implemented these changes and placed them on the site in late December.  To my surprise, the help desk team at PaycheckCity reported that CPAs and payroll staff members were writing with questions on why the Social Security rate was different.  Some even adamantly (and ignorantly) proclaimed that we were wrong and they would never use the site again.  The details of the tax plan have been all over the media in the last month.  Social media has trumpeted the changes as well through the many different outlets.  How anyone can still be unaware of this change just baffles me.  Hopefully,  I have provided some knowledge to those who hadn’t heard yet, while clearing up the confusion for those who had and were surprised at the change on their check.

Holidays and Taxes – Part 2

It’s time for year end planning!  Most blogs at this time of year talk about financial moves you can make to minimize your taxes.  I don’t think that bears repeating.  If you are interested in that, here are a few other sites that can help.

http://www.accountingtoday.com/news/Tax-Saving-Year-End-Tax-Planning-Tips-56551-1.html
http://www.smartmoney.com/personal-finance/taxes/year-end-tax-planning-massive-uncertainty-edition/
http://taxes.about.com/b/2010/11/08/year-end-tax-planning-tips-if-you-think-tax-rates-might-go-up-in-2011.htm
http://businesswest.com/2010/11/year-end-tax-planning

I’m more interested in getting everyone organized for the upcoming tax season.  The better prepared you are for tax season, the happier your accountant/tax preparer will be.  After the holiday lull begins in late December or early January (depending on your love of football) take some time to look for your 2010 documentation.

1) Medical receipts.  In order to deduct medical expenses on Schedule A, you must first be able to itemize and second have expenses that are more than 7.5% of your Adjusted Gross Income (AGI).  The most important part though is that you have good documentation. Do you have receipts for any payments to physicians or hospitals or pharmacies?  Did you pay with check or credit card? Having a copy of the statement showing your payment whether from your checking account or credit card is essential. If you cannot find all of your receipts or statements, now is the time to begin calling those who treated you in 2010.  Most doctors can provide you with a printout of your account activity for the year.  Keep an eye on the different codes from that system though.  Any insurance payments on your behalf should not be considered your own payments.

2) Mileage logs. If you drive your vehicle for business, medical or charitable purposes, did you keep good logs of your mileage?  It’s more than just noting starting and ending mileage and date.  A good record of what you did and where you went is essential as well.  Because there are three categories of mileage reimbursement, it is best if you can provide documentation for your tax preparer by category.   By assembling and keeping good notes now, you will save yourself many headaches in case of a future audit.

3) Update your mailing address. If you moved this year, there are a lot of tax documents that are going to take the long road to your home.  This of course slows down their delivery through our illustrious mail system.  Make sure you notify current and former employers (W-2), banks (1099-int and 1098), student loan providers and investment providers of your new mailing address.  Depending on the situation, this could drastically affect your withholding as well if you live in one of the states with local taxes.

4) Make a plan. What is your financial goal for 2011?  Do you want to continue extinguishing your debt?   Will you be saving up for a big purchase to avoid interest?  Will you be moving or changing your family structure (marriage, divorce, kids etc)?  Start thinking about your plan for next year now.  If you don’t make any plans to reach that goal you always talk about, you will never reach it.

Any of these can be done at any time during the year.  However, a little extra planning at year end before the tax documents start arriving can make tax season so much easier for you.

Holidays and Taxes – Part 1

Greetings readers.  The next three blog posts will discuss some things that will help you during – and right after- the holiday season.  This week, I’ll discuss employee holiday parties and gifts to employees.  Next week, I’ll discuss year end planning tips. The end of the month will be about making some new goals for the new year.  Perhaps there will be time for one more summarizing tax law changes that should have been passed by Congress by that time.

