October Online Advisor

We have just posted the October 2012 issue of the ONLINE ADVISOR newsletter on our website. Here are a few headlines from that issue. To read any of these articles, click on the link at the end of this e-mail.



WHO PAYS "ENOUGH" IN TAXES?

A recent poll by the Pew Research Center revealed that 58% of those surveyed felt the rich don't pay enough in taxes. 26% said the rich pay their fair share, and 8% said the rich pay too much.

KNOW THE TAX DIFFERENCE BETWEEN ALIMONY AND CHILD SUPPORT

Divorce is a sad experience for all concerned. The last thing you want to think about is taxes, but tax issues are important.

DEVELOP AN EARLY-WARNING SYSTEM FOR PROBLEM ACCOUNTS

If you extend credit to your customers, some losses are inevitable. So unless you are willing to forgo the credit part of your sales, you have to figure out ways to control your bad debt losses.

INSURING YOUR TEEN DRIVER: HOW TO CONTROL THE COST

Your child is approaching 16 years old and for the past several years, he or she has reminded you (daily, it seems) of this inevitability. You, on the other hand, have been trying to expunge the thought that a teenager -- a teenager! -- will soon be driving one of your vehicles.


Just click on the link to read the full articles.

September Online Advisor

Here are a few headlines from that issue. To read any of these articles, click on the link at the end of this e-mail.

DEADLINE APPROACHING FOR TAX-EXEMPT ORGANIZATIONS

Here's an important reminder for small nonprofit organizations: If your organization had its tax-exempt status revoked for failing to file an annual return from 2007 through 2009, the IRS is giving you a chance to get reinstatement.

CAPITAL GAINS AND LOSSES: NEW YEAR-END STRATEGY

The end of the year is the traditional time for securities investors to "harvest" capital losses for federal income tax purposes. But there's an added wrinkle in 2012: Due to pending tax law changes, you might try to reap more capital gains than losses.

TIPS ON GETTING A BANK LOAN FOR YOUR BUSINESS

Getting a bank loan for your business may be more difficult than usual in today's economy. However, if you give your bank a thorough, organized, and well-supported loan proposal, you'll increase your chances of getting the money your business needs.

HAVE YOU PROTECTED YOUR FAMILY?

Would your family be financially secure if tragedy struck? Before you answer, consider the following areas.

Just click on the link to read the full articles.

July Online Advisor

Here are a few headlines from that issue. To read any of these articles, click on the link at the end of this post.
SUPREME COURT UPHOLDS HEALTH CARE LAW

On June 28, the Supreme Court ruled that the "Patient Protection and Affordable Care Act of 2010" was constitutional, including the provision in the law requiring individuals to have health insurance coverage starting in 2014.

CANCELLED DEBT MAY BE CONSIDERED TAXABLE INCOME BY THE IRS With the recent economic downturns experienced by many taxpayers, there is a tax concept that is very important: cancellation of debt.

You would think that the cancellation of debt by a credit card company or mortgage company would be a good thing for the taxpayer. And it can be, but it can also be considered taxable income by the IRS.

STARTING A BUSINESS? DON'T MAKE THESE MISTAKES According to the Small Business Administration, a third of small businesses fail within the first two years. Over half fail in the first five years.

So if you're thinking  about starting a small business, it pays to take an honest look at yourself, your business idea, and the marketplace.

WHAT ARE YOUR OPTIONS FOR TAKING SOCIAL SECURITY BENEFITS?

When should you start taking social security? If you're approaching retirement and are eligible for social security, you have three broad options for drawing your benefits: start early, wait until your "full" retirement age, or hold out a few years longer to qualify for the monthly maximum.

Just click on the link to read the full article.

Impact of Obamacare

Here are some of the new taxes you are going to have to pay for Obamacare:


A 3.8% surtax on "investment income" when your adjusted gross income is more than $200,000 ($250,000 for joint-filers). What is "investment income?" Dividends, interest, rent, capital gains, annuities, house sales, partnerships, etc. Taxes on dividends will rise from 15% to 18.8%--if Congress extends the Bush tax cuts. If Congress does not extend the Bush tax cuts, taxes on dividends will rise from 15% to a shocking 43.8%.

