Scams take many forms, but those involving gold and precious metals are especially problematic right now. Buying gold is trendy, and it can appeal to a senior’s desire for tangible security. Naturally, scammers will take advantage of this appeal. If someone you know is elderly and considering a gold-related investment, make sure they do their homework and work with a reputable company. Anyone pitching gold as a safety net against doomsday scenarios or hyperinflation should be carefully vetted.

Of course, more traditional investment vehicles can also be dangerous. Life insurance, annuities, and other potentially complex deals can be marketed to prey on an elderly person’s fear of running out of money. Investment advisors should only offer products suitable for the age, health, and financial wherewithal of their client. A perfectly legitimate investment can still be all wrong given certain circumstances.

By now, repetitive e-mail requests from some foreigner to wire funds to your bank account might seem almost comical, but to those who fall victim to a carefully crafted ploy, it is all too serious. Some very smart people – young and old – have been taken in by these types of scams, and when it happens to an elderly person, the fear of looking stupid and incompetent often adds to the problem. Educate the senior in your life to always reject these offers.

Not only do the elderly dread running out of money, they sometimes have an unhealthy concern for being a burden to others. This can manifest itself in attempts to prepay for certain services, or sign up for strategies that will pay for bills owed at the time of death. Every so often, when the time comes to cash in these plans, the company is nowhere to be found, or the policy doesn’t cover nearly as much as was expected. Like any other investment, the company behind the pitch should be scrutinized.

So, can you protect your senior from all the criminals out there? Probably not. But creating a fire wall around your loved one might call for a softer touch. Stay connected to their daily routine. Who are they spending time with? What are they reading? Become a stronger presence in their life, and the fears and loneliness that often initiate a wrong financial move could be reduced.

Periodically, you hear about a huge loss caused by an employee who’s been quietly embezzling cash for years. But many smaller cases are never noticed. And it’s not always employees at fault. In fact, the vast majority of employees are scrupulously honest and loyal. Outsiders can be stealing your cash too, by submitting false or inflated invoices that are paid without proper review.

What can you do to reduce the risk of losses? The textbook answer is “internal controls.” This refers to things such as standard procedures for approving and paying bills. It includes segregation of duties – having more than one person involved in preparing, signing, and reconciling checks. Unfortunately, many small companies don’t implement proper controls – either because there’s not enough staff or because they think it’s too much trouble.

Regardless of the size of your business, here are some steps you can take.

• Maintain a strict rule that all invoices must have an approval signature before being paid. Nothing focuses a person’s mind like having to sign his or her name on something.
• Have a policy that all employee expense reports must be signed off by a higher-level employee.
• Make it a rule that the person who prepares a company check can’t sign that check.
• Ask your bookkeeper or accountant to give you a signed note each month affirming that the bank statement has been reviewed and balanced.
• Follow up personally to make sure that these procedures are being followed.
• On occasion ask to see the bank statement and canceled checks for the prior month. Review them in detail. Not only will this increase your chances of spotting fraud, but it will also remind you just what the company’s cash is being spent on.

Please contact our office for details or for assistance in improving controls over your company’s cash.

Let’s examine your house of worship. It’s possible for members to deduct evangelism travel expenses, even if the charity (a church in this example) never initiated, controlled, supervised, or assisted with the trips. The church fostered missionary work in general. Before the trip, the church provided the taxpayers with letters of commendation serving as introductions to other interfaith groups during the trip. And after the trip, the charity publicized the member’s efforts to the other congregations. This allowed the taxpayers to deduct mileage at the prescribed IRS rate, air fare, lodging, and meals while on their missionary trip.

Consider the potential deductions for those taxpayers involved as board members to a charity, or simply significantly involved. In a recent decision, the Tax Court noted “control” by the charity is only one of the factors to be considered. You don’t have to necessarily be controlled or directed by the charity to make your deductions stand up. But there should be a strong affiliation with the charity, and the taxpayer must be accountable to the charity.