Gift Cards
According to some statistics software attached to this blog, my post a couple years ago on employee gift cards and taxability is consistently the most visited page on this site.  It seems there is a lot of confusion regarding employer responsibility and payments to employees for holiday bonuses and gifts.  Somehow, the notion has entered the minds of the taxpaying public that if you give money or gift cards to employees below $25 or $50 that the amount is not taxable.  That is absolutely false.  The key to withholding on an employee gift is whether or not the value can be tracked easily.  If you give turkeys to all your employees, they cannot exchange that for cash, and determining the value of each turkey as it is given to an employee is nearly impossible.  If you give $25 gift cards to all your employees, it is very easy to determine the value: $25.  This amount should be taxed appropriately.  Likely, you will need to “gross up” the value.  A $25 gift card using supplemental rates could cost the company nearly $50 once payroll, withholding and unemployment taxes are added into it.  There is a simple gross up calculator available at PaycheckCity.com.  It is free to use after  registration.  This tool will tell you the cost from the paycheck perspective.

Holiday Parties
According to the IRS, the cost of  holding an employee holiday party can be deducted 100% as business expense.  As an employer, this can give your employees a chance to relax and talk about non-work topics.  It also causes team building.  Holiday parties should not be overly extravagant.  Think of the old Tyco/Koslowski debacle.  Having a reasonable party that shows your appreciation for their hard work during the year is a great way to give back and avoid the cost of giving out trinkets or gift cards.  You can find many articles that can help you provide guidelines for your employees during one of these parties.  You want it to be the social event of the year, but not because you ended up with a sexual harassment or discrimination lawsuit on your hands.

What if you invited clients to attend the party as well?  This actually takes away part of the deductible nature of the party.  Now it is for advertising purposes which means only 50% of the cost of the party can be deducted.  So you say, “I’ll just send my customers a nice gift like a goodie box from Fairytale Brownies or Rocky Mountain Chocolate Factory.”  Keep in mind that there is a limit on these as well for tax purposes.  For marketing purposes, spend as much as you want on a customer.  For tax purposes, you can only deduct up to $25 of the cost of gifts to your clients/customers.

Should the United States Celebrate Thanksgiving?

This month’s post from guest blogger, Vicki Lambert:

Should the United States Celebrate Thanksgiving?

Or any holidays for that matter? That sounds like I am advocating not celebrating Thanksgiving or Labor Day, or Memorial Day or even the Fourth of July. And that is not the case. What am saying is that if we, as a nation, celebrate a day of Thanksgiving across this great nation, why is it not a national holiday under wage and hour law? Why is it left up to each individual employer whether to allow employees time off to be with their families? And if they are given time off but its unpaid why should the employee be penalized a day pay because the CEO wants time off to be with his (or her) family and gets paid for it anyway?

In other words, if the holiday is so important that we have parades and special concerts, then why don’t non-government workers get the day off with pay to celebrate?

The United States is practically the only industrialized nation that does not have mandated holidays. I can understand not having nationalized holidays that subscribe to one particular religion, (i.e. Christmas) or are based on a calendar change such as New Years.  But on days in which we celebrate our national heritage and history workers should be able have the day off to join in the celebration and to do so without loss of pay.

Just a thought, what do you think?

Vicki M. Lambert, CPP
www.thepayrolladvisor.com

Beyond Yourself, Charitable Giving

So you’ve obliterated all your debt, paid off your credit cards diligently, established an emergency savings fund with 3 to 6 months of expenses in it, purchased the necessary insurance products, what’s next?  The normal attitude of a Western Society would be “let’s save up to buy something big.”  While it’s admirable to be actually saving up for a large purchase, perhaps there’s another option.  Everyone has seen the commercials late at night that show the starving kids of multiple ethnicities with the kindly old grandfather figure asking you to sacrifice a little bit.  Charitable giving is a great way to go beyond yourself and make a difference in the world.  There are as many charitable possibilities as there are causes in the world.  Some cater to animal lovers, feeding the hungry, promoting eduction or children issues, others to environmental causes, others still are religious in nature.  How do you know where to put your dollars to get the biggest bang for your buck?

