Michael Gray, CPA's Tax and Business Insight

November 3, 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 dresses for Halloween.
Kara, "The Dark Fairy" for Halloween

Happy Thanksgiving!

This year, Thanksgiving falls on November 25. There is a lot for me to be thankful for this year. I’m thankful I get to enjoy seeing my three grandchildren every week. I’m thankful my daughters have such great husbands. I’m thankful to have a great wife. I’m thankful my mother is still living and getting along reasonably well for an eighty six year old.

And I’m thankful to have you as a subscriber to this newsletter!

I hope you enjoy a great Thanksgiving with your family or friends. If you are traveling, travel safely!

Remember to give generously to those who may not be as fortunate as you.

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The year is almost over! Time for year-end planning.

The holiday season will soon be upon us. Some retailers decided to get an early start and had “Black Friday" sales last week!

It’s time for year-end planning. This is going to be one of the most difficult years for year-end planning in my 36 years in public accounting, because the Bush tax cuts are expiring at the end of 2010 and we don’t know what extension legislation, if any, will be enacted. We don’t even know the AMT exemption for this year! Congress might not pass extension legislation until next year! We can only guess what the tax laws are going to be after this year. Despite that, we need to estimate the taxes that may be due in April and otherwise work with our broken crystal balls.

Call Dawn Siemer on a Monday, Wednesday or Friday at 408-918-3162 to make your year-end planning appointment now.

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November celebrations.

My brother, Stephen, and I are celebrating our 59th birthday this month.

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Client appreciation event – Year End Planning For Employee Stock Options.

Subscribers to this newsletter and Michael Gray, CPA’s Option Alert only are invited to “be our guest" for a hosted luncheon seminar at Hobee’s Restaurant at the Pruneyard. Registration is required and will be limited to 30 guests. (That’s right! No admission charge! Usually we charge $97 to attend!) Michael Gray, CPA will give a presentation about “Year-End Planning For Employee Stock Options." The luncheon presentation will be from noon to 1:30 p.m. on November 12.

To register, call Dawn Siemer on a Monday, Wednesday or Friday from 9 a.m. to 5 p.m. Pacific Time at (408) 918-3162.

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Can’t make the live event? Participate in our teleseminar.

For those who can’t attend the event in Campbell, Michael Gray will present a telephone seminar on Year End Planning For Employee Stock Options at 1 p.m. to 2:30 p.m. Pacific Time on Tuesday, November 23. As a Thanksgiving gift, subscribers to this newsletter can participate for free! You only pay any applicable long-distance charges. If you pay 7¢ per minute, the total would be $3.50.

You must preregister to participate. To register, call Dawn Siemer on a Monday, Wednesday or Friday from 9 a.m. to 5 p.m. Pacific Time at (408) 918-3162.

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A South Bay live luncheon seminar for tax professionals.

Michael Gray, CPA will give a live luncheon presentation for the Tax Interest Group, Silicon Valley San Jose chapter of the California Society of Certified Public Accountants on Friday, November 19 from noon to 1:30 p.m. The topic is the Small Business Jobs Act of 2010. The luncheon will be at Bella Mia Restaurant in San Jose. The pre-registered investment is $30 for CalCPA members and $35 for nonmembers. For reservations, call Stephanie Stewart at 408-983-1122 or register online at www.calcpa.org.

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A Peninsula live luncheon seminar for tax professionals.

Michael Gray, CPA will give a live luncheon presentation for the Tax Interest Group, Peninsula Silicon Valley chapter of the California Society of Certified Public Accountants on Wednesday, November 17 from noon to 1:30 p.m. The topic is the IRS Disclosure and Use Rules. The luncheon will be at Hobees Restaurant in Belmont. The pre-registered investment is $25 for CalCPA members and $30 for nonmembers. For reservations, call Jane Dunbar at 650-802-2465 or register online at www.calcpa.org.

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IRS announces pension plan limits for 2011.

The IRS has published the limits for qualified retirement plan contributions for 2011. Since inflation was very low for 2010, the limits are unchanged, but the phaseouts have changed slightly. Here is a brief list of the limits. See the announcement for the phase outs. 401(k) $16,500. 401(k) catch up for those age 50 or older $5,500. Traditional IRA $5,000. Catch up for IRA, age 50 or older $1,000. Annual benefit limit for defined benefit plan, $195,000. Defined contribution plan (SEP, profit sharing, money purchase pension, ESOP) $49,000.

(Announcement IR-2010-108, October 28, 2010.)

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IRS postpones reporting health insurance on W-2.

The IRS has postponed the requirement to report employee health insurance costs paid by the employer on Form W-2 until Forms W-2 are issued for 2012. The item is only for disclosure, and will have no tax effect. The reporting requirement was enacted as part of the Patient Protection and Affordable Care Act of 2010.

(Notice 2010-69, IR-2010-103.)

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IRS will begin accepting records in electronic format.

The IRS has announced that it will begin accepting taxpayer records in electronic format instead of traditional books and records for tax audits. The IRS is training agents to use QuickBooks Premier Accountant Edition. Such records should not be submitted to the IRS via email.

(Headliner at the IRS web site, www.irs.gov.)

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IRS considering relaxing some return preparer requirements.

In a speech on October 26 to the AICPA’s Fall Tax Meeting in Washington, D.C., IRS Commissioner Dough Shulman provided some welcome news to tax practioners relating to implementation of the new return preparer requirements.