A 0.9% surtax on Medicare taxes for those making $200,000 or more ($250,000 joint). You already pay Medicare tax of 1.45%, and your employer pays another 1.45% for you (unless you're self-employed, in which case you pay the whole 2.9% yourself). Next year, your Medicare bill will be 2.35%. For the partners, you will pay an additional .9% on the excess over 250,000 if you are married.

Flexible Spending Account contributions will be capped at $2,500. Currently, there is no tax-related limit on how much you can set aside pre-tax to pay for medical expenses. Next year, there will be. If you have been socking away, say, $10,000 in your FSA to pay medical bills, you'll have to cut that to $2,500.

The itemized-deduction hurdle for medical expenses is going up to $10,000. Right now, any medical expenses over $7,500 per year are deductible. Next year, that hurdle will be $10,000.

The penalty on non-medical withdrawals from Healthcare Savings Accounts is now 20% instead of 10%. That's twice the penalty that applies to annuities, IRAs, and other tax-free vehicles.

A tax of 10% on indoor tanning services. This has been in place for two years, since the summer of 2010.

Starting A 40% tax on "Cadillac Health Care Plans" in 2018.Those whose employers pay for all or most of comprehensive healthcare plans (costing $10,200 for an individual or $27,500 for families) will have to pay a 40% tax on the amount their employer pays. The 2018 start date is said to have been a gift to unions, which often have comprehensive plans.

A "Medicine Cabinet Tax" that eliminates the ability to pay for over-the-counter medicines from a pre-tax Flexible Spending Account. This started in January 2011.

A "penalty" tax for those who don't buy health insurance. This will phase in from 2014-2016. It will range from $695 per person to about $4,700 per person, depending on your income.

A tax on medical devices costing more than $100. Starting in 2013, medical device manufacturers will have to pay a 2.3% excise tax on medical equipment. This is expected to raise the cost of medical procedures.

So those are some of the new taxes you'll be paying that will help pay for Obamacare.

Note that these taxes are both "progressive" (aimed at rich people) and "regressive" (aimed at the middle class and poor people). The big ones--the 3.8% investment income hike and the Medicare tax increase--only hit you if you're making more than $200,000 a year. The rest hit you no matter how much you're making.

Convert Traditional IRA into Roth IRA

Here's the best scenario for this idea: Your traditional IRA is (or was) loaded with equities and has still not fully recovered from the beating taken during the 2008/2009 stock market meltdown. So your account is now worth less than it once was. Correspondingly, the tax hit from converting your traditional IRA into a Roth IRA right now would also be less than it would have been at the market peak. Why? Because a Roth conversion is treated as a taxable liquidation of your traditional IRA followed by a nondeductible contribution to the new Roth IRA. While even the reduced tax hit from converting is unwelcome, it may be a small price to pay for future tax savings. After the conversion, all the income and gains that accumulate in your Roth IRA, and all withdrawals, will be totally free of any federal income taxes - assuming you meet the tax-free withdrawal rules. In contrast, future withdrawals from a traditional IRA could be hit with tax rates that are higher than today's rates.

Of course conversion is not a no-brainer. You have to be satisfied that paying the up-front conversion tax bill makes sense in your circumstances. In particular, converting a big account all at once could push you into higher 2012 tax brackets, which would not be good. You must also make assumptions about future tax rates, how long you will leave the account untouched, the rate of return earned on your Roth IRA investments, and so forth. If the Roth conversion idea intrigues you, please contact us for a full analysis of the relevant variables.

DON'T OVERLOOK ESTATE PLANNING

For 2012, the unified federal gift and estate tax exemption is a historically generous $5.12 million. However, the exemption will drop back to only $1 million in 2013 unless Congress takes action. In addition, the maximum federal estate tax rate for 2013 and beyond is scheduled to rise from the current 35% to a painfully high 55%. Therefore, planning to avoid or minimize the federal estate tax should still be part of your overall financial game plan. Even if you already have a good plan, it may need updating to reflect the current $5.12 million exemption and the uncertainty about next year's rules. Contact us for specifics.

Nine Tax Breaks That May Vanish

Tax breaks come and tax breaks go. But this year is different.

Strategy: Prepare for the possible loss of several critical tax winners at the end of 2012. These include the "Bush tax breaks" that were initially passed a decade ago. On the other hand, certain other tax provisions are likely to be extended, including the annual "patch" for the alternative minimum tax (AMT) and tax incentives for energy-saving home improvements.

