Michael Gray, CPA's Tax and Business Insight

February 4, 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!

Route to _______   _______   _______   _______   _______

(If you find this information valuable, please pass it on to a friend!)

Table of Contents

Remember Valentine’s Day is February 14!

My daughter and her husband, Holly and Dan Baker, tell me their restaurants, Marché aux Fleurs and AVA, are fully booked for Valentine’s Day. Hope you’ve made your reservation for your favorite restaurant. Janet and I will be babysitting two of our favorite "valentines", our grandsons Kyan and Clive Baker, while their parents are working at their restaurants.

Return to Table of Contents

Clive Baker
Clive Baker will celebrate his first birthday on February 23.

Family and firm celebrations.

My parents, Aubrey and Eleanor Gray, celebrated their 68th wedding anniversary on January 31. Congratulations, Mom and Dad!

My wife’s sister and her husband, Gail and Lane Johnston, celebrated their 40th anniversary on February 1. And they said they were too young… Maybe they’ll make it yet!

My grandson, Clive Baker, will celebrate his first birthday on February 23.

Thi Nguyen, our resident CPA, will celebrate her 30th birthday on February 24.

Return to Table of Contents

Tax season is here!

Make your appointment now! There are only about two and one-half months left before the tax return due date. Time to get started now!

If we prepared your income tax returns last year, you should have already received instructions in the mail. If you haven’t, please call Dawn Siemer at 408-918-3162.

To have us prepare your income tax returns, start with the online Tax Notebook organizer. Call Dawn Siemer at 408-918-3162 for instructions to get started. We also have a paper organizer, if you prefer. We still need your documents (W-2s, 1099s, receipts for donations) to prepare your income tax returns.

We can prepare most income tax returns using information provided online and by mail. If you wish a personal meeting, please call Dawn Siemer at 408-918-3162 to schedule an appointment. Our calendar is filling up fast!

Return to Table of Contents

Vivian
Vivian Chen is our accounting intern for this tax season.

Welcome Vivian Chen!

Vivian Chen is our student intern this year. She is a student in the masters of science in accounting program at San Jose State University. It is a challenging, highly condensed program.

Vivian came to the United States with her husband, Yaxun Tang, who is a PhD student in geophysics at Stanford University. (These two will probably have very intelligent children!)

She originally earned a Bachelor’s degree in Material Science and Engineering at Tongji University, Shanghai, China.

Vivian and Yaxun enjoy hiking, going to the beach and traveling. One of their favorite destinations is San Diego.

Return to Table of Contents

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.

Return to Table of Contents

Corporate due date for calendar year returns approaches.

The due date for 2008 calendar year corporate income tax returns, including for S corporations, is March 16. Although many corporations will apply to extend the due date for their income tax returns, there is no extension for paying the tax. That means they need to have a pretty good estimate of what their income is before that due date. Now is the time to get those extension computations in process with your tax return preparer.

Return to Table of Contents

Investment rules for Section 529 College Savings Plans relaxed.

The IRS has issued Notice 2009-1, which relaxes the investment rules for qualified tuition savings programs (Section 529 plans). In the past, these plans have only been able to change their investment strategy once a year and when the beneficiary of the account is changed. For 2009 (only, until further notice), the investment strategy may be changed twice during the year and when the beneficiary of the account is changed.

Return to Table of Contents

IRS issues guidance for victims of 2008 midwest disasters.

The IRS has issued Publication 4492-B, "Information for Affected Taxpayers in the Midwestern Disaster Areas" on its web site, www.irs.gov.

Return to Table of Contents

Updated payroll tax guidance issued.

The IRS has issued an updated version of Publication 15 (Circular E), Employer’s Tax Guide, on its web site, www.irs.gov. It has also updated Publication 15-B, Employer’s Tax Guide to Fringe Benefits, to reflect changes made by Congress during 2008, including the new bicycle commuting fringe benefit.

Return to Table of Contents

Required retirement distributions not suspended for 2008.

The IRS has stated that required minimum distributions for tax-favored retirement accounts, including IRAs and 401(k)s, were not suspended for 2008. The IRS says it doesn’t have the authority to suspend the distributions.

However, Congress has suspended required minimum distributions for 2009.

(Notice 2009-9.)

Return to Table of Contents

Watch recovery rebate credit on 2008 income tax return.

Some taxpayers who didn’t receive an advance cash payment of the recovery rebate credit based on their 2007 income tax returns may find they are entitled to the credit on their 2008 income tax returns because their income has declined, so the credit isn’t phased out. See the worksheet on page 63 of the 2008 federal individual income tax return instructions.

You will need to know how much you received as a stimulus payment to compute the credit. At www.irs.gov, search "How much was my stimulus payment?" to find out the amount received. Here’s a link you can use: https://sa2.www4.irs.gov/irfof/IRServlet?app=IRACTC&selectLanguage=en.

Return to Table of Contents

Divorced or separated parents need extra attention for exemptions and filing status.

Believe it or not, some of the toughest questions in the tax law relate to whether a taxpayer qualifies as a head of household or can claim a dependent exemption. In some cases, different rules apply for state and federal reporting.

IRS Publication 501 covers exemptions, the standard deduction and filing information. You can get it at the IRS web site, www.irs.gov.

