Michael Gray, CPA's Tax and Business Insight

November 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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Kara Siemer as a ladybug
"Ladybug" Kara Siemer on Halloween.

Happy Thanksgiving!

Thanksgiving will be celebrated on November 26, this year. I hope you have many blessings to be thankful for.

With so much unemployment this year, many are less fortunate. Give generously to your local relief agencies.

I hope you are able to celebrate Thanksgiving with your family and friends. If you travel, travel safely.

Thanksgiving is the favorite holiday of my grandson, Panch Baker, because it is the one holiday when he has both sets of grandparents and all of his aunts and uncles together.

For our clients, thank you for your business. The purpose of our business is to serve you, and our existence depends on you.

For our readers, thank you for subscribing to our newsletter. We hope you will continue to find reading it enjoyable and rewarding.

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Birthday reflections.

For my brother, Steve, and me, November 17 will be our 58th birthday. We are thankful for having good health and our family. This year, our father passed away, and we are glad to still have our mother with us.

I have been fortunate to have a great marriage to a wonderful woman for over 38 years and I also see my children and grandchildren regularly.

I truly do have a lot to be thankful for.

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Now is the time for year-end planning.

Now that Halloween is past, we know the year will soon be over. Michael Gray and Dawn Siemer will be taking a family vacation from November 9 through 13, and of course we will be closed on Thanksgiving and the day after and on Christmas Eve and Christmas Day. That means there will be a limited number of year-end planning appointments available. Make your reservation now by calling Dawn Siemer at 408-918-3162.

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Financial Insider Weekly broadcast schedule for November and December.

Financial Insider Weekly is broadcast on Wednesdays at 4:30 p.m., Pacific Time. You can watch it on Comcast channel 15 if you live in San Jose or Campbell, California. The show is broadcast as streaming video at the same time at www.creatvsj.org.

Here are the scheduled interviews for November and December:

November 11, attorney Naomi Comfort, "Handling retirement accounts after a death"
November 18, Kathleen Wright, American Red Cross, "Financial preparation for a disaster"
November 25, attorney John Hopkins, "How and why to promote community giving in your family"
December 1, attorney Frank Doyle, "Estate planning in uncertain times"
December 8, Phil Price, EA, "Retirement plans for closely held businesses"
December 15, Dick Blakely, "Benefits of a family office"
December 22, Tom Oviatt, "Home mortgage developments"
December 29, attorney Bernard Vogel, III, "Choices of forms for conducting closely-held businesses"

Past episodes are available at https://www.youtube.com/user/financialinsiderweek.

Eventually we will offer DVDs of the interviews for sale.

Let me know any ideas that you have for topics or guests. Guests will usually have to be located in or near the Silicon Valley in California.

Hope you can watch or record the show. Please tell your friends about it!

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Time to revisit your home mortgage?

We are continuing to experience refinancing opportunities when the stock market goes down, so many people are refinancing. Through our strategic partner, Wymac Capital, Inc., we specialize in no-points, no-fees refinancing, so some clients are immediately applying to refinance again at closing. Some lenders are allowing immediate refinancing without a penalty. Some mortgages feature interest-only payments for a period of years. For more details, call Michael Gray at 408-918-3161.

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Do you need to Attract Money Now?

Author Joe Vitale has written a book to improve the wealth-attracting mindset of the reader, called Attract Money Now. Joe feels so strongly about spreading his message that he is offering a FREE ebook version at www.attractmoneynow.com. You can only read the ebook on a computer, but the paper version is very reasonably priced at Amazon.com.

Joe knows what it’s like to raise yourself from poverty to wealth and unleash your potential from personal experience. I’ve read many of his books and they have valuable insights and practical tools.

Why not check it out?

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Check your income tax withholding.

The income tax withholding tables have become a political football. The federal government has reduced withholding to put money in your pocket while California’s government has increased your withholding to make up for budget deficits. One or the other may be too low or too high, resulting in unnecessary penalties for underpayment tax or unnecessary tax refunds.

You can make adjustments using Federal Form W-4 (www.irs.gov) and California Form DE-4 (www.edd.ca.gov).

If your situation is similar to last year, you can base your withholding on last year’s income tax return. If your adjusted gross income exceeded $150,000, a "protected" estimate would be 110% of the tax on last year’s income tax return. California doesn’t have protected estimates if your income is $1 million or more. (Good for you!)

