Connect with us

Accounting

Xero announces new features on bank recs, compliance, payments at Xerocon

Published

on

Diya Jolly, Xero’s chief product and technology officer, announced several new products and enhancements aimed at the three critical jobs CEO Sukhinder Singh Cassidy had previously outlined (see previous story). She spoke during Xero’s annual Xerocon event in Nashville today.

One was an enhanced bank feed experience that bolsters the core accounting functionality of the platform. Jolly noted that, over the past 18 months, Xero has increased the number of its direct feeds into US and Canadian banks from 20 to over 700 through partnerships with aggregators like Yodlee and Flinks, and plans for “hundreds more” in the future. These aggregators are important because it allows Xero to set up feeds even for banks that do not provide a direct connection. It also allows Xero to monitor bank feed statuses and notify the user if one becomes unavailable. Further, even if a bank doesn’t allow direct digital feeds at all, users can also upload PDFs of bank statements to Xero, which then extracts line item data that can then be re-imported into the system. 

Another was the new bank reconciliation feature that accounts for the unique nature of such tasks in the North American market. Jolly, in a later interview, noted that the “in other countries you get your bank feed, you get the transactions like your invoices and bills, and you reconcile them and you’re done.” Working in the North American market, though, requires a somewhat different approach because, generally, accountants need to reconcile everything through a specific bank statement, say from the 7th of one month to the 7th of the next month, which means some transactions wind up getting pushed out to another statement. 

“Now you can put a bound across the transactions. Sometimes what happens with your transaction dates is I might pay a bill on the 7th and the credit card statement says the 7th but in the bank statement it says the 12th. You need the ability to move transactions around and adjust them so whatever is on your bank statement [is accurate],” she said. 

The new feature allows accountants and bookkeepers to easily identify discrepancies between bank statements and entries in Xero. This will enable them to verify the accuracy of their financial data and categorize and balance transactions at the end of each month, helping to ensure their data is accurate. 

Xero will also have a new localized chart of accounts and reporting feature, optimized for business types (i.e C-Corp, S-Corp, LLC, etc.) which is intended to help users onboard with standardized accounts set up. Additionally, the company updated financial reports to meet the unique needs of the US market with an enhanced trial balance report that enables users to set custom date ranges. Users can set an opening and closing balance plus a date range and really drill down to adjust the data until everything balances.

Tax and compliance

Jolly also talked about enhanced sales tax and compliance features. For one, Xero has integrated W-9 requests and collection into contacts, which then allows users to track W-9 information throughout the year. This, in turn, can expedite 1099 preparation. 

“You can now request W-9s directly from the Xero contacts page and do it in bulk. We also revamped the workflow for completing W-9s, so now it is much easier for your clients’ vendors to be able to fill them and get them back to you faster. But that’s not all. In the pst, you had to manually exclude third party payments from your 1099s. But in the next few weeks, Xero will automatically filter out those payments so you can save time during the busy season,” she said. 

Further, through its partnership with Avalara, Xero has expanded state-based reporting to all invoicing users, which means businesses can automatically generate sales tax reports for each state and filing period. 

“We launched comprehensive sales tax reporting within Xero, auto-created and auto-populated with client data for each state and filing period, so now you have everything you need to calculate client sales tax and consolidate it and have it go in one place. We also built a new sales tax home page [to track everything like due dates in one place.] As you can see, we’re investing heavily in sales tax and reporting in the US,” she said. 

Jolly also discussed a new dashboard that will soon be available in Xero Practice Manager and Xero HQ which provides advisors with visibility into their clients’ key metrics and financial health. Currently in beta, this feature provides a snapshot of both metrics and trends for all business clients, “so you can not just see what needs to be done right now but also how your clients are tracking overall and what might be in store for them in the near future.” 

Payments

Jolly also elaborated on new features concerning payments, both making them and receiving them. When it comes to accounts payable, she said the intention is for users to conduct the entire process from within Xero. Through leveraging a strategic partnership with payments solutions provider Bill, Xero has developed an embedded bill pay solution that does just that. Users will be able to manage and approve their bills directly from within the platform using ACH transfer, credit or debit cards or even having a check mailed. This feature will be available to US users in beta starting next month. 

Xero has also added new capacities for accounts receivable as well. The goal, she said, is to equip users with customization tools that allow them to get professional invoices out the door. To this end, she said, they have developed a new site-by-site preview function that lets people customize invoices to fit their specific brand and see exactly how it will look to the customer. Users, further, will also be able to send invoices via text messages; once this happens, people will also see a new revamped checkout workflow that allows them to pay with the click of one single button. In partnership with Stripe, Xero is also enabling more new payment types including direct bank transfers and ‘buy now, pay later’ options, in addition to existing options for credit cards, debit cards, and digital wallets. 

