Watch out for scams if you invest in coins

Buying rare and precious coins can be an exciting hobby and, for some, a lucrative investment. Unfortunately, it's also a business that's rife with potential for con artists. As always, it's wise to proceed with caution. Following a few simple guidelines can offer protection from unethical sellers.

* Research, research, research. Know what you're buying. Carefully study the characteristics of the coins you're considering, paying specific attention to rarity, grading, market availability, and price trends. Comparison shop for similar coins by checking prices in leading coin publications. If a dealer's advertised price is much lower than listed prices, the dealer may be misrepresenting a coin's grade or quality. Online discussion groups dedicated to coin collecting are also a great place to post questions about a particular coin.

* Know the seller. Before you buy, check out the dealer's reputation. How long has the firm been in business? Is the dealer a member of a professional organization? Has the Better Business Bureau received any complaints about this company? What guarantees does the seller provide?

* Be careful with online auctions. For many years the market for rare and precious coins has been a fertile field for fraudsters, and online selling has taken the game to a new level. Dealers who use online auctions such as eBay have been caught using a variety of scams: doctoring images, posting bogus descriptions, selling counterfeits, sending coins that differ from those advertised (the old "bait and switch" routine), and failing to deliver purchased items. Again, if you're planning to buy at an online auction, find out as much as possible about the seller. Check feedback ratings. Read both positive and negative comments. Make sure the seller has sold similar coins in the past with good results. Ask the seller for clarification if something appears suspicious. And if you win the bidding, beware of sending payments to a location that differs from the one listed in the auction.

Whether buying coins online or off, the old maxim, "let the buyer beware" is always sound advice.

How to get slow-paying customers to pay up

You’ve done your part. The job is complete, your customer is satisfied -- but a month has gone by, and your invoice is still outstanding. You’d like to work with the customer in the future. So how do you get your money without losing the customer?

Here are two strategies that may help.

1. Communicate promptly. On the day after the due date, send an e-mail with your original invoice attached, or fax a copy. Then call to make sure the duplicate was received. While you’re talking, ask whether the customer has all necessary documentation, and find out why payment is delayed. If the customer is happy with your performance, mention that you won’t be able to complete new contracts until past invoices are cleared up. Request payment on a specific date.

What if that date arrives but the money doesn’t? Drop by your customer’s business. Take a copy of the invoice and notes of previous conversations. Offer to wait while a check is processed.

2. Be willing to negotiate. When customers fall on hard times, you may still be able to find a solution that will work for both of you. Some options:

* Ask for a portion of the outstanding balance.

* Request that a specific invoice be paid immediately, with the remainder due at staggered intervals.

* Establish a short-term payment schedule for a series of smaller checks.

* Offer to convert the receivable into a formal note, with an amortization schedule and interest rate.

Setting credit terms, limiting the amount of credit you’ll extend, checking ratings, and requiring down payments can prevent collection difficulties. If you’d like help establishing procedures for receivables management in your business, give us a call.

Tax rules apply to family loans

There are many worthwhile reasons to lend money to a relative. For example, you may want to help a child or sibling continue their education or start their own business.

But lending money to relatives can have tax consequences. The IRS requires that a minimum rate of interest be charged on loans. If you do not charge at least the minimum rate, the IRS will still require you to pay tax on the difference between the interest you should have charged and what you actually charged. If these excess amounts become large, or if the loan is forgiven, there may also be gift tax implications.

There are some exceptions, though. Loans of up to $10,000 generally can be made at a lower (or zero) rate of interest, as long as the proceeds aren’t invested. Loans between $10,001 and $100,000 are exempt from the minimum interest requirement as well, as long as the borrower’s investment income is $1,000 or less. If the investment income exceeds $1,000, you’ll be taxed on the lesser of this income or the minimum IRS interest.

For the IRS to treat the transaction as a loan and not a gift subject to the gift tax rules, the transaction must look like a loan. The borrower should have the ability to repay the principal and interest. A contract should be prepared which specifies the loan amount, interest rate, the payment dates and amounts, any security or collateral, as well as late fees and steps to be taken if the borrower doesn’t pay. Have the document signed and dated by all the parties. For assistance, give us and your attorney a call.

Check your 2012 withholding

Withholding too much tax from your wages isn't a smart financial move. Match your withholding as closely as possible to your actual tax liability for the year, and invest the extra money for yourself, not the IRS.

What to consider before lending money to family and friends

When your best friend views your nest egg as a source of start-up funds for his latest business venture, or your nephew hits you up for a car loan, your first impulse may be to reach into your bank account to help. But it's a fact that loans to family and friends often end up straining both finances and relationships. As Shakespeare said, "Loan oft loses both itself and friend." In other words, if you lend money to friends, you often don't get paid back, and the friendship itself may disintegrate.

It's best to consider a loan to someone you love as an "arm's length" transaction. If you're pondering such a loan, keep the following in mind:

* You can just say "no." It's your money, after all. Do you really want to raid an emergency fund or dip into your child's college account to finance a friend's business idea? Think like a bank. It's reasonable to ask tough questions about the person's bank accounts, potential sources of income, planned use of loan proceeds, and spending habits before extending credit.

* Consider a gift. If you're comfortable sharing your resources, you may want to provide a monetary gift with no strings attached. In many cases, this is the best solution because neither you nor your friend expect the money to be paid back. Unlike a loan, this type of arrangement can forestall misunderstandings and hurt feelings later on. Of course, you should not give money if doing so would unduly strain your own finances.

