Michael Gray, CPA's Tax and Business Insight

July 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!

Route to _______   _______   _______   _______   _______

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Kara Siemer on a Gilroy Gardens amusement park ride.
Kara Siemer's first solo amusement park ride (at Gilroy Gardens).

Happy Anniversary to Disneyland!

(OK - It’s too late to wish you happy 4th of July!) On July 17, 1955, Disneyland opened in Anaheim, California. Walt Disney created a separate company for the park because his brother Roy thought it wouldn’t work. The Disneyland television show was created to help promote the park. The show debuted on ABC, which was later acquired by the Disney company. The rest is history!

Big lessons from Disney: (1) The entire park experience is marketing, including assuring that trash is picked up almost as soon as it hits the ground. (2) The park experience is a performance. Employees are cast members. Customers are guests. Every business can apply these lessons. Is yours?

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July family and firm celebrations.

This is the first year we won’t have my father, Aubrey Gray, with us to celebrate his 91st birthday on July 16. We miss him.

My son, James, King of Magic the Gathering on Ebay, is celebrating his 29th birthday on July 28.

My daughter and our firm’s web master, Dawn Siemer, married John Siemer on July 9, 2006.

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Clive Baker is walking!

For our readers who were curious after our last newsletter, my grandson Clive Baker took his first steps about three weeks ago and now is walking all over the place! Next, he should be saying some words…

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2009 is half over. How is it going?

Time is passing quickly. (Again!) How is 2009 going? Should we be meeting to discuss your tax developments? Do you need to have an estate plan created or reviewed? To make an appointment, call Dawn Siemer at 408-918-3162 on Monday, Wednesday or Friday.

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Final notice!

The 2009 edition of Secrets of Tax Planning For Employee Stock Options has arrived and our special introductory offer is about to expire. If you order a copy by July 15, 2009, you can get it for half price. To get more details or order, visit www.employeestockoptionsecrets.com or call Dawn Siemer at 408-918-3162.

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Do you need to have an extended income tax return prepared?

We are here throughout the year for your tax return preparation needs. To make an appointment, call Dawn Siemer at 408-918-3162 on Monday, Wednesday or Friday.

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Do you need help with a tax notice or a tax audit?

Sometimes you need someone who speaks the same language as the IRS or Franchise Tax Board to explain your situation. We "speak IRS"! To make an appointment, call Dawn Siemer at 408-918-3162 on Monday, Wednesday or Friday.

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Should you consider refinancing your home mortgage?

Mortgage interest rates continue to move up and down, but we have been able to help some clients take advantage of the low spots with advance preparation. For information, call Michael Gray at 408-918-3161.

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Free trial offer for Infusionsoft marketing management software.

Many small business owners have been frustrated in their efforts to manage the direct marketing process. They use a contact manager like Act! or Goldmine to manage the mailing list. Other services may be used for email, autoresponders, broadcast telephone services, and mailings. With many sequenced sales efforts in process, it’s hard to keep track of where each customer is in the sequence.

Finally, there is one service that integrates and automates the entire direct response marketing effort, so prospects and customers will experience consistent follow up. The software is used by many marketing "gurus," including Glazer-Kennedy Inner Circle, John Carlton, Joe Vitale, Piranha Marketing, Nitro Marketing and many more.

Now you can "test drive" this service for 15 days at no charge or obligation.

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Medical deduction not allowed when paid by another.

Christine McGrath’s father paid $39,542 for in-vitro fertilization services in 2005 as a wedding present. Christine and her husband claimed a medical deduction for the payment.

The Tax Court upheld the IRS’s disallowance of the deduction, because the taxpayers didn’t pay the expenses. If Christine’s father had made a cash gift instead of paying the expenses directly, the deduction should have been allowed. However, by paying the expenses directly, Christine’s father’s annual gift tax exemption wasn’t reduced by the payment and he was eligible to make additional cash gifts without being subject to gift tax.

This is a "you can’t have your cake and eat it too" situation.

(C.M.T. McGrath v. Commissioner, TC Memo 2009-126.)

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Employer couldn’t deduct premiums for employee’s disability insurance coverage.

An employer paid for disability insurance coverage on an employee. The employer was to receive the benefits in the event of the employee’s disability. The IRS Chief Counsel said the employer couldn’t deduct the premium payments, because the disability benefits are tax exempt. In addition, the employer had a right of reimbursement for the premium payments.

(CCA 200923025.)

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Deduction allowed for vehicle purchase when state has no sales tax.

The IRS has announced that taxpayers may deduct taxes and fees paid for the purchase of a new motor vehicle when the state has no sales tax. The deduction is allowed for qualified motor vehicles purchased between February 16, 2009 and December 31, 2009. The fees or taxes must be assessed on the purchase of the vehicle and must be either a per-unit fee or based on the price of the vehicle.

The deduction can only be claimed with respect to the first $49,500 of purchase price on a qualified motor vehicle, and is phased out for joint filers with modified adjusted gross income (AGI) of $250,000 to $260,000 and for single filers with modified AGI of $125,000 to $135,000.

(IRS News Release IR-2009-60.)

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Ninth Circuit says overstated basis doesn’t result in extended limitations period.

The Ninth Circuit Court of Appeals has ruled that the statute of limitations for the IRS to assess a deficiency on an income tax return is not extended when the full sales price of property is reported but the tax basis (cost for computing gain or loss) is overstated. (Some courts have ruled otherwise.)

(Bakersfield Energy Partners, LP, 2009-1 USTC ¶50,435, June 9, 2009.)

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"Cash for Clunkers" legislation enacted.

President Obama has approved legislation designed to take older vehicles with higher smog emissions off the road. Vouchers for $3,500 or $4,500 will be issued to new car dealers for transactions from July 1 through November 30, 2009. The voucher is not a tax credit for the buyer, but is issued directly to the motor vehicle dealer. The voucher is not taxable income for the dealer or the buyer.

The amount of the voucher will depend and the improvement in the mileage from the old vehicle to the new vehicle.

The trade in vehicle must have been continuously owned by the buyer for more than one year before purchasing the new vehicle and can’t be more than 25 years old. It must have had a combined highway/city fuel economy of 18 miles per gallon or less. The replacement vehicle must be new and the manufacturer’s suggested retail price for the replacement vehicle can’t exceed $45,000.

Both foreign and domestic vehicles are eligible for the credit.

(H.R. 2751.)

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Eighth Circuit Court of Appeals disallows FICA exemption for medical residents.

A panel of the Eighth Circuit Court of Appeals reversed its earlier ruling and upheld the IRS in disallowing the student FICA exemption for wages paid to medical residents.

(Mayo Foundation, University of Minnesota, CA-8, 2009-1 USTC ¶50,432, June 12, 2009.)

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Have a tax question?

Maybe we can answer it! Michael Gray answers 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.

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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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