First, some background.  Taxpayers can often deduct the value of charitable contributions on their tax returns in Schedule A.  This is subject to limits based on income and also assumes that the taxpayer already itemizes.  If you  take the standard deduction on your tax return, you will not see extra tax benefit from charitable contributions.

Contributions can be in the form of cash or property.  Donating used clothing and household items that are in good shape to your local Goodwill store is one way of making a non-cash contribution.  The IRS has guidance available to determine the value of the non-cash deductions.  Many people go even further by working charities into their estate plan to minimize taxes and provide a positive legacy at the end of their life.  Check with your CPA or tax preparer for specific guidance in your situation.

Suppose you want to donate cash directly to a charity.  Charitable organizations, like businesses need cash to operate.  A certain amount of the fund raising they do must cover operational expenses like salaries, marketing, supplies, rent and administration.  The key is to find charities that minimize these expenses as much as possible.  Larger charities are required to submit to the IRS a document with the number 990.  This document contains information on the structure of the charity.  It is also available for public review.

There are other ways to check up on the expense ratio of a charity.  Websites like Charity Navigator, Charity Guide,  The Better Business Bureau and GuideStar (requires registration) give many different ratings on program expense ratio as well as growth percentages and descriptions of the type of work the charity performs.  There are countless other websites and tools available to help you decide.  I found these through a simple search engine query.

Charitable giving lets you go beyond the normal selfish pursuits of society.  In this holiday season, perhaps it’s time to add a charity to your list of gift recipients.  You’ll be surprised to see how much good your donation can do.

Congressional indecision

Working in the payroll software industry during the day has certainly opened my eyes to problems created by our federal elected officials.  Under normal circumstances, Congress decides on a budget for the next year with significant lead time for the president to sign the legislation and the Treasury department (IRS) to issue tax tables based upon that law.  Tax tables, if issued in early November, can be coded, tested and released by software companies well in advance of the next tax year.  Once software companies release these tables, payroll and accounting software providers must update their customers with the new calculations after performing tests of their own.  This entire process can take up to a month.

Now, mix in this year’s congressional indecision.  The federal government’s budget has still not been finalized as of the writing of this post.  Many analysts and representatives are saying nothing will happen until the “lame duck” session following the election in November.  With no tax law available for writing next year’s tax tables, there can be no software coding and testing at the tax table software level or the payroll software provider level.  To add even more complexity to the situation, how is anyone supposed to plan for their tax liability with no rules in place to determine how much liability will exist?

The Treasury Department has three choices:

1. Issue new tables assuming all Bush-era tax cuts will be continued
2. Issue tables assuming all Bush-era tax cuts expire
3. Issue tables similar to this year with small adjustments for inflation

If Treasury and Congress do not follow the same path, any mix of two of these scenarios would cause tax confusion like we have never experienced before.  Think about the Treasury Department assuming tax cuts will continue while Congress lets them all expire.  Not only would there be two releases of withholding rules (expensive!) within a short amount of time, everyone would experience underwithholding.  This would require that everyone re-evaluate their tax position to ensure withholding or estimated payments would be enough to cover liability.

While I normally don’t get political in this blog, this time I’ll make an exception.  Please write or contact your Congressman and make a good case for the urgency of a new budget.  Delaying will cause withholding problems with all taxpayers and prohibit those who wish to plan from making those plans.  Should we withhold on an unpatched AMT, reduced child tax credits, Making Work Pay credit?  Please Congress, let’s get this resolved.

Multiple Rates of Pay—Finally a Use for High School Math

A post from guest author, Vickie Lambert:

Under the FLSA it is required that employers pay employees overtime based upon the regular rate of pay. For this blog entry I want to look at one facet of calculating overtime and the regular rate of pay. What to do when an employee works at two or more different rates within the same workweek. In this type of situation, the regular rate of pay for the week is the weighted average of all the rates. Remember weighted average is not the same as average.

