Michael Gray, CPA's Tax and Business Insight

November 2, 2011

© 2011 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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Michael Gray accepts Producer of the Year award
Michael Gray, CPA was honored as Producer of the Year by CreaTV San Jose for the series Financial Insider Weekly.

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Michael Gray honored as Producer of the Year.

CreaTV, San Jose honored Michael Gray as Producer of the Year at its Annual Meeting on October 26, 2011. Luis Costa of CreaTV noted that Michael is the only producer with shows broadcast over 100 consecutive weeks without a repeat, and as a model of preparation for his recording sessions.

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Happy Thanksgiving!

That’s right! It’s here already! Thanksgiving falls on Thursday, November 24 this year.

We hope you will be able to celebrate Thanksgiving with family and/or friends. Thanksgiving was once the favorite holiday of my grandson, Panch Baker, because he got to celebrate it with both sets of grandparents. (I think Halloween might be his favorite right now.)

Thanksgiving seems to be an appropriate time for us to say, “Thank you!”, especially to our clients, but also to you who read this newsletter and our many friends who refer clients to us and make our business possible.

Have a happy and safe holiday!

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It’s time for year-end tax planning.

With the coming holidays, continuing education days, and a planned vacation for the third week of December, Michael Gray will have very limited availability for year-end tax planning meetings. Reserve your appointment now by calling Dawn Siemer on Monday, Wednesday or Friday at 408-918-3162.

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Company and family celebrations.

My brother, Stephen, and I are celebrating our 60th birthday this year. We are thankful for many blessings, including that our mother, Eleanor Gray, is still living and reasonably healthy. (Steve and Mom recently enjoyed an Hawaiian vacation that Mom has just recovered from.) I am also thankful for my family, including Janet, my wife and partner for 40 years, our three grown children, our daughter’s husbands and our three grandchildren. They are the real treasures in my life.

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Live seminars by Michael Gray, CPA scheduled for December.

Michael Gray will be giving two live seminars during December 2011. On December 2, he will be speaking about “Year End Tax Planning For Employee Stock Options”. On December 9, he will be speaking about “Tax Planning For Real Estate Short Sales and Foreclosures”. Both seminars will take place from noon to 1:30 p.m. at Hobee’s Restaurant in the Pruneyard, in Campbell. Lunch is included. The fee for participants is $97. To get more details or make a reservation, call Dawn Siemer on Mondays, Wednesdays or Fridays at 408-918-3162 or visit our website at www.stockoptionadvisors.com/nov2011seminar.shtml for “Year End Tax Planning for Employee Stock Options” or www.realestateinvestingtax.com/shortsale-seminar.shtml for “Tax Planning for Real Estate Short Sales and Foreclosures”.

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Stock Options telephone seminar by Michael Gray, CPA on November 25.

Michael Gray will be giving a telephone seminar, “Year-End Tax Planning For Employee Stock Options”, Friday, November 25 from 1 to 2:30 p.m. Pacific Time. The fee for participants is $97. To get more details or make a reservation, call Dawn Siemer at 408-918-3161 or visit www.stockoptionadvisors.com/nov2011teleseminar.shtml.

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Social Security wage base increases for 2012.

The Social Security Administration has announced that the wage base for computing the Social Security tax has increased to $110,100 for 2012 from $106,800. The total social security plus Medicare tax rate for employers and employees is scheduled to be 7.65% each. – 6.2% for the social security tax and 1.45% for Medicare. For 2011, the employee social security tax rate is 4.2%. (President Obama has asked Congress to extend the lower employee rate and to reduce the employer rate as part of his Jobs stimulation package.) There is no ceiling for wages subject to the Medicare tax.

For self-employed persons, the rates are the employer plus the employee rate, 13.3% for 2011 and scheduled to be 15.3% for 2012, unless Congress takes action to reduce the rates.

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Retirement contribution ceilings increased for 2012.

Here are some announced increases for retirement plan contributions for 2012:

(IR 2011-103.)

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IRS says how to make protective estate tax claims.

In some cases, estates can’t currently claim deductions on their estate tax returns because the expenses haven’t been paid yet. The IRS recently explained the procedure for claiming a protective refund for these claims. If a protective claim is made on time, the deduction could be lost if the statute of limitations has expired for filing an amended estate tax return. The protective claim should be made using Form 706, Schedule PC, which will be first available with 2012 Form 706, or using Form 843 (Claim for Refund), if Form 706 was previously filed.

The estate must notify the IRS within 90 days after the claim is paid or the amount becomes certain, whichever is later. The notice is made by filing a supplemental Form 706 or Form 843.

(Revenue Procedure 2011-48.)

