Michael Gray, CPA's Tax and Business Insight

January 6, 2009

© 2009 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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Clive Baker with reindeer horns
Clive Baker celebrating his first Christmas.

Happy New Year!

2009 is here, at last! We know this will be a year of challenges, so roll up your sleeves!

This year, making goals and a "timetable of success" – scheduling activities to realize your goals – will be more important than ever!

Remember the old saying, "People don't plan to fail; they fail to plan."

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Tax preparation materials are on the way.

We are mailing instructions to those of you who use the online Tax Notebook this week. If you use a paper organizer, you should have already received it. If we prepared your tax returns last year and you haven't received instructions by January 15 or you would otherwise like to receive instructions, call Dawn Siemer weekday afternoons at 408-918-3162.

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Make your tax preparation appointment now.

If you would like to schedule an appointment for a tax preparation interview, also please call Dawn Siemer weekday afternoons at 408-918-3162.

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Time to revisit your home loan?

Home loan interest rates have been falling. For many homeowners, there is a refinancing opportunity now. Remember that we provide home loan brokerage services through our strategic partner, Wymac Capital, Inc. To explore whether we can help get financing for your new home, reduce the interest rate on your mortgage, or convert an adjustable rate mortgage to a fixed-rate mortgage, call Michael Gray at 408-918-3161.

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Final 2008 estimated tax payment is due January 15.

Remember the final estimated tax payment for calendar-year individuals, estates and trusts is due January 15. You might want to check with your tax advisor about reducing the payment if you had much lower capital gains in 2008 than in 2007, you are entitled to the increased federal refundable minimum tax credit or your facts have otherwise changed.

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W-2s, 1099s and DE 542 reminder.

Remember that most 2008 annual information returns, such as W-2s and 1099s, should be issued to payees by February 2 and sent to the tax authorities by March 2.

Also remember that Form 542, Report of Independent Contractors, should also be submitted for ongoing independent contractor arrangements by January 20. The due date is the earlier 20 days after the date $600 or more of payments have been made to the independent contractor or the date a contract has been entered for $600 or more of services during a calendar year.

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More federal tax legislation passes.

Congress has passed the Worker, Retiree and Employer Recovery Act of 2008, H.R. 7327.

The legislation suspends required minimum distributions from IRAs and qualified retirement plans for 2009, but not 2008.

It also permits direct rollovers from tax-qualified retirement plans, tax-sheltered annuities and Section 457 plans to a Roth account, effective January 1, 2008. Previously rollovers were only permitted from IRAs and Roth accounts.

Another provision requires qualified retirement plans to permit a direct trustee-to-trustee transfer by a non-spouse beneficiary to an IRA account. The IRS previously said this feature was optional.

The Act also includes funding relief for employers that have defined benefit plans.

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New California electronic estimated tax payments for some.

California estimated tax payments will have to be made electronically, effective for tax years beginning on or after January 1, 2009. The requirement applies for taxpayers whose tax liability is greater than $80,000 or who make estimated tax payments or extension payments that exceed $20,000.

Once the thresholds are met, all future payments will have to be made by electronic funds withdrawal, WebPay or credit card. A WebPay page is at the Franchise Tax Board's web site, www.ftb.ca.gov. Credit card payments can be made at www.officialpayments.com, or by telephone at 800-272-9829. According to the Franchise Tax Board, a "pay by phone" option will be added in July, 2009.

If the threshold for a taxpayer falls below the mandatory e-pay amounts, the taxpayer may request to discontinue making electronic payments. The Franchise Tax Board says it will provide a waiver form during March, 2009.

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California Use Tax rules changed for out of state purchases.

California has changed its rules for determining whether a vehicle, vessel or aircraft purchased out of state is subject to California use tax when a California resident brings the item in the state. Under the "old" rule, a "90-day" test applied. Effective September 30, 2008, a "12-month" test applies.

If you purchase a vehicle, vessel or aircraft outside California and bring it into California within 12 months from the date of its purchase, the purchase may be subject to use tax in these cases:

The bill also provides a use tax exclusion for the purchase of an aircraft or vessel that is brought into California for the limited purpose of repair, retrofit or modification. There is also a use tax exclusion for the purchase of a vehicle that is brought into California for the exclusive purpose of warranty or repair service.

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California changes for tax withholding when real estate is sold.

The 2009 requirements for withholding of California tax when real estate located in California is sold have been changed. Nonresident S corporations and nonresident partnerships (including LLCs taxed as partnerships) are now subject to withholding. See the January 2009 issue of Michael Gray, CPA's Real Estate Tax Letter for details. To subscribe, visit www.realestatetaxletter.com.

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Should you file a California Nonresident Withholding Waiver Request?

Certain payments by California entities to partners, S corporation shareholders, estate and trust beneficiaries, independent contractors and rent payments to nonresident property are subject to California income tax withholding. The requirement can be waived by the Franchise Tax Board. You request the waiver using California Form 588. It must be renewed every two years. You can get the form and instructions at www.ftb.ca.gov.

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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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

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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
2482 Wooding Ct.
San Jose, CA 95128
(408) 918-3162
FAX: (408) 938-0610
Hours: 8am - 5pm PDT Monday - Friday

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