Let’s do an example: At Secrest Corp this week Paul worked to cover for other employees on vacation. His time card reads as follows:

Paul does not work in a state which requires daily overtime. So under the FLSA we would calculate his gross pay as follows:

Step 1… Calculate the Earnings for Each Day
Monday       8 x $8.00 = $64.00
Tuesday       8 x $8.00 = $64.00
Wednesday 8 x $9.00 = $72.00
Thursday     9 x $8.75 = $78.75
Friday         10 x $7.50 = $75.00
$353.75

Many times I have seen payroll professionals confuse weighted average with average. They add up the rates then divide by the number of rates. For example $41.25 (total of all the rates) divided by 5 (number of rates) = $8.25 and try to use that as the regular rate of pay. In this case it would be close enough. But unfortunately it doesn’t always work out so close and can end up underpaying the employee.

Step 2: Divide the total earnings by the total hours worked to determine the regular rate of pay
$353.75 divided by 43 = $8.23 (regular rate of pay)

Step 3: Determine the premium pay for overtime by multiplying the regular rate of pay by .5 (or divide by 2) then multiplying that amount by the number of overtime hours
$8.23 x .5 x 3 = $12.35

Step 4: Determine the total weekly compensation by adding the total earnings (step 1) and the premium pay (step 3)
$353.75 + $12.35 = $366.10 (total weekly compensation)

These 1938 rules under the FLSA require this method to properly pay employees working at more than one rate in a workweek. So you see, you should have paid closer attention to your teacher in high school math class.

Vicki M. Lambert, CPP
www.thepayrolladvisor.com

What’s Your Motive?

Each day, we are assaulted with news stories about the level of debt Americans hold both in government and personally.  Still others trumpet the fact that Americans are actually reducing their debt levels.  Others are more cynical stating that debt levels are declining because of higher defaults.  No one really knows of course what is going on.  However, these are all macroeconomic statistics.  Today, let’s take a look at you specifically.  Are YOU trying to reduce your debt load and what is your motive?

In pure economic terms, debt is more acceptable in certain cases when inflation is present or the economy is growing.  During times of inflation, the real value of the debt you hold is being paid back in dollars that continue to decrease in value making the overall economic cost lower to the purchaser.  That is good for the debtor but really bad for the debt holder.  During times of economic growth, businesses can use debt as leverage to prop up their earnings.  As everyone knows, we are now in a much different time.  The economy is not growing as quickly as before.  Businesses and individuals who took on all that debt now have the distinct pleasure of paying it all back or defaulting.

Which brings me to my question.  Why are you paying off debt?  Is it simply to put yourself in a better position to borrow again when times improve?  This reasoning got us into the current housing mess.  We’ll buy a house now and it will increase in value and we’ll sell it and make more money and buy a bigger house…. and repeat multiple times.  A better way of thinking is that your debt reduction plan can give you flexibility in the future regardless of what happens. This could lead to a more stress-free life. If you look at the fixed payments required to service your credit card debt, auto loans and lines of credit, you’ll see that you are essentially locked into long-term slavery.  Think of the stress if anything abnormal happens to upset your servicing of all this debt.

It takes so long to clear the debt mess, that it would be a shame to simply dive back into it in the next economic boom cycle.  What about this scenario?

• Your only payment is towards your mortgage.
• You have normal utility bills each month.
• You pay cash for everything.
• You have a savings account that contains 6 months of living expenses.
• You have life, short-term disability and long-term care insurance.
• You live within your means.

Can you see the difference in the amount of stress? Incidentally, the latter scenario is recommended by most financial consultants.  There are no short cuts to this plan.  You simply make sacrifices and pay back all the debt accumulated from years of overspending.  There is a very pleasant side effect of cutting back on the “fluff” that we all think we need to make it in every day life.  Suddenly, meals at home with the family, game nights with friends, and quiet time with your spouse become a bigger part of your life.  If materialistic (selfish) thinking invaded your life to get you into debt, changing that thinking to spending time with others (giving) is a benefit of getting back out of it.