For 2011, which is the first year of implementation, the continuing education requirements will be waived. The IRS hasn’t worked out the details of how to approve the classes yet.

The IRS is considering waiving the requirement that a preparer meet the registration requirements when the preparer is working for a CPA, attorney or an enrolled agent who will sign the return. If the IRS adopts this position, it will be very helpful to CPAs, attorneys and enrolled agents who hire temporary workers for tax season and for new graduates hired by the firms. There still may be practical issues to be ironed out for store front tax return preparation businesses.

(IR-2010-107.)

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Payroll company accused of stealing $20 million from employers.

Two officers of Ingentral HR Services, a Long Island payroll company, have been accused by the U.S. attorney’s office of stealing more than $20 million from clients, including $17 million from Sacramento County.

The company had no insurance to cover the losses.

Sacramento County never audited the company’s work or confirmed tax payments with the IRS.

Employers that use such services should periodically confirm the deposits to their accounts.

(The Sacrament Bee, 10/14/2010.)

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California initiates new payroll reporting system.

California is changing the forms for payroll tax reporting, beginning in 2011. Form DE 6, Quarterly Wage and Withholding Report is being discontinued. Form DE 7, Annual Reconciliation Statement, is being discontinued for 2012.

Beginning in 2011, quarterly wages will be reported using Form DE 9, Quarterly Contribution Return and Report of Wages and Form DE 9C, Quarterly Contribution Return and Report of Wages. Employers will report their unemployment insurance, employment training tax, state disability insurance contributions and personal income tax withholding quarterly on Form DE 9, instead of annually on Form DE 7.

The reporting requirements for annual household employers, disability insurance voluntary plan filers, and disability insurance elective coverage won’t change.

The deposit and return due dates, and the use of Form DE 88ALL, Payroll Tax Deposit to make payroll tax deposits won’t be changed.

Employers will be receiving the new forms in the mail for the first quarter of 2011 next year.

The Employment Development Department (EDD) is also expanding services available online.

The EDD’s web site is www.edd.ca.gov.

(Spidell’s California Taxletter®, October 1, 2010.)

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California taxes former residents on installment sale.

A married couple left California and moved to Montana in December 2004. They made an installment sale of corporate stock that wasn’t publicly traded during 2004. They didn’t report installment sale proceeds received after they moved as taxable income for California.

The State Board of Equalization upheld the Franchise Tax Board in finding installment sale income from a sale made while a California resident is taxable in California.

Spidell Publishing recommends that taxpayers who want to avoid having an installment sale taxed in California should wait until after they have moved to another state before even looking for a buyer.

Remember that a state tax credit may be available in the new home state or in California to help reduce a double tax.

(Appeal of Frazar (June 16, 2010), California State Board of Equalization Case No. 494349, Spidell’s California Taxletter®, October 1, 2010.)

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Financial Insider Weekly broadcast schedule for November and December.

Financial Insider Weekly is broadcast in San Jose and Campbell on Wednesdays at 7:00 p.m., Pacific Time. 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 November:and December:

November 3: Mark Erickson, Attorney, “Divorce, California Style – Spousal Support"
November 10: Jeffrey Hare, Attorney, “Using a Checkbook LLC with a Self-Directed IRA"
November 17: Jann Besson, Attorney, Besson & Yarbrough, “Medi-Cal Benefits for Long-Term Disability"
November 24: John Hopkins, Attorney, Hopkins & Carley, “Promoting Community Giving as a Family Value"
December 1: Michael Desmarais, Attorney, “Your rights as a beneficiary of an estate or trust"
December 8, Robert Temmerman, Jr., Attorney, Temmerman, Cilley & Kolmann, “I’m an executor. Now what?"
December 15, Robert Temmerman, Jr., Attorney, Temmerman, Cilley & Kolmann, “I’m a trustee. Now what?"
December 22, James Brown, ASA, CFP®, Perisho, Tombor, Ramirez, Filler & Brown PC, “The Role of the Business Valuation Specialist"
December 29, Frank Doyle, Attorney, WealthPLAN, “Estate Planning Using Family Limited Partnerships"

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

I received the following information relating to a question in last month’s newsletter about disallowing an American Opportunity Credit on an adult child’s income tax return because he didn’t claim an exemption for himself from Andy Goloboy, Goloboy CPA LLC. The information is from the Boston Tax Institute email. (Thank you!)

Answer

“Our thanks to Jeffrey Levine, CPA, MST for the following email regarding the successful resolution of the education credit problem!

“I successfully reached Taxpayer Advocate Systemic Advisory service (SAMS), and they worked with the IRS to arrive at the conclusion that the IRS did have a systemic issue with processing children’s returns that did not reflect an exemption claimed by the taxpayer and therefore they did not allow the education credit. They acknowledged the issue system wide an an Serp Alert number 100316 dated June 7, 2010, where they tell employees to allow the credit on returns even when a ‘1’ is not present in the exemptions field.

“While I could not get the IRS to publically announce the error and the issue, SAMS has been advised by the IRS that they have figured out a way to backtrack all of the affected taxpayers and correct their returns if they have not yet been corrected. However, a practitioner emailed me today with proof that IRS is still screwing this issue up – his client got a letter dated September 8, 2010 that still denies the credit on an amended return which he prepared to correct the original IRS error.

“I advise anyone with the issue to contact the IRS practitioner hotline (not available to the general public) at 866-860-4259 and refer the agent to SERP Alert number 100316 dated June 7, 2010 which says the credit should be allowed, and have the agent make the adjustment while they are on the phone."


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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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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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