Michael Gray, CPA's Tax and Business Insight

December 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!

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Dawn, John and Kara Siemer with a snowman.
Here are Dawn, John & Kara Siemer with our
snowman made during our November vacation.

Happy Holidays!

2009 is ending with hopeful news for a better year ahead.

We hope you enjoy a Happy Holiday season.

If you are well-off financially, we hope you are able to give generously to help those who are less fortunate than you are. If you aren’t so well off this year, we hope next year will be a much better one for you.

Our office will be closed on Christmas Eve day, Christmas day and New Years day.

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Now is the time for year-end planning.

There are 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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Should you "harvest losses"? Watch the wash sale rules!

Do you still have unrealized losses? You may choose to sell investments before the end of the year so you can deduct the losses. This is euphemistically called "harvesting losses." (Make the best of a bad situation.)

Remember, the deduction for capital losses for a tax year is limited to $3,000 plus capital gains. (For corporations, the deduction is limited to capital gains only. Any excess capital losses are carried forward indefinitely. (C corporations may carry capital losses back three years and forward five years.)

If you don’t have capital gains to apply the losses to, you won’t be receiving much of a current tax benefit from harvesting losses.

Also remember that losses aren’t deductible when identical securities or options to buy identical securities are acquired during the period 30 days before to 30 days after the sale. This is called a wash sale. Instead of identical securities, you can buy a similar security, including a different mutual fund in the same asset class. Again, find out whether a capital gain dividend is pending for a mutual fund, how much the dividend might be, and what the date of record is to identify who the dividends will be paid to. See your investment advisor for advice about your portfolio management.

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Remember to make your property tax payment.

The due date of the first installment of California real estate tax is December 10. There is a nasty penalty for making a late payment, so remember to make your payment on time.

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Calendar corporate estimated tax payment is due December 15.

The fourth quarter estimated tax payment for calendar-year corporations is December 15. The rules for how much needs to be paid in to avoid estimated tax penalties have become complex, depending on the facts for your corporation. See your tax advisor about how much you should deposit.

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Financial Insider Weekly broadcast schedule for December and January.

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 December and January:

December 9, Phil Price, EA, "Retirement plans for closely held businesses"
December 16, Dick Blakely, "Benefits of a family office"
December 23, Tom Oviatt, "Home mortgage developments"
December 30, attorney Bernard Vogel, III, "Choices of forms for conducting closely-held businesses"
January 6, attorney David Kirsch, "Preparing for an IRS audit"
January 13, attorney David Kirsch, "When you owe taxes to the IRS"
January 20, attorney Bill Mahan, "Why you need a Will"
January 27, attorney Bill Mahan, "Estate and financial issues relating to your title to property"

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

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. 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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Should you make a state income tax payment before the year end?

Usually you get the best tax result by matching deductions like state income taxes with the related income. Since itemized deductions for taxes aren’t allowed when computing the alternative minimum tax, you need to actually "crunch" your numbers to find out if this will really have the best result for you.

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Cost of producing molds qualified for Research Credit.

The Tax Court found in favor of a taxpayer that was a manufacturer of injection-molded products used in the automotive industry. The taxpayer included amounts paid to third-party toolmakers for production molds as qualified research expenses when computing the research credit. The taxpayer modified the molds and eventually sold them to customers.

No research credit was claimed by the taxpayer for molds that it owned and depreciated. The credit was claimed for molds sold to customers.

Since those molds were not depreciable for the taxpayer, the Tax Court found for the taxpayer.

(TG Missouri Corp. v. Commissioner, Dec. 57,991, 133 TC No. 13.)

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Guidance issued from expanded net operating loss carryback.

The Worker, Homeownership, and Business Assistance Act of 2009, enacted on November 6, 2009, expanded the net operating loss carryback deduction to allow the option of electing up to a five-year net operating loss carryback from a year beginning in 2009. Previously, the election could be made only for a year beginning or ending in 2008. (According to the IRC as amended, the election is available for a "taxable year ending after December 31, 2007 and beginning before January 1, 2010.")

In addition, taxpayers eligible to make the election to carry back more than two years has been expanded to include all taxpayers. Under the American Recovery and Reinvestment Act passed earlier in 2009, only taxpayers with average gross receipts of $15 million or less could make the election.

The election is generally only available for one taxable year. An "Eligible Small Business" may make the election for two taxable years. An "eligible small business" generally has less than $15 million of gross receipts under a three-year test. The loss that can be applied to the 5th preceding taxable year is limited to 50% of the taxable income for that year before net operating loss deductions.

The IRS has issued Revenue Procedure 2009-52 as guidance for how to apply the new rules, including how the elections are made.

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Possible estate tax repeal a problem.

Under the Bush tax cuts, the federal estate tax is scheduled to be repealed for one year in 2010. If this happens, many estate plans that are designed around the estate tax rules won’t work. It will create a big mess of delays for estates and trusts of decedents who die during 2010 until the situation is stabilized by an extension of the tax by Congress. Legislation has been introduced and has passed in the House of Representatives to extend the estate tax for 2010 or make it permanent, but it might not pass in the Senate before the end of 2009 because of debates on health care reform legislation.

Consider consulting with your attorney for a contingency plan.

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2010 Standard Milage Allowance announced.

The IRS has announced the standard mileage allowance for employees, self-employed individuals or other taxpayers for claiming deductions for business, charitable, medical and moving expenses.

The business rate for 2010 is 50¢ per mile. It was 55¢ per mile for 2009. (Prices include 23¢ for 2010 and 21¢ for 2009 per mile of depreciation reducing the tax basis of the vehicle.)

The medical and moving rate is 16.5¢ per mile for 2010. It was 24¢ per mile for 2009.

The charitable rate is 14¢ per mile for 2010, the same as for 2009.

(Revenue Procedure 2009-54.)

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FTC issues new guidelines on testimonials for advertising.

The Federal Trade Commission has issued new guidelines that will dramatically change how testimonials can be used in advertising. If the results presented aren’t typical, the guidelines require the advertiser to state what a typical result would be. "Results not typical" won’t be a sufficient disclaimer for protection. There are other important new disclosure requirements. You can see a news release about the requirements at www.ftc.gov/opa/2009/10/endortest.shtm and the actual guides at www.ftc.gov/os/2009/10/091005revisedendorsementguides.pdf. Getting legal advice for promotional material is now more important than ever.

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Questions and Answers


I am required for my employment to travel to different stores throughout the day. My company pays 32¢ per mile, but only for a portion of my drive time. There are about 80 miles per work day that they do not cover. I have been keeping a mileage log for my commuting and traveling. The IRS standard mileage rate for 2009 is 55¢ per mile. Can I claim a deduction for the mileage that my employer doesn’t reimburse?


Not all mileage is deductible. For example, commuting to work (or your first stop of the day) and home from work (or from your last stop of the day home) aren’t deductible.

You can deduct your 2009 standard mileage allowance of 55¢ per business mile minus the reimbursed amount on Form 2106, Employee Business Expenses. Be aware employee business expenses are miscellaneous itemized deductions, from which 2% of adjusted gross income is subtracted, so it’s hard to qualify for a deduction.

Also see IRS Publication 463, especially pages 14 through 16 and pages 28 through 30. You can get it at www.irs.gov or by calling the IRS or visiting an IRS office.

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 articles!

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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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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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