Michael Gray, CPA's Tax and Business Insight

October 1, 2008

© 2008 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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Janet Gray with grandsons Kyan and Clive Baker
Here is Janet Gray at a family birthday celebration with grandsons Panch (Kyan) and Clive Baker

Happy birthday, Janet!

Janet Gray will celebrate her 57th birthday on October 4.

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Trick! The year is three-fourths over!

Pumpkin patches are springing up, soon to become Christmas tree farms. Many people will be glad to see this year come to a close. Hope you have a Happy and Safe Halloween!

Also remember, as Robert Schuller says in his book title, "Tough times don't last, but tough people do."

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Extended calendar year non-corporate income tax returns are due October 15.

For calendar year individuals, partnerships, estates and trusts, this is the home stretch. If you need help with an extended income tax return, call Dawn Siemer weekday afternoons at 408-918-3162 and we'll try to squeeze you in.

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Telephone seminar on foreclosures & short sales October 16.

Michael Gray will be presenting a telephone seminar about foreclosures and short sales on Thursday, October 16 at 7 p.m. For more information, visit "Short Sales and Foreclosures with Michael Gray, CPA Teleconference."

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Michael Gray gives 2008 tax legislation update.

Michael Gray will be giving a webcast for CPELink on November 19. For details, go to this link: www.cpelink.com/product/detail.php?p=1057.

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Tokbox - the new fun web tool.

When I was 11 or 12 years old, we went to the Seattle World's Fair. One of the exhibits was a video telephone. Over 40 years later, video communications still aren't in wide use. Corporate video conferencing was expensive and complicated. Until now.

I am now sending video messages and doing video conferencing free on the internet using a new web-based service. You don't even have to load software on your computer, except to install a video cam, which you can get for $50 or less. My client, Brian Phillips, who works at TokBox, says the most popular application is grandparents visiting with their grandchildren.

Take a look for yourself at www.TokBox.com. It's fun!

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Congress argues over tax legislation.

Proposed tax legislation, including the extension of the AMT exclusion, tax relief for people with unpaid tax liabilities for back years relating to AMT for an incentive stock option exercise, and extension of the research credit is stalled in Congress. They were hoping to have it passed by September 30 so representatives could hit the campaign trail. The Senate and the House of Representatives disagree about whether there should be revenue raising provisions to offset tax breaks. There is also the distraction of the Wall Street bailout debate.

The legislation might not pass until early in 2009, which will make year-end tax planning more difficult.

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California home mortgage relief conformity (sort of) is enacted.

On September 25, Governor Schwartzenneger signed S.B. 1055, tax relief for Californians who have cancellation of debt income relating to a foreclosure or short sale of their principal residence. The California relief is scaled back significantly compared to federal legislation. Many people who escape federal tax will still owe a California tax. For details, see Michael Gray, CPA's Real Estate Tax Letter. You can see the current issue and subscribe at www.realestatetaxletter.com.

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California budget includes tax provisions.

The California state budget, signed by Governor Schwartzenegger on September 23, includes several provisions requiring the acceleration of tax payments. Here are a few highlights:

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No income tax deduction for interest paid on estate tax extension.

An estate was illiquid and unable to pay the estate tax by the due date of the estate tax return, nine months after the decedent's death. The IRS granted an extension of time to pay the estate tax due to economic hardship. The estate sold some real estate and paid the tax plus interest. The estate claimed a tax deduction for the interest paid.

On examination, the IRS Chief Counsel said the interest for the extension period is not deductible on the income tax return for the estate, because it is personal interest, which isn't tax deductible.

(CCM 200836027.)

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Joint returns allowed for years before death of spouse.

Donald Vidalier and his wife, Patsy, were behind with their income tax returns for 2000 through 2005. Patsy died in 2005 and Donald filed for bankruptcy in 2006. Donald filed his delinquent income tax returns for 2000 through 2005, claiming joint filing status. The IRS said he didn't qualify to file joint returns for 2000 through 2004, because they were years before Patsy's death that she needed to consent to. A bankruptcy court agreed with the IRS.

A U.S. District Court held against the IRS and in favor of Donald. Since no tax returns had previously been filed as married, filing separately and the taxpayers otherwise qualified, Donald could make the election as a surviving spouse.

(Vidalier v. U.S. Dept. of Treasury, No. Civ. 07-545 (W.D. La. 8/29/08)).

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IRS issues guidance on bonus depreciation and expense election.

The IRS has issued guidance about 50% bonus depreciation and the increased expense election under the Economic Stimulus Act of 2008. An important clarification is that the expense election can be made on an amended return. (Revenue Procedure 2008-54.)

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IRS updates consent procedure for accounting method changes.

From time to time, the IRS updates its procedures regarding giving automatic consent for accounting method changes. Automatic consent saves fees and time for taxpayers. New Revenue Procedure 2008-52 supercedes Revenue Procedure 2002-9. The new procedures are effective for applications to change accounting methods filed on or after August 18, 2008 for a year of change ending on or after December 31, 2007. The IRS has said in Announcement 2008-84 that taxpayers may continue to use the procedures of Revenue Procedure 2002-9 through September 15, 2008, which helped make filing extended calendar year corporate income tax returns easier.

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Questions and Answers

Question

I established a Special Needs Trust for my parents and got a tax identification number for that trust. We are going to revoke that trust and establish another Special Needs Trust with new provisions, with the same trust name. Do I need to apply for a new identification number, or can I just report using the old one?

Answer

Since it's a new trust and you're not just amending the previous trust, you should get a new identification number. Your attorney should be providing guidance to you on this issue, and you should be working with a professional tax return preparer/advisor for tax compliance requirements. All Special Needs Trusts are not treated the same. (That's our business!)


Michael Gray regrets he can no longer personally answer email questions. He will answer selected questions in this newsletter.

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Visit our new article!

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If you have employee stock options, have you subscribed to Michael Gray, CPA's Option Alert at no charge or obligation?

To learn more, visit stockoptionadvisors.com/subscribe.shtml

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If you have employee stock options, have you subscribed to Michael Gray, CPA's Option Alert at no charge or obligation?

To learn more, visit stockoptionadvisors.com/subscribe.shtml.

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Real estate investors, have you subscribed to Michael Gray, CPA’s Real Estate Tax Letter at no charge or obligation?

For details, visit www.realestatetaxletter.com.

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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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 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 taxtrimmers.com/directions.shtml.

They also have a second restaurant, AVA, at 636 San Anselmo Ave., San Anselmo, California. AVA serves food and drinks produced in California. For reservations, call 415-453-3407. The web site is avamarin.com.

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Michael Gray, CPA
2190 Stokes St. Ste. 102
San Jose, CA 95128
(408) 918-3162
FAX: (408) 998-2766
Hours: 8am - 5pm PDT Monday - Friday

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