Here's a quick rundown of nine key tax breaks for individuals and small business owners slated for the endangered list.


1. Tax rates: Absent any legislative action, tax rates will be higher in 2013. the income levels for all tax brackets will be adjusted upward and the "marriage penalty" for joint filers will become harsher. In addition, the two top tax rates of 33% and 35% will replaced by rates of 36% and 39.6%, respectively.

2. Capital gains and dividends: For 2012, the maximum tax rate for long-term capital gains and qualified dividends is 15% (0% for certain low income investors). Beginning in 2013, the maximum rate for long-term capital gains will increase to 20% (10% for low income investors), while qualified dividends will be taxed at ordinary income rates reaching as high as 39.6% (see No.1).

3. Higher education credit: Parents who send their children to college can claim (subject to certain restrictions) the American Opportunity Tax Credit, formerly known as the Hope scholarship credit. The maximum credit for 2012 is $2,500. But the maximum is scheduled to revert to $1,800 (the time for the Hope Scholarship credit) in 2013.

4. Section 179 deductions: Currently, a small business can write off a maximum of $125,000 of qualified property (inflation-indexed to $139,000 in 2012), although the maximum deduction is reduced on a dollar-for-dollar basis for purchases above a threshold of $500,000 (inflation-indexed to $560,000). The maximum is schedules to drop back to $25,000 in 2013 with a $200,000
phase out threshold.

5. Bonus depreciation deductions: As a complement to Section 179, you may also qualify for 50% bonus depreciation on qualified property placed in service in 2012. Without any extension, bonus depreciation will disappear completely next year.

6. Phaseouts of deductions: Previously, up to 80% of the most popular deductions, including deductions for charitable gifts, mortgage interest and state and local taxes, could be "phased out" under a special rule for high-income taxpayers. A similar rule applied to dependency exemptions. The phaseout rules were gradually reduced and finally repealed in 2010. But they will be back
with a vengeance in 2013.

7. Child tax provisions: Several favorable tax provisions, including the child tax credit, the dependent care credit (i.e., the "child care credit") and the adoption credit will be scaled back in 2013. Generally, the provisions will revert to limits established prior to 2010.

8. Payroll tax holiday: The 2% Social Security tax holiday for employees, was extended through 2012. Barring another extension, in 2013 employees will have to pay the full 6.2% tax on wages up to the Social Security tax ceiling.

9. Estate and gift tax breaks: Several estate and gift tax provisions will "sunset" after 2012. This includes the generous $5 million estate tax exemption (inflation-indexed to $5.12 million in 2012), a top estate tax rate of 35%, portability of exemptions between the estates of spouses and corresponding benefits for gift and generation skipping taxes. Generally, the law will return to
the way it was before the Economic Growth and Tax Relief Reconciliation Act of
2001 (EGTRRA).

Business Entertainment at Home

As many of you know, a business can generally deduct 50% of entertainment and meal expenses that either follow or precede a substantial business discussion with a client. If a client visits from a distant location, the entertainment may take place the day before or after the meeting.

Strategy: Host a house party within the time restraints. The cost of home entertainment attributable to your business guests is deductible even if you never actually discuss business during the get together. For this purpose, business guests may include your client, his or her associates, you and your employees and everyone’s spouses.

Tip: If you throw a holiday bash for all employees, you can deduct 100% of the cost, regardless of the location of the party. You must however include the entire workforce.

Tip on Gold Investing

As a hedge to the stock market volatility, some investors are turning to gold and other precious metals. When you sell gold, you must report the difference between the sales price and your basis as a capital gain or loss. If you held the gold for more than a year, any gain is treated as a long-term gain. The federal income tax rate on long-term gains from precious metals is 28%, not 15%!! By using retirement plan funds instead of personal funds for gold investments, you can dodge a tax disaster. For example, gold coins that are minted by the U.S. government or one of the states, and some other gold coins of sufficient purity, can be held by IRAs. This is an exception to the general rule that prohibits IRA investments in coins and other collectibles.

