Michael Gray, CPA's Tax and Business Insight

January 8, 2010

© 2010 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 ruining her Christmas dress.
Kara Siemer "social climbing" in her Christmas dress.

Happy New Year!

The first decade of the second millennium is over. Most of us are glad to see it end.

We started with the "Y 2K" scare, which turned out to be a non-starter. We had the World Trade Center attack on September 11, 2001. We had two bubbles and stock market crashes, with the market gains of the decade erased. The worst recession since the Great Depression is ending with a "jobless recovery." Yuck!

On the plus side, we have had two of our children married to great partners and three beautiful grandchildren.

Life goes on! I believe and hope better times are ahead.

It's time to make new goals and a "timetable of success."

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 on a Monday, Wednesday or Friday 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 on a Monday, Wednesday or Friday at 408-918-3162.

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Time to revisit your home loan?

Home loan interest rates are still low. For many homeowners, there is a refinancing opportunity now. 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 2009 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 2009 than in 2008, 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 2009 annual information returns, such as W-2s and 1099s, should be issued to payees by January 31 and sent to the tax authorities by March 1.

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 of 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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Estates and trusts should consider making distributions.

Complex trusts and estates that have a calendar year end can elect to treat distributions made up to March 6, 2010 as made during 2009. Trustees and executors should update their tax records and review their situation with a tax advisor about whether a distribution should be made. Remember to discuss the situation with affected beneficiaries, since taxable income will be shifted from the estate or trust to the beneficiaries.

A reason for shifting the income is estates and trusts with taxable income over $11,200 are subject to the maximum 35% federal tax rate.

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Update your payroll tax tables.

Many businesses don't update their accounting software each year. Remember to update your payroll tax tables before processing your first 2010 payroll, or it will probably be in error.

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Bush tax cuts to expire after 2010.

2010 will be an unusual year for tax planning because many tax rates will probably increase in 2011. As presently scheduled, the maximum personal income tax rate will increase to from 35% to 39.6% and the maximum rate for long-term capital gains will increase from 15% to 20%. Many taxpayers will choose to accelerate income to 2010, including selling securities to report long-term capital gains. Remember, the wash sale rules don't apply to gains, so you can repurchase stock that you have sold at a gain and establish a new tax basis and holding period for the replacement stock.

The tax break for qualified dividends, subjecting them to the same maximum 15% income tax rate that applies to long-term capital gains, is also scheduled to expire, which could result in tax rates up to 39.6% applied to qualified dividends.

There are tax benefits to having an S corporation with no accumulated earnings and profits from years before the election was made. The S corporation can elect to have distributions apply to any accumulated earnings and profits before distributing the current S corporation income. If you have such a corporation and haven't already made the election, consider doing so during 2010.

There are many more changes, including expired tax benefits, that are up in the air pending action by Congress.

Before taking action on any of these items, consult with a tax advisor for a "sanity check" relating to your personal situation.

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See our special reports for 2010 "hot topics."

We are including with this newsletter three reports about business debt cancellation, estate tax repeal and converting an IRA to a Roth. Be sure to look them over to see if they apply to you.

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Goodbye AVA!

My daughter, Holly Baker, and her husband Dan have sold the location for AVA restaurant in San Anselmo. Although they are a little sad to lay this "baby" to rest, they are excited about the updates they are doing for Marché Aux Fleurs restaurant at 25 Ross Common in Ross, including replacing the furniture, fresh paint and new curtains. Why not make a reservation for a meal Tuesday through Saturday to check it out? For reservations, call 415-925-9200.

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Financial Insider Weekly is broadcast in more communities.

KMVT, cable channel 15 in Cupertino, Mountain View and Los Altos has agreed to broadcast my weekly television show, Financial Insider Weekly. The shows will be broadcast at 4 p.m. Friday afternoons. Check it out and tell your friends!

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Financial Insider Weekly broadcast schedule for January and February.

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

Here are the scheduled interviews for January and February:

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"
February 3, Professor Patricia Cain, "Income tax problems of same sex couples"
February 10, Professor Patricia Cain, "Estate and gift tax problems of same sex couples"
February 17, David Beck, "Applying for financial aid for higher education"
February 24, David Beck, "Evaluating and appealing university offers and student loans"

Past episodes of Financial Insider Weekly are posted on YouTube. One way to watch them is to go to our web site, www.financialinsiderweekly.com, and click on "Past Episodes."

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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Questions and Answers

Question

I am a Co-Trustee of a Trust (Foundation). Our main duties as Co-Trustees are to approve/disapprove of the investment recommendations of a professional investment advisor and to approve/disapprove grant applications for various 501(c)(3) applicants. I am paid a monthly fee for my participation. Would you consider this scenario as one that would subject my fees to the SE tax?

Answer

Probably.

A scenario described by the IRS for non-professional fiduciaries in Rev Rul 58-5 that is not subject to self-employment tax probably doesn't apply to you, because yours is a long-term assignment. A trustee of a Massachusetts real estate trust was held to be engaged in the "trade or business" of being a trustee for self-employment tax purposes. (C.E. Clarke, 27 TC 861, Dec. 22,266.)

On the bright side, being self-employed means you may be eligible to set up your own retirement plan.


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
2190 Stokes St. Ste. 102
San Jose, CA 95128
(408) 918-3162
FAX: (408) 998-2766
Hours: 8am - 5pm PDT Monday - Friday

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