Along similar lines, mobile users will also have the ability to “tap to pay.” There are many times where a client needs to accept payments in person or, at the very least, by getting out their laptop, often in their free time on nights or weekends, which means “you’re left chasing them so they can get paid.” Tap to Pay, however, allows clients to set up an invoice in the app and take a payment right then and there using their mobile phones. 

“I am really confident this will help you and your clients reduce the number of late payments they have,” she said. 

JAX

Jolly also talked about the company’s new generative AI assistant, Just Ask Xero or “JAX.” While she said Xero is “no stranger to AI” as “it powers a range of our products,” JAX uses generative AI to automate tasks and provide guidance through a plain language interface. 

“JAX is our smart AI business companion that will help you and your clients complete tasks whether here or in Xero… You and your clients can now Just Ask Xero and JAX will not only five an accurate answer, but provide follow up suggestions on what to do next, like addressing an overdue payment or paying a bill.

These features are only the beginning. Jolly said that JAX, over time, will be in more and more of the Xero platform where it might be able to do things like check for anomalies or find specific types of transactions. She acknowledged, though, some of the concerns people have about AI and noted that Xero takes them seriously. 

“This is the future we’re working towards. And with this great opportunity there is also great responsibility. We will adhere to our responsible data use commitments [for privacy]. JAX will [also] feature JAX Assure that gives you precise accounting data and only the data you are allowed to access within Xero, making it more accurate than other generative AI models,” she said. 

Accounting Today plans to publish a more in-depth look at this new tool tomorrow, based on our one-on-one talk with Jolly. 

Continue Reading

Accounting

Senate unveils plan to fast-track tax cuts, debt limit hike

Published

on

Senate Republicans unveiled a budget blueprint designed to fast-track a renewal of President Donald Trump’s tax cuts and an increase to the nation’s borrowing limit, ahead of a planned vote on the resolution later this week. 

The Senate plan will allow for a $4 trillion extension of Trump’s tax cuts and an additional $1.5 trillion in further levy reductions. The House plan called for $4.5 trillion in total cuts.

Republicans say they are assuming that the cost of extending the expiring 2017 Trump tax cuts will cost zero dollars.

The draft is a sign that divisions within the Senate GOP over the size and scope of spending cuts to offset tax reductions are closer to being resolved. 

Lawmakers, however, have yet to face some of the most difficult decisions, including which spending to cut and which tax reductions to prioritize. That will be negotiated in the coming weeks after both chambers approve identical budget resolutions unlocking the process.

The Senate budget plan would also increase the debt ceiling by up to $5 trillion, compared with the $4 trillion hike in the House plan. Senate Republicans say they want to ensure that Congress does not need to vote on the debt ceiling again before the 2026 midterm elections. 

“This budget resolution unlocks the process to permanently extend proven, pro-growth tax policy,” Senate Finance Chairman Mike Crapo, an Idaho Republican, said. 

The blueprint is the latest in a multi-step legislative process for Republicans to pass a renewal of Trump’s tax cuts through Congress. The bill will renew the president’s 2017 reductions set to expire at the end of this year, which include lower rates for households and deductions for privately held businesses. 

Republicans are also hoping to include additional tax measures to the bill, including raising the state and local tax deduction cap and some of Trump’s campaign pledges to eliminate taxes on certain categories of income, including tips and overtime pay.

The plan would allow for the debt ceiling hike to be vote on separately from the rest of the tax and spending package. That gives lawmakers flexibility to move more quickly on the debt ceiling piece if a federal default looms before lawmakers can agree on the tax package.

Political realities

Senate Majority Leader John Thune told reporters on Wednesday, after meeting with Trump at the White House to discuss the tax blueprint, that he’s not sure yet if he has the votes to pass the measure.

Thune in a statement said the budget has been blessed by the top Senate ruleskeeper but Democrats said that it is still vulnerable to being challenged later.

The biggest differences in the Senate budget from the competing House plan are in the directives for spending cuts, a reflection of divisions among lawmakers over reductions to benefit programs, including Medicaid and food stamps. 

The Senate plan pares back a House measure that calls for at least $2 trillion in spending reductions over a decade, a massive reduction that would likely mean curbing popular entitlement programs.

The Senate GOP budget grants significantly more flexibility. It instructs key committees that oversee entitlement programs to come up with at least $4 billion in cuts. Republicans say they expect the final tax package to contain much larger curbs on spending.

The Senate budget would also allow $150 billion in new spending for the military and $175 billion for border and immigration enforcement.

If the minimum spending cuts are achieved along with the maximum tax cuts, the plan would add $5.8 trillion in new deficits over 10 years, according to the Committee for a Responsible Federal Budget.

The Senate is planning a vote on the plan in the coming days. Then it goes to the House for a vote as soon as next week. There, it could face opposition from spending hawks like South Carolina’s Ralph Norman, who are signaling they want more aggressive cuts. 

