Apple may spend almost $4 million on lobbying this year as in 2012, reports Reuters. That’s low of course, but for Apple it’s a pretty hefty increase:

The company spent about $2 million on lobbying last year, up from $180,000 in 1999, records show. This year it is on pace to nearly double last year’s figure.

As the report notes, what Apple is spending on policy efforts is tiny compared to its peers Google and Microsoft, which spent $16.5 million and $8.1 million, respectively, on lobbying efforts last year.

But having a larger presence in the nation’s capital and making friends with the policymakers that can wield great power over its reputation and fortunes may just be something Apple has to do. (One political reporter described Apple’s tax hearing as simply a “shakedown” by politicians angered by Apple’s proud D.C. outsider stance.)

CEO Tim Cook fared very well under questioning from senators on Tuesday, deflecting questions patiently about his company’s legal tax practices. He said he wanted people to hear Apple’s story directly from him, which is why he appeared before a Senate subcommittee this week. But it’s probably not something he wants to do on a regular basis. And making suggestions about corporate tax policy changes, as he did, may not be enough. What money Apple decides to spend on lobbying in the future will probably need to support his policy proposals if he wants to see any of them taken seriously — and keep Apple out of the spotlight.

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But Cook, for his first time offering public testimony before Congress, acquitted himself quite well despite the scolding his company faced, which makes sense if you think about it: Sen. Levin is probably nowhere near as scary as Steve Jobs. Apple CFO Peter Oppenheimer and its head of tax operations Phil Bullock were tasked with explaining the details of Apple’s accounting, while Cook extolled Apple’s virtues, the jobs it creates and its values as an American company.

Apple normally gets to choose how it’s shown in the spotlight. So it was an unusually defensive position for the company and its chief executive, known for its preference for privacy, to be in and have the nitty gritty of its corporate accounting practices exposed for all to see.

But Cook did indeed choose to go to Washington. He probably could have sent a senior vice president, but he showed up to speak for his company. And in doing so, he continued to rewrite our expectations of an Apple CEO. While his predecessor met privately with public officials, Apple was not in the spotlight in years past the way it has been recently. As profits have soared and some of its corporate practices both abroad and at home have come to light, Cook has had to face increased public scrutiny in a way Apple didn’t see quite as much during Jobs’ tenure as CEO. (With the exception of the stock-options backdating controversy, though the penalties for that were minimal.)

In the same manner he smoothly handled outrage at the practices at Apple’s Chinese manufacturing partners and offered solutions, Cook used his particular experience at Apple to talk about taxes. As the company’s former operations officer, he ably explained pricing transfer and other complex accounting practices his company uses, and laid out suggestions for how to reform the U.S. tax code to encourage more companies like his to bring more of their foreign earnings home.

Grilling Apple

Two experts on tax law testified earlier in the morning how Apple allocates some income to a holding company and subsidiaries in Ireland that don’t file corporate tax returns in the U.S. or anywhere else. But as was oft-repeated, what Apple has been doing doesn’t break any U.S. laws. (Sen. Rand Paul twice decried Apple being “harangued and bullied” by the committee and repeatedly made the point that if Apple weren’t minimizing its tax burden, it would be irresponsible to its shareholders.)

Cook defused some of the more pointed insinuations made by the committee diplomatically, using the same brand of charm and salesmanship we see from him during keynote speeches at Apple events. “We pay all the taxes we owe, every single dollar,” Cook said during his testimony. “We comply with the laws but also the spirit of the laws.”

Many of the senators present Tuesday admitted to being big fans and users of Apple products. But the reason the company they all admire was being grilled wasn’t completely explained. It did appear Apple was being used as an example of common corporate accounting practices because it is the largest corporate tax payer in the U.S. — and, as Sen. Tom Carper noted, because of the current political climate surrounding the national deficit. Apple and many other U.S. companies have been operating in this manner for years, but in the shadow of the “sequester,” several members present acknowledged that Congress is looking for tax revenue that it’s not getting.

In the end, Apple’s presence seemed to serve as an intermediary for the senators to argue amongst themselves about how out-of-control the U.S. tax code is. The hearing itself seemed mostly a pointless exercise, as these hearings tend to be, with little promise of any real change. Apple will likely go home to Cupertino and keep doing what its doing, and Congress will continue to disagree over how to appropriately tax businesses.

Meanwhile, Cook gets to continue to raise his public profile as an elite American businessman and cement his company’s stature as critical to the American economy and the overall tech industry.