Here are some ways to invest in gold:

• Gold bars or bullion
• Gold certificates
• Gold coins
• Gold stocks and mutual funds

Tip: You might swap precious metals in a like kind exchange at year-end. There is no current tax on the deal, but a tax loss is allowed for the difference. (The swap is actually a simultaneous sale and purchase.)

Sales Tax Deduction Available for 2011 Tax Returns

Our Buchbinder Tunick & Co. November Online Advisor just came out with some information regarding the "Sales Tax Deduction" now available for 2011 tax returns.

WHAT YOU SHOULD KNOW:

MAKE THE RIGHT PRICING DECISION - In business, making pricing decisions is always tough - and even more so when the economy is slow and sales are slipping.

CHOOSING YOUR EXECUTOR: A CRITICAL ESTATE PLANNING DECISION - An executor is the person or legal entity that you appoint in your will to settle your estate after your death.

To learn more click on link for entire article...

How do your clients protect themselves from fraud?

An example: The executive director of a service fulfillment company insists on using high quality paper for surveys, and demands control of the ordering process. This allows the executive to set up a false vendor, pay exorbitant prices for inferior paper, and then receive "loans" back from the vendor. If this was your client, would they be able to identify the fraud and properly gather evidence against the perpetrator?

Studies show that, on average, organizations lose 5% of their gross revenue to fraud. Our forensic specialists, through seminars and consultation, teach how to understand fraud and how to implement internal controls to avoid it. We also offer the expertise to uncover fraud and gather evidence.

Fighting fraud requires a clear comprehension of fraud theory. This includes understanding the Fraud Triangle: Pressure, Opportunity, and Rationalization-elements that fraud theory asserts must exist for an employee to commit fraud. It also requires proficiency in gathering evidence: seeking accounting irregularities and analytical anomalies, and compiling notes from properly conducted interviews, properly prepared and signed statements, and forensically acceptable electronic media images.

In our November 2010 Forensic Accounting Seminar, our team of specialists explored this case, teasing out the factors that allowed the fraud to take place, the investigation that revealed the extent of the fraud, and the evidence that was gathered.

In this case, another employee discovered the fraud by questioning the executive's insistence on high-quality paper and noticing a suspicious address for the vendor. The company took the correct steps to investigate: putting the executive on paid leave, interviewing employees and vendors, and creating legally acceptable disk images. After accounting for most of the fraud, they interviewed the executive, obtained a statement, notified law enforcement, and began civil proceedings. Building the case from the ground up facilitated both the civil and criminal cases.

With appropriate controls in place, organizations can minimize their risk for this kind of fraud and lessen the damage if it occurs. We look forward to opportunities to work with you in the future to explore ways to best protect your clients.

Deductibility of Skybox Rentals

I would like to review briefly the tax rules for deducting the expenses of renting a skybox or other private luxury box at a sporting event. Skybox rentals are subject to the general business-related entertainment expense rules as well as rules specific to skybox rentals.

In general, entertainment expenses are deductible if they are either “directly related to” or “associated with” the active conduct of your trade or business or investment activities. The direct relationship test is the harder of the two to meet. It requires an active business discussion during the entertainment event aimed at getting immediate revenue (as opposed to generalized good relations).

Accordingly, the “associated with” test is more likely to apply in the case of a skybox rental. To qualify under this test, you only need to have engaged in a substantial and bona fide business discussion before or after the entertainment event. If the discussion and entertainment event occur on the same day, the test is passed. If they are on different days, it may be more difficult to link the two, and the particular facts and circumstances involved will have to be looked at, e.g., whether a business client is from out of town, the length of the business meetings, etc.

In general, qualifying entertainment expenses are only 50% deductible. That is, if you spend $300 to entertain a client, the deduction is limited to 50% of your cost, or $150.

Special rules also apply for meals: they aren't deductible to the extent their cost is “lavish or extravagant” under the circumstances, and either you (or an employee of yours) must be present at the meal for the expense to qualify.

In addition, another limitation applies to the rental of a skybox or other private luxury box if the box is leased for more than one event. In that case, the deduction can only be based on the value of nonluxury box seats for the same event. For example, say you rent a 10-seat skybox at a stadium for $3,000 for three ballgames, where a nonluxury box seat costs $20. Ten seats times $20 for three events totals $600. Then, applying the general 50% limitation, the deduction would be $300, if the skybox was used for each event for entertainment “directly related to” or “associated with” the active conduct of your trade or business.