House Speaker Mike Johnson can likely afford just two or three defections on the budget vote given his slim majority and unified Democratic opposition.

Continue Reading

Accounting

How asset location decides bond ladder taxes

Published

on

Financial advisors and clients worried about stock volatility and inflation can climb bond ladders to safety — but they won’t find any, if those steps lead to a place with higher taxes.

The choice of asset location for bond ladders in a client portfolio can prove so important that some wealthy customers holding them in a taxable brokerage account may wind up losing money in an inflationary period due to the payments to Uncle Sam, according to a new academic study. And those taxes, due to what the author described as the “dead loss” from the so-called original issue discount compared to the value, come with an extra sting if advisors and clients thought the bond ladder had prepared for the rise in inflation.

Bond ladders — whether they are based on Treasury inflation-protected securities like the strategy described in the study or another fixed-income security — provide small but steady returns tied to the regular cadence of maturities in the debt-based products. However, advisors and their clients need to consider where any interest payments, coupon income or principal accretion from the bond ladders could wind up as ordinary income, said Cal Spranger, a fixed income and wealth manager with Seattle-based Badgley + Phelps Wealth Managers.

“Thats going to be the No. 1 concern about, where is the optimal place to hold them,” Spranger said in an interview. “One of our primary objectives for a bond portfolio is to smooth out that volatility. … We’re trying to reduce risk with the bond portfolio, not increase risks.”

READ MORE: Why laddered bond portfolios cover all the bases

The ‘peculiarly bad location’ for a bond ladder

Risk-averse planners, then, could likely predict the conclusion of the working academic paper, which was posted in late February by Edward McQuarrie, a professor emeritus in the Leavey School of Business at Santa Clara University: Tax-deferred retirement accounts such as a 401(k) or a traditional individual retirement account are usually the best location for a Treasury inflation-protected securities ladder. The appreciation attributes available through an after-tax Roth IRA work better for equities than a bond ladder designed for decumulation, and the potential payments to Uncle Sam in brokerage accounts make them an even worse asset location.

“Few planners will be surprised to learn that locating a TIPS ladder in a taxable account leads to phantom income and excess payment of tax, with a consequent reduction in after-tax real spending power,” McQuarrie writes. “Some may be surprised to learn just how baleful that mistake in account location can be, up to and including negative payouts in the early years for high tax brackets and very high rates of inflation. In the worst cases, more is due in tax than the ladder payout provides. And many will be surprised to learn how rapidly the penalty for choosing the wrong asset location increases at higher rates of inflation — precisely the motivation for setting up a TIPS ladder in the first place. Perhaps the most surprising result of all was the discovery that excess tax payments in the early years are never made up. [Original issue discount] causes a dead loss.”

The Roth account may look like a healthy alternative, since the clients wouldn’t owe any further taxes on distributions from them in retirement. But the bond ladder would defeat the whole purpose of that vehicle, McQuarrie writes.

“Planners should recognize that a Roth account is a peculiarly bad location for a bond ladder, whether real or nominal,” he writes. “Ladders are decumulation tools designed to provide a stream of distributions, which the Roth account does not otherwise require. Locating a bond ladder in the Roth thus forfeits what some consider to be one of the most valuable features of the Roth account. If the bond ladder is the only asset in the Roth, then the Roth itself will have been liquidated as the ladder reaches its end.”

READ MORE: How to hedge risk with annuity ladders

RMD advantages

That means that the Treasury inflation-protected securities ladder will add the most value to portfolios in a tax-deferred account (TDA), which McQuarrie acknowledges is not a shocking recommendation to anyone familiar with them. On the other hand, some planners with clients who need to begin required minimum distributions from their traditional IRA may reap further benefits than expected from that location.

“More interesting is the demonstration that the after-tax real income received from a TIPS ladder located in a TDA does not vary with the rate of inflation, in contrast to what happens in a taxable account,” McQuarrie writes. “Also of note was the ability of most TIPS ladders to handle the RMDs due, and, at higher rates of inflation, to shelter other assets from the need to take RMDs.”

The present time of high yields from Treasury inflation-protected securities could represent an ample opportunity to tap into that scenario.

“If TIPS yields are attractive when the ladder is set up, distributions from the ladder will typically satisfy RMDs on the ladder balance throughout the 30 years,” McQuarrie writes. “The higher the inflation experienced, the greater the surplus coverage, allowing other assets in the account to be sheltered in part from RMDs by means of the TIPS ladder payout. However, if TIPS yields are borderline unattractive at ladder set up, and if the ladder proved unnecessary because inflation fell to historically low levels, then there may be a shortfall in RMD coverage in the middle years, requiring either that TIPS bonds be sold prematurely, or that other assets in the TDA be tapped to cover the RMD.”

