Michael Gray, CPA's Tax and Business Insight

February 8, 2012

© 2012 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!

Route to _______   _______   _______   _______   _______

(If you find this information valuable, please pass it on to a friend!)

Table of Contents

Janet Gray with a parrot in San Francisco, CA.
Here's Janet with a “parrot of Telegraph Hill” in San Francisco. A flock of parrots was gobbling up plum blossoms and also enjoyed eating apple pieces.

Happy Valentine's Day!

Valentine's Day falls on a Tuesday this year. Remember to express your appreciation to your loved ones! My daughter, Holly Baker, says Marché Aux Fleurs in Ross, California is already fully booked for Valentine's day. Hope you have already made reservations for your favorite restaurant.

Return to Table of Contents

February celebrations.

My grandson, Clive Baker, is celebrating his fourth birthday this month. Happy birthday, Clive!

Return to Table of Contents

Phoebe Li
Here's Phoebe Li!

Welcome, Phoebe Li!

Phoebe Li, CPA has joined us for this tax season as a temporary worker. Phoebe has many years of experience, including as a tax accountant with BDO Siedman and as a controller with El Dorado Ventures. She came to the United States from Taiwan in 1977. Phoebe has a grown son and lives with her husband in San Jose. She enjoys reading Chinese literature. We are glad to have Phoebe with us!

Return to Table of Contents

Tax season is here! Make your appointment now!

There are only about two and one-half months left before the tax return due date. Time to get started now!

If we prepared your income tax returns last year, you should have already received instructions in the mail. If you haven't, please call Dawn Siemer at 408-918-3162.

To have us prepare your income tax returns, start with the online Tax Notebook organizer. Call Dawn Siemer at 408-918-3162 for instructions to get started. We also have a paper organizer, if you prefer. We still need your documents (W-2s, 1099s, receipts for donations) to prepare your income tax returns.

We have a secure internet portal for sending documents. Email Dawn Siemer at dgsiemer@taxtrimmers.com for instructions.

We can prepare most income tax returns using information provided online and by mail. If you wish a personal meeting, please call Dawn Siemer at 408-918-3162 to schedule an appointment. Our calendar is filling up fast!

Return to Table of Contents

W-2s, 1099s and DE 542 reminder.

Remember that most 2011 annual information returns, such as W-2s and 1099s, should be sent to the tax authorities by February 29. (Payments made using a credit card are no longer required to be reported on Form 1099.)

Return to Table of Contents

Some California businesses are required to file use tax returns.

California businesses that reported more than $100,000 in gross receipts from a business or rental property on their 2011 federal income tax returns and that don't file sales tax returns are required to electronically file a California use tax return for 2011. Businesses that registered with the State Board of Equalization last year should also file. Some businesses that reported no transactions for three years no longer need to file. The use tax returns and tax payments are due April 15, 2012. A use tax return must be filed even if there is no tax due.

Return to Table of Contents

New Form 1099-K is an essential tax document for business tax returns.

Merchant account (credit card) companies and payment services like PayPal are now required to report gross receipts processed for their customers on Form 1099-K. This information is required to be reported as a line item on business income tax forms. If you receive the form, be sure to give it to your tax return preparer.

Return to Table of Contents

Schedule D (Capital Gains and Losses) radically changed for 2011 individual income tax returns.

The IRS has issued a changed Form 1040, Schedule D and new Form 8949 for 2011. The forms are totally redesigned to accommodate information about the tax basis (cost to for tax gain or loss) of securities sold that is being reported by securities brokerage companies for securities purchased in 2011 forward. The forms require disclosure of adjustments to the reported cost and have many special codes.

The tax basis reported by the securities brokerage company will occasionally be wrong and can be adjusted at column (g) of Form 8949.

Separate Forms 8949 must be prepared with boxes checked for sales reported on Form 1099-B with basis reported to the IRS, sales reported on Form 1099-B without basis reported to the IRS, and other sales.

In the past, the sale of a residence for which the gain was excluded wasn't reported on Schedule D. Now it's reported on Form 8949 with the exclusion entered as a negative number in column (g) and code “H” in column (b).

This form is sure to create headaches for 2011 income tax returns. Read the instructions carefully, even if you are providing information to a tax return preparer. You can find them under “forms and publications” at www.irs.gov.

Return to Table of Contents

Watch the foreign account “box” on Schedule B.

In the past, the box at line 7a of Schedule B (Dividends and Interest Income) wasn't required to be checked “yes” unless you had foreign bank and brokerage accounts exceeding $10,000. For 2011, the “yes” box is required to be checked if you had any foreign bank or brokerage accounts, regardless of the balances. Please be aware of this change to avoid making an error, including the information provided to your tax return preparer.

Return to Table of Contents

Separate FBAR required for disregarded entities.

The IRS has updated its instructions for the Report of Foreign Bank and Financial Accounts (FBAR), Form TD F 90-22.1. New regulations were issued relating to the reporting requirements for these accounts during 2011. The form is filed separately from income tax returns for the reporting entity. The 2011 report is due June 30, 2012. No extension is available for the due date.

According to the instructions, a separate FBAR is required for disregarded entities, such as single member LLCs and revocable living trusts. This means duplicate reports will be required in many cases. See your tax advisor for details. (Will specialized return preparers eventually offer separate preparation services for these reports?)

Return to Table of Contents

New form required for Foreign Financial Accounts.

The IRS has issued new Form 8938, Statement of Specified Foreign Financial Accounts, for 2011 income tax returns. This new form is required for 2011 for individuals only. It may be required for other types of entities in the future.

