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Michael Gray, CPA's Tax and Business Insight
January 4, 2006
© 2006 by Michael C. Gray
ISSN 1539-395X
A monthly report to help you prepare for your financial future, keep more of what you earn by minimizing your taxes, and build an extraordinary business!
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Table of Contents
- Happy New Year!
- Final 2005 estimated tax payment is due January 16.
- Tax organizers and tax notebook instructions are in the mail.
- Yes, we do prepare income tax returns!
- "Nobody’s life, liberty or property is safe while Congress is in session."
- Seminar on records required for estates and trusts.
- Real estate tax tips and traps seminar.
- Deferred compensation reporting postponed for 2005.
- Disclosure requirements issued.
- New draft Schedule M-3 issued for partnerships.
- Gulf Opportunity Zone Act of 2005 passed.
- Religious school tuition isn’t a charitable deduction.
- Questions and Answers
- Do you have employee stock options?
- Read our new article!
- PS Marché Aux Fleurs
- Subscribe/Unsubscribe from Michael Gray, CPA's Tax & Business Insight
Happy New Year!
We wish you good health and happiness for 2006.
Janet and I had a lot of fun with our 1-year-old grandson, Kyan, on Christmas Eve. He wasn’t afraid of Santa and seemed to enjoy meeting him. Kyan also slept "like a rock" at our home from 9 p.m. Christmas Eve until 9 a.m. Christmas Day, when his Mommy and Daddy arrived for Christmas breakfast.
How about that New Year’s storm? On New Year’s Eve morning, daughter Holly and her husband, Dan Baker, awoke to a lake of water outside their home. They had invested a small fortune in food for New Years Eve dinners at their restaurant, Marché aux Fleurs, in Ross. Water about a foot high from the neighboring creek flooded the restaurant, depositing about an inch of mud on the floor.
Janet and I watched Kyan while Dan, Holly and their employees cleaned up the restaurant, made preparations and called their guests to tell them Marché aux Fleurs would be open for business. Everyone showed up plus some walk-ins – about 90 people were served, which is a big night for them. All’s well that ends well.
The power line behind my parents’ Saratoga home blew down, leaving them without power for almost three days. My parents were suffering from colds, so sitting in a cold, dark house was not pleasant.
From here, it seems there is nowhere to go but up.
Final 2005 estimated tax payment is due January 16.
Remember the final 2005 estimated tax payment for individuals, estates and trusts is due on January 16. If you need help to determine the appropriate payment to avoid underpayment penalties or avoid a big overpayment, consult with your tax advisor.
Tax organizers and tax notebook instructions are in the mail.
If we prepared your 2004 income tax returns, we have mailed paper tax organizers or electronic tax notebook instructions to you. If you haven’t received them by January 13, please call Dawn at 408-918-3162. Also, please call Dawn if you would like us to prepare your 2005 income tax returns and would like tax notebook instructions or a paper organizer.
Yes, we do prepare income tax returns!
With our free newsletters and the information we make available at no charge on the web, some people wonder how we make a living. We prepare income tax returns and provide tax and business consulting services. We are accepting selected new clients and are thrilled when our clients and friends refer their friends, associates and family members to us. To inquire about becoming a client of our firm, please call Dawn Siemer at 408-918-3162 or send an email to her at dgsiemer@taxtrimmers.com. We must receive your tax information by March 1 to guarantee delivery by April 15.
"Nobody’s life, liberty or property is safe while Congress is in session."
(Capitol Hill Blue tagline)The U.S. Congress wasn’t able to conclude tax legislation to extend tax cuts before the end of 2005. We expect to see some retroactive legislation pass during January, 2006. If the legislation isn’t passed, many more taxpayers will be subject to federal alternative minimum tax for 2006.
Attention executors and trustees – seminar on records required for estates and trusts on January 23.
Michael Gray will conduct a lunchtime seminar on records required for estates and trusts at Hobees restaurant in the Pruneyard in Campbell, California from noon to 1:30 p.m. on Monday, January 23. The $50 investment includes lunch. See the flyer at www.taxtrimmers.com/fiduciaryseminar.pdf. Call Dawn Gray for reservations at 408-918-3162.
Attention real estate investors – real estate tax tips and traps seminar on January 27.
Michael Gray will conduct a lunchtime seminar about real estate tax tips and traps at Hobees restaurant in the Pruneyard in Campbell, California from noon to 1:30 p.m. on Friday, January 27. The $50 investment includes lunch. See the flyer at www.taxtrimmers.com/realestate.pdf. Call Dawn Siemer for reservations at 408-918-3162.