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Retirement plan limits unchanged.

The IRS has announced that most of the 2010 limits for qualified retirement plans will be the same as for 2009. Here are some of the limits: 401(k), $16,500; defined contribution plans (profit sharing, ESOP), $9,000, defined benefit plans $195,000. Catch up contributions also are unchanged: $1,000 for IRAs, $5,500 for 401(k)s and SEPs.


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Social security earnings limit unchanged.

The Social Security Administration has announced that the maximum earnings subject to Social Security tax withholding will remain unchanged as $106,800 for 2010. Social security benefits will also be unchanged for 2010, with no cost of living increase.


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Accelerated tax benefits for equipment purchases are expiring.

Two stimulus provisions for purchases of depreciable business assets are scheduled to expire unless Congress acts to extend them.

One is 50% bonus depreciation, which only applies to certain new depreciable business property. Currently, the election to claim 50% of the cost as a depreciation allowance in the year of purchase is scheduled to expire for assets purchased after December 31, 2009.

The limitation for first-year depreciation for automobiles has been increased to $11,060 from $3,060 for 2009. The increased limitation will expire after 2009. Remember the vehicle must be used more than 50% for business.

The first-year expensing limit for tax years beginning in 2009 is $250,000 (formerly $125,000), with a phaseout beginning at $800,000 (formerly $500,000).

Shorter depreciation schedules for certain assets, including machinery and equipment used in farming and leasehold improvements for restaurants and retail establishments are also scheduled to expire for purchases after December 31, 2009.

Now is the time to review whether any year-end equipment acquisition purchases should be made to secure greater tax benefits before they expire.

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Estate plans need review.

The estate planning community is in a state of confusion because nobody knows what the estate tax law will be for 2010. Congress has failed (so far) to enact a "patch" extending the current rules. Otherwise, the estate tax will be repealed for 2010, and almost all estate plans will not "fit" that scenario.

In addition, California has modified its rules for "no contest clauses." If your estate plan includes a no contest clause that is important to you, you should consult with your attorney about it now. Attorneys that I have heard comment about no contest clauses recommend that you avoid them unless they are absolutely necessary.

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Roth IRA can’t hold S corporation stock.

The Tax Court ruled that a corporation wasn’t eligible to make a Subchapter S election because some of its stock was held by a Roth IRA. A Roth IRA is not a qualified shareholder for the stock of a Subchapter S corporation.

(Taproot Administrative Services, Inc. v. Commissioner, Dec. 57950, 133 TC No. 9.)

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Congress passes extension of first-time homebuyer credit.

On November 4, the Senate passed H.R. 3548, the Worker, Homeownership and Business Assistance Act of 2009. The House passed the bill on November 5 and President Obama signed the legislation on November 6. The bill will extend the first-time homebuyer credit to homes for which there is a binding purchase contract before May 1, 2010 provided the sale is closed before July 1, 2010.

The first-time homebuyer credit of up to $8,000 ($4,000 for a married person filing a separate return) was previously scheduled to expire on November 30, 2009.

A credit of up to $6,500 ($3,250 for married persons filing separate returns) will also be available for home buyers who have lived in another principal residence for a five- consecutive-year period during the 8-year period ending on the date of the purchase of a subsequent principal residence, effective on the date of enactment, with the same expiration date as the regular credit.

The adjusted gross income thresholds for phasing out the credit will be increased from $75,000 to $125,000 for singles and $150,000 to $225,000 for married, with joint returns, effective on the date of enactment.

The credit will not be allowed for a home if the purchase price exceeds $800,000, effective on the date of enactment. (This will knock out many home purchases in Silicon Valley!)

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Deduction for sales tax for new vehicle purchase set to expire.

Unless Congress takes action to extend it, the tax deduction for sales tax on up to $49,500 of the cost of a new vehicle is set to expire after December 31, 2009. Remember the deduction phases out for joint married filers with adjusted gross income over $250,000 and for single taxpayers with adjusted gross income over $125,000.

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California tax conformity legislation vetoed.

AB 1580, California tax conformity legislation, was vetoed by Governor Scwartzenegger. Nonconformity will result in more errors on California income tax returns for the foreseeable future.

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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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Follow me on Twitter!

If you enjoy Twitter, please follow me at www.twitter.com/michaelgraycpa. I would especially appreciate retweets of our messages announcing episodes of Financial Insider Weekly.

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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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