Michael Gray, CPA's Tax and Business Insight

August 11, 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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Panch Baker at Sunset Beach
My grandson, Panch Baker, making a sandcastle at Sunset Beach.

Happy anniversary to the Web!

In August 1990, Tem Berners-Lee and Robert Cailliau at CERN, the European Laboratory for Particle Physics in Switzerland suggested the World Wide Web. They designed a prototype Web browser by October and introduced HTML and the URL. Marc Andreesen designed and released Mosaic, the first graphical Web browser, in 1993.

Thanks to these pioneers, this newsletter and our web site exists to share information with all of our readers.

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August celebration.

My 39th wedding anniversary was August 7. Hooray! We made it for another year.

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Do you need help with finishing extended income tax returns, preparing amended income tax returns, or tax audits?

It’s time to focus on finishing extended income tax returns. Income tax returns for calendar year corporations, partnerships, estates and trusts are due September 15. Income tax returns for individuals are due October 15. Some of our readers have found errors in or are uncomfortable with tax returns that they prepared using tax software or were prepared by other tax return preparation companies. We can provide a second opinion. Others have received notices for tax audits and sometimes can’t get the help they need from their tax return preparer. We can help with all of these. To make an appointment, call Dawn Siemer Mondays, Wednesdays or Fridays at 408-918-3162 from 9 a.m. to 5 p.m.

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Closing date for Homebuyer Tax Credit extended.

President Obama signed the Homebuyer Assistance and Improvement Act of 2010, H.R. 5623 on July 2, 2010. The new law extends the closing date deadline to qualify for the Homebuyer Tax Credit from June 30, 2010 to September 30, 2010 for homebuyers who signed sales contracts before May 1, 2010. The House Ways and Means Committee estimates that the extension will enable 180,000 more homebuyers to qualify for the credit.

The new law also tightens up disclosure rules so that prisoners who are incarcerated at the time they buy a home won’t be able to claim the credit.

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Disaster relief provided for victims of West Virginia storms.

The IRS has extended filing and payment deadlines for victims of storms, flooding, and landslides in West Virginia that began June 12, 2010. The relief applies to Logan, McDowell, Mingo and Wyoming counties, which have been declared federal disaster areas. The deadlines have been extended to August 11, 2010.

The IRS will also waive failure to deposit penalties for employment and excise tax deposits due on or after June 12, 2010 and on or before June 28 that were made by June 28, 2010.

(West Virginia Disaster Relief Notice)

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District Court says same-sex married partners qualify to file joint income tax returns.

A federal district court in Massachusetts has ruled that a group of same-sex couples legally married in Massachusetts are eligible to file joint income tax returns. The Court found the Defense of Marriage Act of 1996 (DOMA) violates the equal protection provision of the Fifth Amendment’s due process clause.

Expect to see an appeal.

Meanwhile, same-sex married couples should file separate income tax returns and file refund claims for amended income tax returns as married, filing joint returns.

(Gill, DC Mass., July 8, 2010.)

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Federal district court in California overturns same sex marriage ban.

Unless you have been in a cave somewhere, you should know a U.S. District Court in California ruled on August 4 that California’s ban on gay marriages is unconstitutional. This will be another in a string of cases that will eventually end up in the U.S. Supreme Court. As I understand it, the California state government doesn’t want to delay allowing these marriages again in California. We are living in interesting times.

(Perry et Al. v. Schwarzenegger et. Al (August 4, 2010), U.S. District Court, Northern District of California.)

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Spousal rollover IRA doesn’t qualify for exemption from early distribution penalty.

The Tax Court has reaffirmed that once a surviving spouse rolls over their deceased spouse’s IRA to an IRA account in the name of the surviving spouse, distributions from the new account won’t qualify as death benefits excluded from the early distribution penalty. The surviving spouse could have avoided the penalty by not rolling over the inherited account until after the surviving spouse reached age 59 ½.

(Sears, TC Memo. 2010-146.)

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Financial reform legislation includes new tax rules.

President Obama has approved the Wall Street Reform and Consumer Protection Act (H.R. 4173.) At the last minute, members of the conference committee added language exempting many swap transactions from the mark-to-market rules. Since most of our readers aren’t using the mark-to-market rules, I won’t cover the details here. See your tax advisor for the details if you report securities sales using mark-to-market.

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Financial Insider Weekly broadcast schedule for August and September.

Financial Insider Weekly is broadcast in San Jose and Campbell on Wednesdays at 4:30 p.m., Pacific Time. Starting August 17, the broadcast time will change to 7 p.m. You can watch it on Comcast channel 15 for San Jose and Campbell. The show is broadcast as streaming video at the same time at www.creatvsj.org.

Here are the scheduled interviews for the rest of August and September:

August 18: Scott Haislet, Attorney and CPA, "The Short Sale and Foreclosure Wars"
August 25: David Howard, Attorney and retired CPA, "Information reporting requirements for foreign bank accounts and trusts"
September 1: Jim Beall, California Assembly representative, "California’s State Budget Challenge"
September 8: Mark Ericson, Attorney, "Divorce – California style – the basics"
September 15: Craig Martin, CFP, "Investing in Turbulent Times"
September 22: Craig Martin, CFP, "The role of the fee-only financial planner"
September 29: To be announced

Financial Insider Weekly is also broadcast as follows:

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

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

For your questions about dependent exemptions, see IRS Publication 501 at www.irs.gov.

Question

Is there a penalty if a company does not issue its 1099s by the January deadline?

Answer

This question opens a can of worms. For example, Forms 1099-B, 1099-S and certain 1099-MISC aren’t required to be provided until February 15.

There are two dates that apply for annual information returns, each with its own penalty. Those are the dates the forms should be provided to recipients and the dates the forms should be submitted to the IRS.

The penalty for failure to furnish and failure to file are each $50 (potential total of $100) to a maximum of $100,000 (potential total of $200,000).

Since the information provider is giving helpful information for tax compliance, the IRS is fairly relaxed in imposing these penalties.

The IRS routinely asks for the information returns in an audit of business taxable income, and will routinely propose to disallow deductions when a required information return hasn’t been issued.

The IRS loves information returns as a way of identifying unreported income.

Congress recently enacted legislation extending information reporting to payments for all goods and services by businesses, including payments to corporations, effective starting in 2012. These rules threaten to eradicate the forests of the Earth. We should all ask our representatives in Congress to support repealing the new requirements before they become effective.


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Visit our new article!

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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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I'm also on Facebook and LinkedIn.

you can also follow me on other social media sites, Facebook and LinkedIn.

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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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Check out my blog.

I have also started a blog at www.michaelgraycpa.com. Check it out!

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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 www.taxtrimmers.com/directions.shtml.

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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.


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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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