There are recordkeeping requirements. Noncash contributions greater than $250 must be acknowledged by the charity. The taxpayer will likely have to request this from the charity with a simple form, one which the charity will to be happy to complete in order to secure your deduction and advance the mission of the charity.

Nevertheless, you can lighten the financial burden of putting your children through school by taking advantage of certain tax-favored vehicles. These techniques are generally available to grandparents as well as parents. Here are four prime examples.

1. Section 529 plans: There are two main types of Section 529 plans. With a “college savings plan,” you can make generous contributions to a special account established for a designated beneficiary. Every state offers its own versions of these plans. With the second type, you may arrange to pay future tuition costs in today’s dollars through a “prepaid tuition plan.”

Funds contributed to a Section 529 plan may accumulate without any current tax, and distributions are tax-free if the money is used to pay for qualified higher education expenses. When an older beneficiary (such as your first-born child or grandchild) graduates, you can transfer the remaining balance in the account to a younger beneficiary.

2. Custodial accounts: A custodial account established under controlling state law is a more traditional way to save for college. Typically, you create a bank account in a child’s name and manage the assets until he or she reaches the state-mandated age. The income is taxed at the child’s tax rate, which is usually lower than your rate. Caveat: Under the “kiddie tax,” unearned income above an annual threshold ($1,900 for 2011) received by a child under age 19, or a full-time student under age 24, is generally taxed at the top marginal tax rate of the parents.

3. Section 2503(c) trust: This type of trust (sometimes called a “minor’s trust”) avoids kiddie tax problems because the income it generates is taxed directly to the trust. Furthermore, unlike a custodial account, you can set up the trust to continue past the state age of majority, as long the child doesn’t exercise a limited right to withdraw the funds. The trust must comply with all the legal requirements.

4. Coverdell ESAs: The Coverdell Education Savings Account (ESA), initially dubbed the “Education IRA,” is essentially an IRA used to pay for education expenses. This type of account may be used for elementary and secondary school expenses as well as college. However, the annual contribution limit for Coverdell ESAs is only $2,000, as opposed to Section 529 limits usually reaching six figures. Also, eligibility is phased out for high-income taxpayers.

Contact us if you would like to determine the best approach for your situation.

There are no easy answers, but running through a three-step process can help you make the right decision.

1. Know your strengths. How does your product or product range stack up against the competition? Are your products higher quality, lower quality, or indistinguishable from your competitors’ products? Do you have an edge that can justify higher prices?

How about all the other elements that make up your total service package? Do you provide a bigger inventory, faster delivery, better payment terms, wider product line, better service on returned items? If not, can you change your operations to gain an edge in any of these areas?

Consider holding a brainstorming session with your salespeople to go over these questions. The answers might point the way to pricing decisions, and they’ll certainly give you good replies to customer pricing objections.

2. Put yourself in your customers’ shoes. Try to understand your customers’ needs. Are they under profit pressure? What changes are occurring in their industry? How can you adjust your products or service to add value for them – value that they might be willing to pay for? What are their alternatives if you raise prices? If your salespeople are staying in touch with their customers, they should already have the answers to many of these questions.

3. Know your competition. Run through the same questions you asked about yourself applied to your competitors. What are their strengths and weaknesses? What can they offer your customers that you can’t? How will they respond if you change prices? Here again, your sales staff should have good information on the competition they face.

When you’ve worked through these three steps you should have a much better idea of the likely competitive effect of a price change. Run some profit scenarios and then review your pricing decision with your salespeople. Make sure they understand the rationale, and jointly rehearse how they’ll present the change to customers.

For assistance with pricing issues in your business, give us a call.