New regulations were issued during 2008 that require a non-custodial parent to attach Form 8332, Release of Claim to Exemption For Child of Divorced or Separated Parents, to his or her income tax return when claiming the dependent exemption. (Treasury regulations § 1.152-4, TD 9408, 73 FR 37797, July 2, 2008.) In most cases, a court order won’t be sufficient to be entitled to a dependent exemption.

A child who is age 18 or over may be considered to be emancipated under the state law of residence, and therefore not in the custody of either parent during the period after reaching age 18! A parent still can qualify to claim the exemption and head of household status if other tests are met.

When an unmarried couple share a household where an unrelated partner provides the support for the household and the "custodial parent" mother or father of a child that lives in the household isn’t working and isn’t required to file an income tax return, except to claim a refund, the unrelated partner can qualify to claim the child as a dependent, but probably won’t qualify as a head of household because the child isn’t a "qualifying relative." This announcement is retroactive to taxable years beginning after December 31, 2004, so taxpayers who fit this scenario should consider filing an amended income tax return. (Notice 2008-5, 2008-2 I.R.B. 256.)

Return to Table of Contents

Federal stimulus proposal is in process.

President Obama is encouraging Congress to pass an economic stimulus package, including significant tax provisions, by February 15. The House of Representatives has passed its version of the legislation, and the Senate is now working on its version. The tax changes would mostly apply starting in 2009. I’ll provide some details when it passes.

Return to Table of Contents

Built-in gains tax applies to accounting method adjustment.

A corporation changed its accounting method and later made an S corporation election. Under the terms of the accounting method change, a certain amount was reported as taxable income for each year over a four-year period under Internal Revenue Code Section 481. The taxpayer claimed that the built-in gains tax shouldn’t apply to this income because the adjustments should be attributed to the year when they are taxable. The Federal Court of Appeals for the 10th Circuit ruled against the taxpayer and held the corporate-level tax applied to this income.

(MMC Corp. v. Commissioner, CA-10, 2009-1 USTC ¶ 50,155.)

Return to Table of Contents

LLC member could be an employee for California tax reporting.

California’s Employment Development Department (EDD) says that guaranteed payments and distributions to a California LLC member who is not a managing member should be treated as wages for California payroll tax reporting. If you have a question about this matter relating to your business, submit Form DE 1870, Determination of Employment Work Status, to the EDD.

California business owners should write their representatives in Sacramento to fix this non-conforming item. It has the potential to create some big messes.

(Spidell’s California Taxletter, February 1, 2009.)

Return to Table of Contents

Questions and Answers

Question

I have two jobs and was told I could claim the mileage from one to the other. I have searched and can’t figure out what form I need to do this. Could you please help?

Answer

The mileage is claimed first at Form 2106, Employee Business Expenses, and then as a Miscellaneous Itemized Deduction on Schedule A. Note that Miscellaneous Itemized Deductions are reduced by 2% of Adjusted Gross Income, and are not deductible when computing the Alternative Minimum Tax on Form 6251.

It’s hard to really get a tax benefit from employee business expenses.

Question

I have purchased traded stock options – puts and calls – through a brokerage company. I usually hold the options from 1 day to weeks. My colleagues say the gains or losses do not have to be reported to the IRS since they are not for stocks. They are just contracts to buy and sell securities, not the securities, themselves.

Is this true?

Answer

No.

The stock brokerage company isn’t currently required to report these transactions to the IRS on a Form 1099-B. They are scheduled to have to do it, eventually.

A complication is a put or call can be "closed out" with the underlying stock.

However, put and call transactions are required to be reported on Schedule D.

A helpful reference for these transactions is Tax Facts On Investments, published by The National Underwriter Company. 800-543-0874, www.NUCOstore.com.

Question

I am a field technician (not self-employed) and my company will soon reimburse me for 15¢ per mile while driving my personal vehicle for company business. I plan on driving approximately 20,000 miles in 2009. They are paying for all the fuel that I put into my vehicle for business use.

Can I itemize the difference between 55¢ (government rate) and 15¢ for every mile driven? If so, are there minimum requirements or limitations?

Answer

You can claim an employee business expense deduction on Form 2106 for the unreimbursed expense.

Remember that commuting expenses are not qualified business expenses. See the IRS publication 463 on Travel, Entertainment, Gift and Car Expenses.

Employee Business Expenses are Miscellaneous Itemized Deductions claimed on Schedule A. Miscellaneous Itemized Deductions are reduced by 2% of Adjusted Gross Income, and are not deductible on the Alternative Minimum Tax Form 6251.


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

Return to Table of Contents

Visit our new article!

Return to Table of Contents

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

Return to Table of Contents

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

Return to Table of Contents

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.

Return to Table of Contents

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.

Return to Table of Contents


Home    Newsletter Archive    Introducing Michael Gray, CPA    Articles    Tax FAQ   Need Help?    Other Links


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

Find us on Facebook
Follow me on Twitter
Connect on LinkedIn
Connect on Google+
Our Blog

Sign up for our free monthly newsletter,
Tax & Business Insight,
for the latest tax news!

subscribe html
unsubscribe text only

We respect your email privacy!