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Cook will call for a revenue-neutral reform of the corporate tax code that does away with all tax expenditures, lowers tax rates and establishes a “reasonable” tax on companies’ earnings from overseas. It’s not in the planned testimony, but in an interview last week, Cook made it clear that he does not believe that a tax rate of zero is a reasonable number. In his testimony before the U.S. Senate’s Subcommittee on Investigations, he will say that Apple supports this simplification of the tax code despite the likelihood that it will mean Apple’s overall corporate taxes will go up. The current corporate tax system “applies industrial era concepts to a digital economy” and “undermines U.S. competitiveness,” Apple believes.

Before Cook gets into his specific suggestions for fixing how U.S. businesses are taxed on foreign earnings, he’s going to spend most of his time going over why he’s being called to testify in the first place: Apple’s accounting methods. Apple keeps at least $100 billion in foreign earnings outside of the IRS’s grasp because it doesn’t wish to pay the 35 percent tax it would incur by bringing that money home. Many other businesses follow similar practices.

According to the published testimony, Cook will going into detail about how the company accounts for profits earned in the U.S., how investment in its foreign assets is taxed, how it shares R&D costs with an Irish subsidiary and more. (It’ll probably be a snoozefest for everyone except those who get a thrill out of spreadsheets.) Most of it is Cook on the defensive, explaining how what Apple does is within legal limits. Cook plans to assure the committee it’s not cheating on its taxes with any special tricks and “does not have a bank account in the Cayman Islands.”

He will underscore his point about Apple being on the up and up by laying out how much the company pays in taxes. Last year it paid $6 billion in taxes to the U.S. and this year, Cook has said it will pay $7 billion.

Tuesday’s testimony will be Cook’s first appearance before Congress. The company’s tax practices came to light a year ago when the New York Times highlighted some of the methods Apple has used to keep its overall taxes at a minimum.

Update 2:43 p.m. PT: Later on Monday the Senate released the results of its own investigation into the Apple’s tax-paying practices. It found that Apple’s convoluted system of subsidiaries has allowed it to avoid paying $44 billion in U.S. taxes over the last four years. However, it also noted that Apple did not break any U.S. law in doing so, according to a report in the Los Angeles Times. Expect many questions during Tuesday’s hearings about how the company uses its subsidiaries in Ireland to do this.

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Cook told the Washington Post that he has ideas for how to help convince companies like his own to bring back their overseas earnings to the U.S.:

 “If you look at it today, to repatriate cash to the U.S., you need to pay 35 percent of that cash. And that is a very high number,” Cook said in an interview Thursday. “We are not proposing that it be zero. I know many of our peers believe that. But I don’t view that. But I think it has to be reasonable.”

Apple is set to pay $7 billion in taxes in the U.S. this year, he told the paper. He also said he believes that Apple is “likely the largest corporate taxpayer in the U.S.”

But the company has — along with a lot of its peers — found creative ways to make sure that number is not any higher. Apple has $145 billion in its coffers, and $100 billion of that is from profits derived from sales overseas. But the company has not brought that money back to the U.S. because of the current corporate tax rate. Even when the company decided to issue a larger dividend for shareholders, Apple elected to borrow money rather than use profits from overseas to fund that, partly because of the tax burden.

This will be Cook’s first testimony before Congress, but not his first trip to Washington in an official capacity. A year ago he visited with House Speaker John Boehner, signaling his interest in engagement with Washington and public policy would be somewhat of a departure from his predecessor’s.

Cook also told the Post Apple believes “in good corporate citizenship.” And he has made some good U.S. corporate citizen moves since becoming CEO. In addition to instituting a charitable-giving matching program for employees, he’s also laid out plans to bring production back to the U.S. of one model of Mac. Cook told Politico that it would be an existing product that will be made here. Not only will it be put together in the U.S., he said some of the parts would be manufactured in Arizona, Texas, Illinois, Florida and Kentucky.

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Apple’s Australia division made nearly $5 billion in revenues for that year. But $28.5 million amounts to about .003 percent of the $8.2 billion in profits the company earned in the last quarter alone — pocket change for Apple.

The tax bill is notable because of how profitable Apple is and how at the same time it has managed to out-maneuver many tax laws in the U.S. and Europe by building a complex web of subsidiaries in lower-tax countries like Ireland, Luxembourg, the Netherlands and the British Virgin Islands.

The New York Times explained these schemes in an in-depth piece earlier this year. Many companies do stuff like this, but Apple is a prime example of how these schemes can benefit companies based in the U.S. who do more than half of their business outside the country.

Some of Apple’s peers have also been in the headlines recently for their own alleged tax avoidance. This week both Amazon and Google were made to answer for their own tax bills before a government accounting committee in the U.K.