In determining whether the skybox rental is for more than one event, each game or other performance is counted as one event. Thus, a single lease for three or four World Series games is a lease for more than one event. On the other hand, two or more separate leases for the same event would be treated as one. That is, if three skyboxes are rented for a single game, the three leases would be treated as one, so the lease wouldn't be for more than one event. Additionally, if separate charges are incurred for food and beverages consumed in the skybox, these are deductible separately under the regular rules for such expenses rather than under the skybox limits.

5 Ways to Milk Preferred Tax Rates... Before Bush Tax Cuts Disappear

The end of the Bush tax cuts may just be a reality. Those rock bottom rates for long-term capital gains and qualified dividends are set to expire after 2010. Even if Congress extends the Bush cuts, they may limit the benefit for high-income earners. Here are a few things to consider:

Cash in your stock winners before 2011. If you wait until 2011, you generally will have to pay 5% more on long-term capital gains.

Harvest your stock losers after 2010. On the flip side, losses realized in 2011 may offset capital gains that will be taxed at higher rates.


Roll over or sell “small business” stock. If you own qualified small business stock, you can avoid tax on a sale by rolling over the proceeds into other QSBS stock within 60 days. Alternatively, you can exclude tax on 50% of the gain from the sale of QSBS in 2010 or 2011 , but the capital gain rate is 28%.

Take dividends in 2010. There is a urgent tax incentive to pile up dividends this year. If it makes sense, invest in stock a few months (now may be a good time) before dividends are scheduled to be paid. If you own a closely held corporation or a personal holding company, now may be the time to pay dividends.

Pass on the installment sale tax break. If it makes sense, you can elect out of installment sale treatment and have the entire gain taxed at 15% in 2010. Remember, this will accelerate your tax liability for both federal and state tax purposes.

S Corporation Tax Reduction Strategies

You may be receiving several types of payments from your S corporation, including a salary, rental payments from leasing real estate to the corporation, and a portion of the S corporation's net income. Since even minor fluctuations in these payment categories can produce differing tax results, we have the following ideas for saving taxes when extracting S corporation cash.

Income Shifting
S shareholders often attempt to minimize their compensation to increase the pass-through income to other owners (typically children in a lower tax bracket. Clearly, an owner rendering significant services to the corporation cannot unreasonably reduce salary to increase income to other shareholders. However, reasonable adjustments may be made with this objective in mind.

Reducing Compensation
Wages paid to an S corporation shareholder-employee are subject to payroll taxes. However, pass-through S corporation income is not. Thus, shareholder-employees may be able to reduce their payroll tax liability by minimizing salaries to receive additional pass-through income.

The IRS is aware of this strategy and has successfully fought it in several court cases. In some cases, the corporation issued no compensation to the key employee providing virtually all of the services the corporation sold. Instead, the shareholder-employee took corporate distributions without incurring payroll taxes. The courts recharacterized the distributions as compensation and imposed payroll taxes. Despite these IRS victories a shareholder's salary may be adjusted to the lower end of a reasonable range, especially when services are not the primary income-producing activity of the corporation.

Generating Rental Income
It is generally beneficial for an owner to rent real estate to the S corporation because any resulting net rental income is exempt from payroll taxes. But the arrangement must be reasonable because the IRS has ample authority to recharacterize rent payments as compensation or dividends to the extent they exceed market rates. S corporation shareholders using portions of their homes to perform services for the corporation (or to store corporate inventory) may lease space to the corporation. Deductions are not available for this use, but the rent is exempt from payroll taxes.

S corporation shareholders can often choose how to structure funds extracted from the corporation. While compensation and rental amounts must be reasonable, shareholders' tax results can often be improved. To discuss how S corporation distribution strategies can improve your tax situation, please give me a call.

5319 New Law Provides Two Tax Benefits For Hiring Unemployed Workers

Today I am giving you an overview of two key tax incentives for hiring unemployed workers in the recently enacted Hiring Incentives to Restore Employment (HIRE) Act.
Payroll tax holiday. The new law exempts any private-sector employer that hires a worker who had been unemployed for at least 60 days from having to pay the employer's 6.2% share of the Social Security payroll tax on that employee for the remainder of 2010.