• Ask your new employer whether you can roll your balance into the new company’s plan. If you can, arrange a direct transfer between plans. You may have to complete a probationary period before you can join your new company’s plan.
• Explore whether you can leave your balance in the old plan, at least for a while. That removes the pressure for an immediate decision.
• Roll over your balance into an individual retirement account (IRA). This avoids immediate taxes and lets your savings continue to grow tax-deferred. It also gives you maximum flexibility for future investments. You even have the flexibility to later convert into a Roth IRA. Be sure to ask for a “trustee-to-trustee” transfer to avoid any short-term tax risk.

A word of caution: If part of your account is invested in company stock, get details on the tax issues before you withdraw or roll over funds.

The bottom line: Do all you can to keep your savings in a tax-favored account. You’ll be glad you did when you reach retirement age. Please call our office if you’re facing this situation. We’ll be happy to advise you on your options.

What can you do to reduce the risk of losses? The textbook answer is “internal controls.” This refers to things such as standard procedures for approving and paying bills. It includes segregation of duties – having more than one person involved in preparing, signing, and reconciling checks. Unfortunately, many small companies don’t implement proper controls – either because there’s not enough staff or because they think it’s too much trouble.
Regardless of the size of your business, here are some steps you can take.
 Maintain a strict rule that all invoices must have an approval signature before being paid. Nothing focuses a person’s mind like having to sign his or her name on something.
 Have a policy that all employee expense reports must be signed off by a higher-level employee.
 Make it a rule that the person who prepares a company check can’t sign that check.
 Ask your bookkeeper or accountant to give you a signed note each month affirming that the bank statement has been reviewed and balanced.
 Follow up personally to make sure that these procedures are being followed.
 On occasion ask to see the bank statement and canceled checks for the prior month. Review them in detail. Not only will this increase your chances of spotting fraud, but it will also remind you just what the company’s cash is being spent on.

Please contact our office for details or for assistance in improving controls over your company’s cash.

In the past, 401(k) plans were typically offered by larger corporations. Employees could make pre-tax contributions by payroll deduction. The company would then usually match a percentage of those contributions. Investments grew tax-free until withdrawn at retirement. One advantage of a 401(k) plan is the relatively large amount you can contribute each year – $16,500 in 2011 with an extra $5,500 catch-up if you’re 50 years old or older.

Now you can establish the same type of plan if you’re self-employed or run an “owner only” business. That’s a business with just you and possibly your spouse, but no employees. You can save more with a solo 401(k) than with the traditional SEP, SIMPLE, or Keogh plans. That’s because you are able to make two types of tax-deductible contributions. First you make the usual employer contribution as owner of the business. Then you can make an additional salary deferral as an employee. As a result, you could potentially shelter up to $49,000 of your 2011 self-employment earnings from tax. If you’re eligible for the over-50 catch-up, that rises to $54,500.

The solo 401(k) plans are flexible and relatively simple to administer. If you think this plan might be right for you, please contact our office. We can tell you more about it and help show you how much you could save.

But caveat emptor: These policies can be expensive, complicated and they don't always cover all the costs involved.

First, the good news: If you purchase long-term care insurance, you may be able to get a limited tax deduction. Plus, benefits received under a "qualified" long-term care policy are generally tax-free. However, like most tax breaks, Uncle Sam imposes several limitations:

• Premiums paid for qualified long-term care insurance are deductible only up to an annual amount, based on the age of the insured person.
• Long-term care insurance is considered a medical expense for tax purposes (but the dollar amount is limited by the age of the insured). To be deductible on your return, medical expenses must exceed 7.5 percent of your adjusted gross income. This makes it difficult to qualify for a write-off unless you have a lot of other health costs that aren't reimbursed by insurance.

What's Covered? Life expectancies have increased significantly and are expected to continue to increase in the future. As people age, they're more likely to develop conditions that limit their ability to live independently. It's a good idea to review your options for dealing with these costs before you need care. Five considerations: 1. Health insurance policies usually don't pay for nursing home care. 2. Medicare only pays for 100 days of skilled nursing home care if an admission follows a hospital stay. 3. Medicaid pays a significant portion of all nursing home costs, but the government has enacted tougher rules to qualify for assistance. Typically, you need to deplete most of your assets before you qualify. 4. Many elderly people move in with family members and rely on them for help, but the personal toll can be huge. 5. Currently, long-term-care insurance pays a small percentage of all long-term medical costs. That may increase in the future as more people become aware of the risks and look to insurance as a way to fund the costs.