Thumbnail image courtesy of Flickr user artist in doing nothing

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Edinburgh-based FreeAgent, which has been building cloud finance software for freelancers and small businesses for the last five years, is taking a round of investment from the Chicago firm with an eye on the U.S. market. And as part of the deal, it’s buying the Lightbank-backed financial forecasting startup 60mo.

Although FreeAgent CEO Ed Molyneux won’t say how much the deal is worth, he told me it’s “not a large investment” — more like the Series A investment the company took in 2010, which was valued at £2 million ($3.2 million), than a separate, larger round. And for the most part, it will be used to develop a specific fork of the product that can deliver useful services like financial planning, accounting and taxes for American users.

“That stuff is hard to build, but we’ve done it for the U.K.,” says Molyneux, a former RAF fighter pilot who started work on FreeAgent when he discovered the complexity of managing his own finances as a freelance consultant.

Growth has been very strong over the past year or so, he says: FreeAgent had 4,000 customers at the beginning of 2011 and last week broke the 20,000 barrier. But although the company had an international version already, using Lightbank’s money gives them an opportunity to try and make a strong move into a lucrative market.

“When we thought about the U.S. it seemed daunting, but when the opportunity came up to make this deal and acquire 60mo, we thought it was too good to turn down.”

He said the company plans to offer U.S. subscribers a service from July for around $25 a month (the British version costs between £15 and £25 a month — $25 and $40 — depending on the type of business).

From Chicago to Scotland

The deal marks the first time Lightbank, which is largely focused on supporting businesses in the Chicago area, has looked outside America — and it allows them to offload 60mo. Molyneux said the investment discussion came before the acquisition was on the table, so this seems partially like Lightbank is offloading a struggling investment by folding it into another one.

But although 60mo is just two people, and the product they built will be closed down as a result of the deal, FreeAgent hopes to incorporate some of its cashflow projection work into future versions of its own product. Using the data collected from users — both individually and in the aggregate — can be used to help customers understand their own money and the context they operate in, he says.

For example, a plumber using FreeAgent could be able to see that other similar businesses in his area are charging 20 percent more than he is — allowing him to alter his prices accordingly.

“There’s a lot of value we can give customers if they’re willing to let us benchmark their accounts,” he says, pointing to the financial data work being done by other startups like Tradeshift and Kabbage.

“There’s some really interesting things we can do over the next couple of years. Intuit has got a great product, but it’s all after-the-fact — it can tell you at the end of the year how much tax you owe, what your cashflow is like. Our service can give you a ballpark figure as you go along, and as we get more and more data and customers, we can make it more and more accurate.”

Still, what about that odd juxtaposition — taking investment from a team linked to a company that has had accounting trouble? Molyneux bats away the question.

“We’re not connected with Groupon at all,” he said. “And Lightbank’s connection is neither here nor there.”

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Still, even if you’re among the most tardy and disorganized of freelancers, at least you can count on the media to help out, offering their annual onslaught of articles peddling tax tips for the self-employed. To save you time we’ve sorted through them to weed out the obvious (that guy who says he can get you your refund in two days? Yeah, he might be a scammer) and the repetitive (keep your paperwork in order, people!) to find the few less expected gems. Primary among them this year is the SEP IRA.

Accountant Neil Johnson told Business Insider that opening a Simplified Employment Pension IRA funded from freelance income could help reduce income tax. Both the Chicago Tribune and SmartMoney agree, with the latter offering more details about who should look into a SEP IRA and how to do so:

Establish SEP for Big 2011 Tax Break. If you’re self-employed and have not yet set up a tax-favored retirement plan for yourself, you can establish a simplified employee pension (SEP). Unlike other types of small business retirement plans, a SEP can be created this year and still generate a large deduction on last year’s return. In fact, if you extend your 2011 return to October 15, you’ll have until that late date to take care of the paperwork and make a deductible contribution for last year. The deductible pay-in can be up to 20 percent of your 2011 self-employment income or up to 25 percent of your salary if you worked for your own corporation. The absolute maximum amount you can contribute for the 2011 tax year is $49,000. To establish a SEP, go to your bank or brokerage firm and fill out Form 5305-SEP. It takes five minutes. But don’t jump the gun. You may not want a SEP if you have employees, because you would probably have to cover them and make contributions to their accounts. That might be too expensive. Bottom line: if you have employees, don’t start up a SEP without consulting your tax pro.

Besides endorsing the SEP idea, the Tribune also suggests a crafty way to approach sorting out your health insurance via a suggestion from TurboTax: “if you hire your spouse and give him health care benefits, you can put yourself on his health care policy, which saves money on self-employment income and tax. Similarly, if you hire your dependent for clerical tasks or even to clean your home office, the wages will be deductible for you, and if their earned income is less than $5,800, they won’t owe any tax on the money either,” writes Anya Kamenetz in the article.