$1,000 retention credit. As an additional incentive, for any qualifying worker hired under this initiative that the employer keeps on payroll for a continuous 52 weeks, the employer is eligible for an additional non-refundable tax credit of up to $1,000 after the 52-week threshold is reached, to be taken on their 2011 tax return. In order to be eligible, the employee's pay in the second 26-week period must be at least 80% of the pay in the first 26-week period.

Employers are eligible to claim these tax benefits for workers hired after Feb. 3, 2010, but only wages paid after March 18 qualify for the payroll tax holiday. And, in order to give IRS more time to adjust its payroll tax forms for the payroll tax holiday, the holiday's tax forgiveness for the first quarter of 2010 will not be available until the second quarter of 2010. Some additional features of the new hiring incentives include:

• There is no minimum weekly number of hours that a new employee must work for the employer to be eligible, and there is no limit on the dollar amount of payroll taxes per employer that may be forgiven.

• For workers that would otherwise be eligible for the Work Opportunity Tax Credit (i.e., another type of employment tax credit), the employer must select one benefit or the other for 2010.

• An employer that is a sole proprietorship can't claim the new tax breaks for hiring certain relatives. An entity cannot claim the new tax breaks for hiring certain relatives of its more-than-50% owner.

• An employer can't claim the new tax breaks for a worker who replaces another employee who performed the same job for the employer unless the prior employee left the job voluntarily or was fired for cause.

• For the hiring to qualify, the new hire must sign an affidavit, under penalties of perjury, stating that he or she hasn't been employed for more than 40 hours during the 60-day period ending on the date the employment begins.

The Act also provides that the credit isn't available for remuneration paid to domestic workers.

If you would like more details about these provisions or any other aspect of the new law, please do not hesitate to call me.

Buchbinder March 2010 Website Online Advisor

We have just posted the March 2010 issue of the ONLINE ADVISOR newsletter on our website. Here are a few headlines from that issue. To read any of these articles in full, please click here.

CONSIDER THIS NEW WAY TO USE YOUR TAX REFUND If you're receiving a tax refund this year, you can use it to buy U.S. savings bonds from the IRS.

PRIOR YEAR LAWS MAKE CHANGES TO THE TAX RULES FOR 2010 There are many changes in the tax rules this year, with the promise of much more to come. Here are some of the 2010 changes that could affect you.

CORPORATE MINUTES ARE AN IMPORTANT PART OF YOUR COMPANY'S TAX PLANNING Writing up the minutes of board of directors' meetings is not exactly a high priority for most business owners. Yet well-documented corporate minutes can provide valuable supporting evidence if your tax positions are ever questioned.

HOMEOWNERS: DON'T MAKE THESE INSURANCE MISTAKES Catastrophes, thefts, natural disasters, accidents, fires - they happen.

If such misfortunes strike, a well-researched and up-to-date homeowner's insurance policy can keep your family's finances afloat during trying times.

New for 2010: Roth IRA Conversions Available to Everyone!

2010 is the year when those with significant amounts in their traditional IRAs can convert and reap the tax-free growth benefits of a Roth IRA - regardless of their income level. Previously, you had to have a modified adjusted gross income (MAGI) of $100,000 or less to be eligible to convert.

There is, however, one stipulation for higher-income taxpayers - they still can't contribute to a Roth IRA. So, they won't be able to make additional contributions after the conversion unless either their economic situation or tax law changes. For 2010, the ability to contribute to a Roth IRA begins to phase out at a MAGI of $105,000 for single filers or heads of households ($167,000 for joint filers). This ability to contribute is eliminated after MAGI hits $120,000 for single filers and heads of households ($177,000 for joint filers).

Be aware that any conversion you make is subject to income tax, but for conversions made in 2010 you may report the income in two equal installments in 2011 and 2012. Thus, you'll be able to defer half of the income to 2011 and the other half to 2012. And if you're converting nondeductible contributions, you'll be liable for tax only on the account earnings. Also keep in mind that Roth IRA assets must remain in the account for at least five years and you must be at least 59 1/2 before you can withdraw earnings without incurring income tax liability and early withdrawal penalties.