The current tax deductions aren't usually valuable enough to justify buying long-term care insurance primarily for tax purposes. As you get older, the costs increase and you could wind up paying more in premiums than you're trying to protect in assets.
Keep in mind that most people will never have to live in a nursing home for years on end. Many stays only occur for a short time after hospitalization. And Medicare pays all or part of the cost of skilled nursing facilities for the first 100 days.

Business tax planning

There’s a new twist on an existing option for accelerated write-off of assets you purchase from September 9, 2010, through December 31, 2011. You can choose to expense 100% of the cost of new equipment, such as machinery, some vehicles, and computers, under expanded “bonus” depreciation rules.

While this sounds similar to Section 179, which also allows immediate expensing of assets you’d otherwise have to write off over several years, differences between the two methods exist. For instance, the amount of Section 179 expensing you can claim may be limited by your income. In contrast, bonus depreciation can create an operating loss that you may be able to carry back to prior years to generate a refund. Also, bonus depreciation is available only for new assets; Section 179 expensing applies to both new and used assets.

And what about the rules for Section 179? The expensing limit was increased to $500,000. Your deduction begins to shrink if you buy more than $2 million of assets.
Another depreciation break was also extended: the 15-year life for certain leasehold and retail improvements and restaurant buildings and improvements. These assets will no longer qualify for 15-year depreciation after 2011.
Check out this tax break if your business has fewer than 25 full-time employees: You might qualify for a tax credit of up to 35% of employer-paid health care costs.

Investment planning

Capital gain rates will remain at a maximum of 15% (and a minimum of 0%) through December 31, 2012. The rates apply to qualified dividends and long-term gains from investments you sell. That makes 2011 a good time to implement strategies for potential tax savings.

One example: You may be able to manage your income to stay within the 10% or 15% income tax brackets, which would allow you to take advantage of the 0% capital gain rate.

Alternatively, you could gift appreciated stock to family members in those brackets. For 2011, the cutoff for the 15% bracket is $69,000 of taxable income when you’re married filing jointly ($34,500 for singles).

Also a tax-savvy way to completely eliminate your capital gains tax might be to donate appreciated stock to charity and receive a deduction equal to the security’s current market value. Special rules apply to noncash donations, so check with us before you move forward on this strategy.

IRA planning

Thanks to the extension of the “charitable IRA rollover” rule, taxpayers age 70½ and older can again use their IRA to make a donation to their favorite charity. The distribution can be used to offset some or all of your required annual minimum distribution.

Another exciting option is a Roth IRA conversion. If you procrastinated on converting your regular IRA to a Roth last year, you can still do so in 2011. Although converting your IRA generates taxable income in the year of the transfer, later withdrawals of contributions and income from the Roth are tax-free. Making this transfer while income tax rates remain low could pay off big time. And your conversion opportunities are not limited to just traditional IRAs. You can also convert your 401(k), 403(b), or 457 plan to a Roth.

Estate and gift tax planning

The new rules for estates include a maximum tax rate of 35% and a $5 million exemption for 2011 and 2012. The exemption is the amount you can leave to heirs, tax-free, and it applies to lifetime gifts as well. Therefore, you and your spouse could gift up to $10 million of cash, investments, or ownership in a business without incurring gift tax. That’s in addition to your annual exclusion of $13,000 per recipient.

Estates of persons who died in 2010 have the option of applying the restored estate tax rules and receiving a step-up in basis on property passing to heirs or having no estate tax but using a carryover of the decedent’s basis in property.

The December tax law contains other provisions that offer planning opportunities – almost all of which are temporary. Please give us a call for details and planning guidance.