Deferred compensation reporting postponed for 2005.
The IRS has issued an announcement postponing the requirement to report income deferred under a non-qualified deferred compensation plan on Forms W-2 and 1099-MISC for the 2005 calendar year. (Notice 2005-94.)
Disclosure requirements issued.
The IRS has issued a revised revenue procedure explaining when the disclosure on a taxpayer’s tax return is adequate to reduce or avoid penalties for an accuracy-related penalty for understatement of income tax and preparer penalties for understatements due to unrealistic positions. (Rev Proc 2005-75.)
New draft Schedule M-3 issued for partnerships.
The IRS has issued a new form to reconcile financial reporting income to taxable income. New Schedule M-3 will be required for partnerships that have $10 million or more of total assets at the end of a taxable year, have $35 million or more in total gross receipts, or are 50% or more owned by a large or mid-sized business for tax years ending on or after December 31, 2006. (IR 2005-146.)
Gulf Opportunity Zone Act of 2005 passed.
President Bush signed the Gulf Opportunity Zone Act of 2005 on December 21, 2005. The legislation includes new tax incentives to accelerate recovery from the Katrina, Rita and Wilma hurricanes. Some tax incentives provided in the Katrina Emergency Relief Act are extended to victims of Rita and Wilma. The Act also includes an extension through 2006 of the election to treat combat pay as earned income for purposes of the earned income tax credit and technical corrections for 20 tax acts going back as far as 1987. One of the technical corrections will disallow (starting in 2005) a dependency exemption to a non-custodial parent of a qualifying child or relative based solely on language in a decree of divorce or written separation agreement. There isn’t space in this newsletter to cover the provisions in any detail. Taxpayers in the Katrina, Rita and Wilma disaster areas should consult with their tax advisors. (H.R. 4440.)
Religious school tuition isn’t a charitable deduction.
The Tax Court held that expenses paid by parents for their children’s religious education was not deductible as charitable contributions because (1) the tuition payments included secular education in addition to religious education; and (2) the tuition paid didn’t exceed the tuition charged by comparable secular schools in the area. (Sklar v. Commissioner, 125 T.C. No. 14 (12/21/05.)
Questions and Answers
Dear readers:
Many of your questions relate to the sale of a principal residence. We have an article at our web site, "Could your residence be the ultimate tax shelter?" (www.taxtrimmers.com/residence.shtml) where you should be able to find the answers to most of these questions.
Question
My mother sold her home on the beach in Southwest Florida in Spring, 2005 and purchased a duplex off the island in cash. She now has to pay capital gains tax on her profit. She’s 75 years old and a widow. She was told only $250,000 is exempt – which is the amount she paid for her new home. Does she have two years to decide whether to pay the taxes or reinvest, or does she have to pay by April 1, 2006?
Answer
I suggest that you look at the report cited above. The old rules for reinvestment on sale of a residence have been repealed. The $250,000 exclusion does not relate to the reinvestment in a new residence. Any tax due should be paid by April 15, 2006. You mentioned that your mother is a widow. If her husband died after buying the former residence, she may be entitled to a basis adjustment based on his date of death value for his share of the home. Your mother should visit a local tax advisor for help.
Michael Gray regrets he can no longer personally answer email questions. He will answer selected questions in this newsletter.
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- The Firm of the Future book review
P.S.
My daughter and her husband, Holly and Dan Baker, have a Southern French Restaurant at 23 Ross Common, Ross, California, about 15 minutes north of the Golden Gate Bridge. The name of the restaurant is Marché Aux Fleurs and their website address is http://marcheauxfleursrestaurant.com. For the best meal of your life, call 415-925-9200 for a reservation and give them a try! For directions, visit our website at http://www.taxtrimmers.com/directions.shtml.
P.P.S.
To receive the next issue of Michael Gray, CPA's Tax & Business Insight with more tax developments, another book review, and upcoming deadlines automatically via email, subscribe by filling out the form below.
IRS Circular 230 Disclosure: As required by U.S. Treasury Regulations, you are hereby advised that any written tax advice contained in this communication was not written or intended to be used (and cannot be used) by any taxpayer for the purpose of avoiding penalties that may be imposed under the U.S. Internal Revenue Code.
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Michael Gray, CPA
2190 Stokes St., Suite 102 San Jose, California 95128-4512 (408) 918-3162 Fax (408) 998-2766 email: mgray@taxtrimmers.com |
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