New Study Claims Fraud May Increase in the Next Year

Senior executives expect fraud to pose a significant challenge over the next 12 months, according to a new study conducted by KPMG. Nearly one-third of the senior executives surveyed said they expect some form of fraud or misconduct to increase in their organizations. A majority said that fraud and misconduct poses a significant risk to their industry today.

What is their greatest concern if such wrongdoing is experienced? More than 70% were concerned with the potential loss of public trust at a time when market confidence is at a premium.

The executives reported that inadequate internal controls or compliance programs at their organizations enable fraud and misconduct to go unchecked, and they identified the following areas in need of the most improvement in antifraud efforts: employee communication and training, technology-driven continuous auditing and monitoring techniques and fraud and misconduct risk assessment.

If you are concerned with the possibility of fraud in your organization, feel free to give us a call so we might help you achieve peace of mind.

Try a Different Gift Idea This Year

Are you searching for gift ideas for the holiday season? It’s never easy, especially for older children and teenagers. They’re too old for toys, but do they really need another sweater or computer game?

Have you thought of giving financial gifts? They may sound less exciting, but in the long run they'll be much more appreciated. And financial gifts can grow in value over time.
Here are a few ideas you might want to consider.

• Fund a child’s Roth IRA. If your teenagers worked this summer, chances are they spent their earnings. But they can use your gift to open a Roth IRA, up to the amount of their earnings or the regular $5,000 limit. The IRA will grow tax-free, and by the time the teenager retires, your gift should have compounded to a substantial tax-free retirement fund.

• Fund a 529 education account. Anyone can contribute to a child’s Section 529 college savings plan, which accumulates savings for tuition and living expenses. There are no income restrictions on the donor, and few practical limits on the amount that can be saved. Your gift will grow tax-free in the plan.

• You could also make your gift to a Coverdell education savings account. These IRA-like accounts also grow tax-free, but there’s a limit on total contributions of $2,000 a year from all sources. The amount of your gift may also be limited, depending on your income.

• Consider this gift if you just want to encourage an interest in saving and investing. Buy a small number of shares in a mutual fund and package them with a book on basic investing. The child can watch the investment grow over time and can enjoy dividend payouts too. Modest amounts of investment income can be tax-free to children, although the kiddie tax may apply at higher levels.
  

Federal Tax Alert: Tax Advantages of Accelerating Purchases of Depreciable Assets Into 2009

This is the first of a series of blogs that discusses the tax advantages that may be realized by accelerating planned depreciable asset purchases into the 2009 calendar year to take advantage of bonus depreciation.

Buy Depreciable Property and Place it in Service This Year to Lock In Bonus First-Year Depreciation

Unless Congress acts, bonus depreciation deductions under IRC § 168(k) in the placed-in-service year equal to 50% of the adjusted basis of qualified property won't be available for most depreciable asset purchases made after 2009. Thus, enterprises planning to purchase new depreciable property in the 2009 calendar year or the 2010 calendar year should try to accelerate their purchases into the 2009 calendar year, if: (a) doing so makes sound business sense and (b) the tax advantage from increasing depreciation expense in 2009 is greater than the tax disadvantage of reducing the depreciation claimed in future tax years.

Caution: The highest individual income tax rate is scheduled to increase from 35% in 2009 to 39.6% in 2011. The higher tax rate decreases the tax advantage of accelerating purchases into 2009 because post-2010 deductions will reduce tax by a greater amount than will pre-2011 deductions.

Here's how the rules work:

The adjusted basis of qualified property is reduced by the additional 50% depreciation deduction before computing the amount otherwise allowable as a depreciation deduction for the tax year and any later tax year. If IRC § 179 expensing is claimed on qualified property, the amount expensed “comes off the top” before the additional 50% first-year depreciation allowance is computed. Then the taxpayer computes regular first-year depreciation (and depreciation for future years) with reference to the adjusted basis remaining after expensing and after the additional 50% first-year allowance. There is no AMT depreciation adjustment for property written off under IRC § 168(k).

Example: ABC, Inc, a calendar-year business, needs to buy $500,000 of five-year MACRS property. If it does so before Jan. 1, 2010, and places the property in service before that date, ABC may claim a first year depreciation allowance of $300,000 [($500,000 × .50 = $250,000) + ($500,000 − $250,000 × .20 = $50,000)]. If it waits until 2010 to buy the assets, and bonus first year depreciation isn't extended, ABC’s regular first-year depreciation allowance using the half-year convention would be only $100,000 (20%).