READ MORE: A primer on the IRA ‘bridge’ to bigger Social Security benefits

The key takeaways on bond ladders

Other caveats to the strategies revolve around any possible state taxes on withdrawals or any number of client circumstances ruling out a universal recommendation. The main message of McQuarrie’s study serves as a warning against putting the ladder in a taxable brokerage account.

“Unsurprisingly, the higher the client’s tax rate, the worse the outcomes from locating a TIPS ladder in taxable when inflation rages,” he writes. “High-bracket taxpayers who accurately foresee a surge in future inflation, and take steps to defend against it, but who make the mistake of locating their TIPS ladder in taxable, can end up paying more in tax to the government than is received from the TIPS ladder during the first year or two.”

For municipal or other types of tax-exempt bonds, though, a taxable account is “the optimal place,” Spranger said. Convertible Treasury or corporate bonds show more similarity with the Treasury inflation-protected securities in that their ideal location is in a tax-deferred account, he noted.

Regardless, bonds act as a crucial core to a client’s portfolio, tamping down on the risk of volatility and sensitivity to interest rates. And the right ladder strategies yield more reliable future rates of returns for clients than a bond ETF or mutual fund, Spranger said.

“We’re strong proponents of using individual bonds, No. 1 so that we can create bond ladders, but, most importantly, for the certainty that individual bonds provide,” he said.

Continue Reading

Accounting

Why IRS cuts may spare a unit that facilitates mortgages

Published

on

Loan applicants and mortgage companies often rely on an Internal Revenue Service that’s dramatically downsizing to help facilitate the lending process, but they may be in luck.

That’s because the division responsible for the main form used to allow consumers to authorize the release of income-tax information to lenders is tied to essential IRS operations.

The Income Verification Express Service could be insulated from what NMN affiliate Accounting Today has described of a series of fluctuating IRS cuts because it’s part of the submission processing unit within wage and investment, a division central to the tax bureau’s purpose.

“It’s unlikely that IVES will be impacted due to association within submission processing,” said Curtis Knuth, president and CEO of NCS, a consumer reporting agency. “Processing tax returns and collecting revenue is the core function and purpose of the IRS.”

Knuth is a member of the IVES participant working group, which is comprised of representatives from companies that facilitate processing of 4506-C forms used to request tax transcripts for mortgages. Those involved represent a range of company sizes and business models.

The IRS has planned to slash thousands of jobs and make billions of dollars of cuts that are still in process, some of which have been successfully challenged in court.

While the current cuts might not be a concern for processing the main form of tax transcript requests this time around, there have been past issues with it in other situations like 2019’s lengthy government shutdown.

President Trump recently signed a continuing funding resolution to avert a shutdown. But it will run out later this year, so the issue could re-emerge if there’s an impasse in Congress at that time. Republicans largely dominate Congress but their lead is thinner in the Senate.

The mortgage industry will likely have an additional option it didn’t have in 2019 if another extended deadlock on the budget emerges and impedes processing of the central tax transcript form.

“It absolutely affected closings, because you couldn’t get the transcripts. You couldn’t get anybody on the phone,” said Phil Crescenzo Jr., vice president of National One Mortgage Corp.’s Southeast division.

There is an automated, free way for consumers to release their transcripts that may still operate when there are issues with the 4506-C process, which has a $4 surcharge. However, the alternative to the 4506-C form is less straightforward and objective as it’s done outside of the mortgage process, requiring a separate logon and actions.

Some of the most recent IRS cuts have targeted technology jobs and could have an impact on systems, so it’s also worth noting that another option lenders have sometimes elected to use is to allow loans temporarily move forward when transcript access is interrupted and verified later. 

There is a risk to waiting for verification or not getting it directly from the IRS, however, as government-related agencies hold mortgage lenders responsible for the accuracy of borrower income information. That risk could increase if loan performance issues become more prevalent.

Currently, tax transcripts primarily come into play for government-related loans made to contract workers, said Crescenzo.

“That’s the only receipt that you have for a self-employed client’s income to know it’s valid,” he said.

The home affordability crunch and rise of gig work like Uber driving has increased interest in these types of mortgages, he said. 

Contract workers can alternatively seek financing from the private non-qualified mortgage market where bank statements could be used to verify self-employment income, but Crescenzo said that has disadvantages related to government-related loans.

“Non QM requires higher downpayments and interest rates than traditional financing,” he said.

In the next couple years, regional demand for loans based on self-employment income could rise given the federal job cuts planned broadly at public agencies, depending on the extent to which court challenges to them go through.

Those potential borrowers will find it difficult to get new mortgages until they can establish more of a track record with their new sources of income, in most cases two years from a tax filing perspective. 

Continue Reading

Trending