Of course, just because these are the less obvious suggestions, doesn’t mean the usual advice doesn’t remain valuable. It might sound like nagging to hear, once again, how important it is to get professional help and remember all your deductions (the Tribune offers a helpful run down of broad categories to keep in mind) but people still mess up the relatively straightforward aspects of filing. A recent study, for example, revealed that the most common small business tax mistake was mixing personal and business expenses. We all know you shouldn’t but apparently many of us still do. LearnVest helpfully compares specific scenarios that are perfectly alright to those likely to trigger an audit.

So good luck to late filers, remain vigilant on the basics, and try out some of these slightly more advanced tax minimization efforts  if they seem right for you.

Are there any other less well known tax tips that have helped you trim your bill?

Image courtesy of Flickr user Mat Honan.

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The two senators from Connecticut, a hotbed of remote work double taxation for professionals employed by companies in nearby New York who actually do their jobs from their leafy Connecticut communities, introduced a bill to eliminate the double penalty this week, according to a blog on political site The Hill.  The post by Pete Kasperowicz reports:

Sens. Joe Lieberman (I) and Richard Blumenthal (D) said the Telecommuter Tax Fairness Act, S. 1811, would help encourage telecommuting, which could create jobs, relieve traffic congestion and reduce the demand for gasoline.

“Although most states tax telecommuters on the percentage of time worked within that state, a few other states tax 100 percent of the income of nonresident teleworking employees whose companies are based in their state, regardless of the amount of time they are physically present in that state,” the two senators said.

“Consequently, because telecommuters’ home states can also tax the income earned at home, workers nationwide are threatened with double taxation on that income,” they added. “This double tax risk puts telecommuting out of reach for many Americans.”

Kasperowicz offers no information on how likely it is that the proposed legislation will actually become law, but as the bill was introduced at least as early as 2009 and never made it out of committee, it doesn’t appear that being a common sense measure is enough to ensure swift passage.

If you’re feeling fired up to support the bill, there is a petition online.

Does the government do enough to support telecommuters?

Image courtesy of Flickr user Enter The Story.

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It is important to understand that our work takes place in a system. In this case, the system is shifting quickly and is not well understood. Individuals, organizations, states and countries (recall the recent e-G8 meeting in Paris) are all trying to both understand and create reality in the Internet-enabled world.  To be an effective web worker, it is vital that you think about the whole system that you work in, not just the critical dimension of the moment. Here are five dimensions to consider as you think about your own work in this system:

• People. Who are the people that you must engage with? Knowledge, skills, abilities, preferences.
• Organizational process. This includes policies, procedures, workflows, and standard ways of operating.
• Organizational structure. The organization chart/reporting structure that you work within, which is often a good indicator of what an organization thinks is important.
• Technology. Both electronic and physical, on-hand or available.
• Context. The legal environment, your organization’s strategy (early mover, follower, growth, etc.), whether your organization is local/global, etc.

To make effective decisions about your work, understand that you can never change just one thing. There is no such thing as a single silver bullet that will solve a problem. Fredrick Brooks, summarizing the issues in a classic 1986 article, writes, “There is no single development, in either technology or in management technique, that by itself promises even one order of magnitude improvement in productivity, in reliability, in simplicity” (pdf). Even just changing from one email client to another has a human learning curve and may also affect your workflow.

Do a quick mental scan of the five dimensions in your situation. Focus on the two or three that you expect to have the greatest initial impact (this keeps you in tune with another piece of advice: go for small wins rather than stretch goals) and will help you understand how things are working. If you change everything at once it is difficult to track the causes and outcomes.

For California residents, our context has just shifted. The most effective web workers had this possibility on their radar well before receiving the letter from Amazon and were proactive about their options and how the different dimensions were part of those options. For example, they have been lobbying their legislators, hopefully considering multiple dimensions as they thought about how to persuade them: Understanding their particular legislators’ priorities and the organizational process to reach them. For some, moving to a different state may be an option, and again, multiple dimensions should be considered: The human costs of moving, supplier costs of moving, whether the new locale is next in line for a tax change. There will be no one right answer for the web workers affected by this change. The only “right answer” is that for this adjustment, and any other organizational decisions that you must make, you need to consider the entire system as you come to your understanding and choices. You can never change just one thing.

How are you preparing for changes in your working environment, regardless of whether or not you live in California and/or were a member of the Amazon Associate program? What were the dimensions you considered as you thought about the future?

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