The bonus depreciation deduction is determined without any proration based on the length of the tax year.

How to qualify for bonus depreciation. In general, an asset purchased in 2009 qualifies for the bonus depreciation allowance if:

• it falls into one of the following categories: property to which the modified accelerated cost recovery system (MACRS) rules apply with a recovery period of 20 years or less; computer software other than computer software covered by IRC § 197; qualified leasehold improvement property; or certain water utility property;

• it is placed in service before Jan. 1, 2010. (Certain property with a recovery period of 10 or more years and certain transportation property may qualify if it is placed in service before Jan. 1, 2011); and

• its original use commences with the taxpayer.
  
  

The 50% additional first year depreciation allowance applies to qualified property unless the taxpayer “elects out.” The election out may be made for any class of property for any tax year, and, if made, applies to all property in that class placed in service during that tax year.

Caution: A taxpayer that “elects out” of additional first-year depreciation for a specific class of property is subject to the AMT depreciation adjustment for that "opt-out class."

Last Year for Extra-Generous Luxury Auto Depreciation Limits?

The first-year depreciation deduction for new vehicles that qualify for bonus depreciation is $8,000 more than the first-year depreciation limit that would otherwise apply.

For new vehicles bought and placed in service in 2009, and that qualify for bonus first-year depreciation, the boosted first-year dollar limit is $10,960 for autos (not trucks or vans), and $11,060 for light trucks or vans (passenger autos built on a truck chassis, including minivans and sport-utility vehicles (SUVs) built on a truck chassis). The regular first-year luxury auto limits (e.g., for used vehicles) are $2,960 for autos and $3,060 for light trucks or vans. The above boosted dollar amounts apply only for vehicles bought and placed in service before 2010. As a result, taxpayers thinking of buying a new auto, light truck or van for trade or business use should buy the vehicle and place it in service this year if they want to maximize first-year deductions.

Observation: Heavy SUVs—those that are built on a truck chassis and are rated at more than 6,000 pounds gross (loaded) vehicle weight—are exempt from the luxury-auto dollar caps because they fall outside of the definition of a passenger auto. Under IRC § 179(b)(6), not more than $25,000 of the cost of a heavy SUV may be expensed under IRC § 179. The balance of the heavy SUV's cost may be depreciated under the regular rules that apply to 5-year MACRS property (e.g., a 20% first-year depreciation allowance if the half-year convention applies for the placed in service year). However, with the 50% first year bonus depreciation available for qualified assets bought and placed in service in 2009 (in addition to the $25,000 expensing allowance and regular depreciation), taxpayers buying and placing in service new heavy SUVs in 2009 may be entitled to write off most of the cost of the vehicle.

Negotiate Value - Not Fees

How many times do you meet with a prospective client and they say your fees are too high? How many of your current clients are asking for a fee reduction because of the recession or they just do not have the budget for your services? Most of the time you respond, "What can you afford or what is your budget for this project?"

If this is the case, you just set yourself up for a downward fee negotiation! The problem with this type of conversation is you are relying on the buyer's presumed budget and not the buyer's overall budget in terms of value.

Buyers will justifiably seek to get the best deal. (Think how you approach buying a new car.) While they are eager to reduce fees, they are not so eager to reduce value. "Over servicing" is not uncommon in the PR industry. When you over service you provide greater value and do not get paid for the value that is provided! Try this conversation with a general contractor building your new home. You quickly learn the term "change order."

You may hear from the buyer that ABC, PR is willing to do the project at the lower price. Let them! Did you ever win a RFP and really lost? By this I mean the fee was so low you could not make money? Let another PR firm lose money and drain resources. I have only one exception to saying no: Intellectual Capital. The most important asset you have is your people and the intellectual capital they acquire. I may take a project at a lower fee or even lose money (I try and at least break even) if I am gaining intellectual capital for the firm.

So how do you respond to the lower fee request? "Of course fees can be negotiated. What value would you like to remove from the project?" Once you agree to a lower fee without a quid pro quo, you will be expected to do this every time. Walk away!

Next month: "Provide the Customer with a "Choice of Yeses"