Individuals required to file include U.S. citizens, aliens who are residents of the United States during the tax year, nonresident aliens who have elected to be treated as residents in order to file a joint income tax return, and nonresident aliens who are bone fide residents of American Samoa or Puerto Rico.

Unmarried taxpayers and married taxpayers who file a separate income tax return and lived in the United States during 2011 are required to file if their specified foreign financial assets exceeded $50,000 on the last day of the tax year or $75,000 at any time during the tax year.

Married taxpayers who file a joint income tax return and lived in the United States are required to file if their specified foreign financial assets exceeded $100,000 on the last day of the tax year or $150,000 at any time during the tax year.

The filing thresholds are four times the above amounts if the taxpayer's tax home is in a foreign country and was present in a foreign country either the entire tax year or 330 full days during any period of 12 consecutive months that ends in the tax year being reported.

The same information that is reported on the FBAR form will probably be reported on Form 8938. If the information is reported for a foreign trust on Form 3520, it's just indicated at Part IV of the form.

This is another form for which you will want to study the instructions carefully, even if you are giving your information to a tax return preparer. You can find the form and instructions under “forms and publications” at www.irs.gov.

Return to Table of Contents

Consider using Use Tax Table for California individual income tax returns.

The California tax authorities have a new program under which individuals can avoid scrutiny for possible California use tax liability for their online purchases.

If the taxpayer meets certain requirements, reporting the Use Tax Table amount will be accepted without further question. The use tax table amount is based on adjusted gross income, and is fairly modest.

In order to qualify to use the table, the taxpayer must not have made a single purchase subject to use tax of $1,000 or more.

(Spidell's California Taxletter®, February 1, 2012, page 13.)

Return to Table of Contents

IRS offers another voluntary disclosure program.

The IRS has announced it is offering another offshore voluntary disclosure program (OVDP) for taxpayers to get into compliance with the IRS tax and disclosure rules for foreign bank and investment accounts and foreign entities. The new program will be similar to the 2011 program, without an announced end date.

The IRS says that they have collected about $4.4 billion from the 2009 and 2011 programs so far, and about 33,000 taxpayers have come forward to make voluntary disclosures.

The details of the 2012 program haven't been released yet. Taxpayers may be required to pay a penalty of 27.5% of the highest aggregate balance during the eight tax years prior to the disclosure, but some taxpayers may be eligible for reduced penalties of 12.5% or 5%.

(IR-2012-5, January 9, 2012.)

Return to Table of Contents

IRS says more high-income taxpayers are audited.

According to the IRS, one in eight individuals with income over $1 million were audited in fiscal year 2011. The coverage rate increased from 8.36% in fiscal year 2010 to 12.48% in fiscal year 2011.

The audit coverage rate for individuals with incomes $200,000 and higher increased from 3.1% in fiscal year 2010 to 3.93% in fiscal year 2011.

(IRS news conference, www.irs.gov.)

Return to Table of Contents

New Kennedy “No B.S.” book released.

Dan Kennedy has issued No B.S. Grassroots Marketing for Local Businesses. The co-author, Jeff Slutsky, is hired by national chains to plug their local grassroots marketing holes. The book is written for local shops, stores, restaurants, professional practices, and service businesses. Dan advises business to business companies to give the book as a gift to customers that fit the profile. Readers of this newsletter know I am a big fan of Dan Kennedy and endorse all of his books.

Return to Table of Contents

Financial Insider Weekly broadcast schedule for February and March.

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 the rest of February and March:

February 10, 2012, Hilary Martin, CFP®, The Family Wealth Consulting Group, “Planned saving to reach your financial goals”
February 17, 2012, Professor Patricia Cain, attorney, Santa Clara University, “Income tax problems of same-sex couples”
February 24, 2012, Professor Patricia Cain, attorney, Santa Clara University, “Estate and gift tax problems of same-sex couples”
March 2, 2012, Lamarr Baxter, The Entrust Group, “Investing in real estate using your Roth or IRA account”
March 9, 2012, Lamarr Baxter, The Entrust Group, “Making alternative investments besides real estate using your Roth or IRA account”
March 16, 2012, Alan L. Nobler, attorney at law, “How a collaborative team can help preserve your legacy”
March 23, 2012, Raymond Sheffield, attorney, Sheffield Law Office, “Estate and gift tax problems for a non-citizen spouse”
March 30, 2012, Raymond Sheffield, attorney, Sheffield Law Office, “Estate planning for retirement accounts”

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!

Return to Table of Contents

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

When I read the your online article, “The Interest Expense For Your Margin Account May Not Be Tax Deductible”, I concluded my margin account interest is indeed tax deductible.

If I understood correctly, you said the interest should be reported on Form 4952. However, it appears to me that Form 4952 is for interest relating to property, not stocks. If the interest should be reported on Form 4952, where should it be reported?

Answer

In that article, I explained that interest paid for a margin account may be deductible in different places, depending on what the money was used for.

Assuming the money was used for investment in securities other than tax-exempt securities, the interest is investment interest expense and should be reported on Form 4952. Stocks and bonds are considered to be property held for investment for this purpose.


Return to Table of Contents

Visit our new article!

Return to Table of Contents

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.

Return to Table of Contents

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

Return to Table of Contents

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

Return to Table of Contents

Check out my blog.

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

Return to Table of Contents

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.

Return to Table of Contents

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.


Home    Newsletter Archive    Introducing Michael Gray, CPA    Articles    Tax FAQ   Need Help?    Other Links


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

Find us on Facebook
Follow me on Twitter
Connect on LinkedIn
Connect on Google+
Our Blog

Sign up for our free monthly newsletter,
Tax & Business Insight,
for the latest tax news!

subscribe html
unsubscribe text only

We respect your email privacy!