* Formalize loans. If you decide to lend more than a small amount to a friend or family member, it's generally best to draft a written agreement. This can be as simple as filling out a promissory note (available online or at office supply stores). Such forms spell out the basic terms of the loan -- amount, interest rate, payback period -- and provide some limited protection should you and the borrower end up in small claims court. Another recent innovation is the use of direct lending (also called social lending or peer-to-peer lending) websites to facilitate loans between family and friends. For a fee, such sites can prepare loan documentation, send payment reminders, issue regular reports, even facilitate electronic fund transfers. If the loan involves a significant amount of money, check with your attorney.

Remember: Many personal relationships have been damaged when loans go awry. So proceed with caution.

Can you qualify for the home office deduction?

The home office deduction is available when you use part of your home regularly and exclusively as your primary place of business, or for meeting clients.

If you're an employee who works from home, there's an additional rule: The exclusive use must be for the convenience of your employer.

In either case, "exclusive" is defined as "all or nothing." Conduct any personal activities in the space you've designated as your office and the deduction is lost.

But satisfy the requirements and you can write off part of the expenses of running your home, including utilities, interest, and property taxes, as a business deduction. That means those costs can directly reduce business income, saving you income tax. If you're a sole proprietor, the deduction may also reduce self-employment tax. Though the amount you can claim is generally limited to business income, disallowed expenses can be carried forward to future years.

What are the drawbacks? One drawback to taking a home office deduction is the potential for depreciation "recapture" that may apply when you sell your home, potentially reducing the amount of gain you can exclude from income.

Give us a call. We can answer your questions about the tax requirements of a home office deduction in your particular situation.

Business Tax Tip

Keep repairs separate from major improvements. Ordinary repairs and maintenance on business equipment and buildings are deductible business expenses. Improvements which materially add to the value of the property or significantly prolong its useful life must be depreciated over a period of years. To avoid losing tax deductions for repairs and maintenance, make major improvements completely apart from repairs and maintenance.

Tax Tip for Working Parents

If you work and pay for child care, you may be eligible for the child care credit. Also, your employer may allow you to set aside part of your salary tax-free to pay for child care expenses. You may even be eligible for the earned income credit. And don't overlook the child tax credit for children under age 17.

Supreme Court rules on 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.

Several provisions in the health care law had already gone into effect, and many new tax provisions are scheduled to take effect in 2013. These are the provisions you should factor into your tax planning for the rest of this year. A quick review of these tax provisions:

* Annual contributions to health flexible spending accounts (FSAs) will be limited to $2,500.

* The 7.5% income threshold for deducting unreimbursed medical expenses increases to 10% for those under age 65. Those 65 and older may continue to take an itemized deduction for medical expenses exceeding 7.5% of adjusted gross income through the year 2016.

* The payroll Medicare tax will increase from 1.45% of wages to 2.35% on amounts above $200,000 earned by individuals and above $250,000 earned by married couples filing joint returns.

* A new 3.8% Medicare tax will be imposed on unearned income for single taxpayers with income over $200,000 and married couples with income over $250,000.

Contact our office for tax planning guidance following this landmark Supreme Court decision.

Arm yourself against ‘Buffett rule’

Instead of sitting back and waiting for events to unfold, you can take action now to protect yourself if the Buffett rule, or some variation of it, works its way into the tax law.

Here’s the whole story: The Buffett rule is based on the concept that everyone, regardless of his or her station in life, should pay a “fair” share of the federal income tax burden. It was initially proposed by billionaire investor Warren Buffett, who last year paid an effective tax rate that was claimed to be lower than his secretary’s.

The Obama administration stands behind the basic premise to levy a minimum 30% tax rate on taxpayers earning at least $1 million a year. In other words, if the Buffett rule

is enacted, you could use perfectly legitimate tax strategies to whittle down your tax liability, but you’ll still be hit with a top tax rate of no less than 30%.

6 steps to counter higher taxes

In this case, the best defense may be a good offense. Here are six steps that could minimize the tax fallout if Congress enacts the Buffett rule.

1. Accelerate capital gains. If the Buffett rule becomes slated to take effect next year, you can expect wholesale sell-offs of securities and real estate in 2012. As an added incentive, the current maximum federal income tax rate of 15% for long-term capital gains is scheduled to jump

to 20%, while tax rates for short-term gains, currently taxed at rates no higher than 35%, are

set to reach as high as 39.6%.

2. Postpone capital gains. On the flip side, it may not be the best time price-wise to unload some of your securities or to put out “for sale” signs on real estate. Fortunately, you don’t owe any tax on appreciated property until you actually sell it. Therefore, you might hold onto the property until the Buffett rule goes away or you can pass it to your heirs.

3. Stock up on munis. The value of tax-free income, such as the interest earned from most municipal bonds (“munis”) and muni bond funds, becomes even greater under the Buffett rule. You might allocate a bigger portion of your portfolio to these obligations.

4. Give generously to charity. It’s generally expected that the sacred cow of charitable deductions

will remain in place. Giving large gifts to tax-exempt organizations sooner rather than later may bring you below the $1 million mark.

5. Donate appreciated property. Combine the idea of accelerating capital gains with giving to charity. If you’ve held the property longer than one year before you donate it, you can generally deduct the fair market value of the property, instead of its basis. Therefore, you don’t ever pay any tax on the appreciation in value.

6. Move to a no-tax state. As part and parcel of the Buffett rule, the deduction for state and local income taxes may be repealed. If you’re about to retire and move anyway, you could shuffle off to a state with no state income tax, like Florida or Nevada, or at least one with a low tax rate (see box above).

Tip: You can’t “let the tax tail wag the dog,” but don’t ignore the possible impact of

the Buffett rule either.