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More tax return preparers must efile tax returns during 2012 tax season.

The IRS has reminded tax return preparers that the threshold for required efiling of income tax returns during the 2012 tax season will be eleven or more tax returns, increased from 100 or more income tax returns for 2011. A client may still choose to file an income tax return on paper. Some tax returns can’t be efiled because they include forms that can’t be processed electronically. Some preparers may qualify for a hardship waiver.

If a tax return can’t be processed by efiling, Form 8948, Preparer Explanation for Not Filing Electronically, should be attached to the tax return and the client, not the preparer, should mail the tax return.

Tax return preparers who haven’t efiled tax returns before should apply for their electronic filing identification numbers now so they will have them for the upcoming tax season.

(We have been efiling income tax returns for most of our clients for several years.)

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Draft form issued for reporting foreign assets.

The Hiring Incentives to Restore Employment Act, enacted March 18, 2010, included a provision to require disclosure of certain foreign accounts and assets on U.S. Individual Income Tax Returns for tax years beginning after March 18, 2010. For most taxpayers, 2011 is scheduled to be the first year that the report is required.

The IRS has issued draft Form 8938, Statement of Specified Foreign Financial Assets, and instructions.

The form is required for certain foreign investment accounts and foreign trusts owned by U.S. taxpayers. Unmarried taxpayers or married persons filing separate returns would submit the form if they have foreign financial assets with a value exceeding $50,000 at the end or the year or $100,000 at any time during the year. Married taxpayers filing a joint return would submit the form if they have foreign financial assets with a value exceeding $100,000 at the end of the year or $200,000 at any time during the year.

If the information has already been reported on certain other IRS forms, such as Form 3520 for foreign estates or trusts or Form 8621 for Passive Foreign Investment Companies (PFICs), the information won’t be duplicated on Form 8938, but the other forms will be listed.

The IRS has said that taxpayers won’t be required to report the information with their 2011 income tax returns if the final Form 8938 hasn’t been issued when they file their income tax returns.

(IRS Notice 2011-55.)

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IRS keeps “high-low” method for travel expenses.

The IRS reversed a previous announcement and will not discontinue the “high-low” method for substantiating travel expenses. The “high cost” per diem will be increased from $233 for 2011 to $242 for 2012, and the per diem for other “low cost” locations will be increased from $160 for 2011 to $163 for 2012.

(Notice 2011-81, Revenue Procedure 2011-47.)

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Worker Classification Settlement Program offered.

The IRS has initiated a Voluntary Classification Settlement Program (VCSP) to enable employers to voluntarily reclassify their workers for federal employment tax purposes. Under the VCSP, penalties and interest will be waived for back payroll taxes and back years won’t be subject to audit relating to the reclassified workers.

In order to qualify, the taxpayer must have consistently treated the workers as nonemployees and must have filed Forms 1099 for the workers for the three preceding calendar years (or for the period the employees worked for the taxpayer, if less than three years.) The taxpayer also can’t currently be under audit by the IRS or Department of Labor.

The employer will file Form 8952 at least 60 days before the date the employer wants to start treating the workers or class of workers as employees. The IRS will notify the employer whether or not the application is accepted.

There is also a special six-year statute of limitations for the first three years under the program.

Taxpayers who employ independent contractors should consult with their tax advisors and possibly a tax attorney whether participating in the VCSP makes sense.

(IR-2011-95, Announcement 2011-64.)

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Financial Insider Weekly broadcast schedule for November and December.

Financial Insider Weekly is broadcast in San Jose and Campbell on Fridays at 8:00 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 4, 2011, Mark Erickson, attorney, “Divorce – California Style: Child Custody”
November 11, 2011, Naomi Comfort, attorney, The Silicon Valley Elder Law Group, P.C., “Durable Financial Powers of Attorney”
November 18, 2011, John Hopkins, attorney, Hopkins & Carley, “How to promote community giving as a family value”
November 25, 2011, Jeffrey Hare, attorney at law, APC, “Solving legal disputes out of court (alternative dispute resolution)”
December 2, 2011, Naomi Comfort, attorney, The Silicon Valley Elder Law Group, P.C., “Special Needs Trusts”
December 9, 2011, Craig Martin, CFP®, The Family Wealth Consulting Group, “Investing In Turbulent Times”
December 16, 2011, Craig Martin, CFP®, The Family Wealth Consulting Group,” The Role of the Fee-Only Financial Planner”
December 23, 2011, William Mitchell, CPA, “I’m Being Audited By The IRS! Now What Should I Do?”
December 30, 2011, William Mitchell, CPA, “I Owe Back Taxes To The IRS! Now What Should I Do?”

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, http://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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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 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.

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 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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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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