Michael Gray, CPA's Tax and Business Insight

March 7, 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!

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Kara Siemer with butterfly
My granddaughter, Kara Siemer, and Grandma Janet raised this butterfly from an egg as a science project.

Happy St. Patrick’s Day!

For a day, the world becomes Irish! St. Patrick’s Day is Saturday, March 17 this year. St. Patrick was a Scottish missionary to Ireland who preached Christianity. He used a three-leaf clover as an analogy of the Holy Trinity.

Today, St. Patrick’s Day is a celebration of everything Irish. The Roman Catholics traditionally wear green on St. Patrick’s Day, and the Protestants traditionally wear orange. Since so many Roman Catholic Irish immigrated to the United States, we have mostly adopted green. If you don’t wear green, you are traditionally a target to be pinched!

Have a grand holiday, and may the luck of the Irish be with you!

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March celebrations.

My brothers in law, Wade Allison and Lane Johnston, and my sister Arlene Gray-McLean, are celebrating birthdays during March. Happy Birthdays!

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Tax season is here! Make your appointment now!

There are only about a month and a half before the tax return due date.

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.

Our goal is to have every individual income tax return for which we have received complete information by March 15 completed by the April 17 due date. Any tax returns for which we receive information after March 15 will probably be on extension.

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, property tax bills, auto registration bills, 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!

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Corporate due date for calendar year returns is March 15.

The due date for 2011 calendar year corporate income tax returns, including for S corporations, is March 15. Although many corporations will apply to extend the due date for their income tax returns, there is no extension for paying the tax. That means they need to have a pretty good estimate of what their income is before that due date. Now is the time to get those extension computations in process with your tax return preparer.

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Remember the second California real estate tax payment is due April 10.

There is a nasty penalty for late payment, and the due date is weird.

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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.

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Form 1099-K reporting eliminated.

The IRS won’t be requesting a separate disclosure of revenues received from merchant account (credit card) transactions and payment services like Pay Pal on business income tax returns, after all.

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California doesn’t accept federal SE tax deduction amount.

The Franchise Tax Board has announced that the federal amount for self-employment tax isn’t acceptable for California tax reporting. The IRS changed the deduction amount to 59.6% of the social security portion of the self-employment tax because of the 2% reduction of “employee” social security tax for 2011 and 2012. California still limits the deduction to 50% of the self-employment tax.

If you are subject to self-employment tax, be sure to download the latest version of your tax return preparation software. You shouldn’t submit the tax return until you see an adjustment for the self-employment tax deduction on Schedule CA.

This could delay processing for many taxpayers.

The Franchise Tax Board just issued an announcement that taxpayers who already filed their income tax returns without a California adjustment for the self employment tax deduction should not file an amended income tax return to fix it. The Franchise Tax Board will send a letter with a proposed adjustment for this item.

This late announcement will make many taxpayers and tax return preparers very grumpy this year.

(Spidell’s California Taxletter, March 1, 2012, page 36.)

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Payroll tax reduction extended.

Just in case you’ve been in a cave for the last month, the 2% reduction in employee social security tax from 6.2% to 4.2% has been extended for the rest of 2012. Be sure to update your payroll processing software, if applicable.

It seems like the beneficiary of this tax break is the gasoline companies, since they are hiking their gas prices now. Oh well…

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Late return reminder.

The IRS has issued a reminder that the last day to file a late income tax return for 2008 and receive a refund is April 17, 2012. After that date, the refund is forfeited.

(IR-2012-26.)

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S corporation dividends reclassified as wages.

The Eighth Circuit Court of Appeals has upheld a federal district court decision ruling that a portion of dividends paid to an S corporation shareholder should be taxed as wages, subject to employment taxes.

In this case, the S corporation shareholder was a CPA working for his own professional corporation! He received $24,000 as wages and dividends of $203,000 for 2002 and $175,000 for 2003. The court agreed with the IRS determination that reasonable compensation would be $91,000.

The good news for the taxpayer? He apparently still received about $136,000 for 2002 and $108,000 for 2003 without being subject to employment taxes on that amount. The bad news? He probably paid more than his tax savings in legal fees!

(David A. Watson, P.C., CA-8, February 21, 2012.)

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MidPeninsula Media Center broadcasts Financial Insider Weekly.

We have added another public access station to the group broadcasting my weekly show. It’s Midpeninsula Media Center, Comcast Channel 28 in Palo Alto, East Palo Alto, Stanford, Menlo Park & Atherton. The show is broadcast on Saturdays at 9 a.m. and 6 p.m.

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Financial Insider Weekly broadcast schedule for March and April.

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 March and April:

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”
April 6, 2012, Raymond Sheffield, attorney, Sheffield Law Office, “A survey of estate planning basics”
April 13, 2012, Robert E. Temmerman, Jr., attorney, Temmerman, Cilley & Kohlmann, LLP, “I’m an executor! Now what?”
April 20, 2012, Robert E. Temmerman, Jr., attorney, Temmerman, Cilley & Kohlmann, LLP, “I’m a trustee! Now what?”
April 27, 2012, Richard H. Lambie, professional fiduciary, “The role of the professional fiduciary”

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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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.

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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.

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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