Michael Gray, CPA's Tax and Business Insight

November 2, 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 at a pumpkin patch.
My granddaughter, Kara Siemer, in a pumpkin patch.

Happy Thanksgiving!

Thanksgiving falls on Thursday, November 22 this year.

We hope you will be able to celebrate Thanksgiving with family and/or friends.

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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Give generously to help disaster victims in the Eastern U.S.

According to news broadcasts, Hurricane Sandy has inflicted devastating storm damage in the eastern U.S., particularly in Jersey Shore and New York City. Please give generously to the American Red Cross or your favorite relief organization to provide relief to victims of this disaster.

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Congratulations to the San Francisco Giants!

As we all know, the Giants swept the 2012 World Series and are World Series champions twice in three years. This is a great achievement! Everyone in the San Francisco Bay Area is very proud of you!

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It’s time for year-end tax planning.

With the coming holidays and continuing education days, 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 61st birthday this year. We are thankful for many blessings, including that our mother, Eleanor Gray, is still living and reasonably healthy. I am also thankful for my family, including Janet, my wife and partner for 41 years, our three grown children, our daughter’s husbands and our four grandchildren. They are the real treasures in my life.

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Live seminar by Michael Gray, CPA scheduled for December.

Michael Gray will be giving a live seminar during December 2012. On December 7, he will be speaking about “Year End Tax Planning For Employee Stock Options.” The 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.

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Stock Options telephone seminar by Michael Gray, CPA on November 30.

Michael Gray will be giving a telephone seminar, “Year-End Tax Planning For Employee Stock Options,” Friday, November 30 from 1 to 2:30 p.m. Pacific Time. The fee for participants is $97.

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Social security wage ceiling increased for 2013.

The ceiling for social security withholding for 2013 will increase to $113,700 from $110,100 for 2012. Unless Congress takes action, the social security rate will increase from 4.2% for 2012 to 6.2% for 2013.

As part of Health Care Reform, a 0.9% Medicare surtax will apply for singles with wages exceeding $200,000 and for married couples earning more than $250,000 in wages. The surtax will only apply for employees, not employers.

The threshold at which the “nanny tax” applies to household employees will remain at $1,800.

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Many retirement account thresholds increase for 2013.

The IRS has announced a host of retirement account contribution changes for 2013:

(IR-2012-27.)

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Gift tax annual exclusion will increase for 2013.

The gift tax annual exclusion per donor, per donee for “present interest” gifts will increase from $13,000 for 2012 to $14,000 for 2013.

(Rev. Proc. 2012-41.)

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Second Circuit says DOMA is unconstitutional.

A female couple was married in Canada and lived in New York. One of the partners died, and the survivor claimed the federal estate tax marital deduction for inherited property. The IRS disallowed the marital deduction under the Federal Defense of Marriage Act (DOMA). The Second Circuit Court of Appeals found in favor of the survivor. The IRS has said it must continue to follow DOMA until it is repealed or the Supreme Court finds it unconstitutional.

(Windsor, Executor, v. United States, 2012-2 USTC ¶ 60,654, October 18, 2012.)

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Production of foreign records required.

A taxpayer argued that he wasn’t required to produce records relating to foreign bank accounts because a subpoena violated his Fifth amendment right against self-incrimination.

The Fifth Circuit Court of Appeals found against the taxpayer, because the records fell within the Required Records Doctrine.

(In re Grand Jury Subpoena, 2012-2 USTC ¶ 50,588, September 21, 2012.)

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Some California LLCs can avoid minimum tax.

A domestic LLC that hasn’t conducted any business in California may cancel its registration within 12 months of filing its Articles of Organization by filing Form LLC-4/8, Certificate of Cancellation. If these requirements are met, the LLC isn’t required to pay the first year’s annual tax. The form must be filed before the tax has been paid or it’s nonrefundable.

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Remember to get consent for nonresident LLC members.

If a nonresident member of a California LLC fails to sign Form FTB 3832, LLC’s List of Members and Consents, the LLC must complete Form 568, Schedule T to compute the member’s tax liability. When the nonresident member signs Form FTB 3832, he or she is agreeing to file a California income tax return to report his or her taxable income from the LLC.

Distributions to nonresident members are subject to 7% California tax withholding. The tax computed on Schedule T may be reduced by any amount withheld for distributions during the taxable year.

(Spidell’s California Taxletter, November 1, 2012, Page 12, “Failure to sign member consent means LLC must pre-pay tax.”)

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Multi-state businesses with California operations should consider filing refund claims.

A California appeals court has affirmed its decision in Gillette. In that decision, the court ruled that California must accept a single weighting of the sales factor in the four-factor formula for apportioning income among the states, versus a double-weighting specified in California’s Revenue and Taxation Code. The single weighting is specified in the Multiple-State Tax Compact, from which California has subsequently withdrawn.

It’s going to take some time for this issue to be resolved in the courts. Meanwhile, taxpayers who can benefit from single-weighting sales should file protective claims for refund. The Franchise Tax Board issued Notice 2012-01 to provide guidance to taxpayers for filing such claims.

See your tax advisor for details and assistance.

(The Gillette Co. v. FTB, October 2, 2012, Cal. App., First District, Dkt. No. A130803.)

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Guidance issued on throwback sales.

In some cases, sales made by California businesses to customers in states where a taxpayer doesn’t file an income tax return are reallocated or “thrown back” to California for determining income taxable by California. The FTB has issued a Chief Counsel Ruling that specifies whether or not such sales are subject to throwback in different circumstances.

See your tax advisor for details and assistance.

(FTB Chief Counsel Ruling 2012-03.)

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Attention tax return preparers.

It’s time for sending engagement letters to your clients. Be sure you also have written consent for initiating additional services for your clients. See this web page: www.taxtrimmers.com/threat.shtml.

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Community public access television needs our help.

As you can see below, public access television is a vital part of our educational outreach to various communities. These are usually nonprofit, charitable organizations, like public television stations. Unlike those stations, most of the programming for the public access stations comes from local producers.

This programming includes the local arts, productions by students at local schools, community outreach by churches, independent local producers discussing current social issues, educational programming by local providers like ourselves and much more. In other words, public access television makes a unique, important contribution to the communities it serves.

With the difficult times we are experiencing, many public access stations are facing severe financial challenges, and might not survive without more community financial support. I urge you to consider making a donation to your local public access television station. Here is a link for a list of public access television stations in California: www.communitymedia.se/cat/linksca.htm.

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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 2, 2012, Naomi Comfort, attorney, Silicon Valley Elder Law P.C., “Using Powers of Appointment to provide asset protection and flexibility”
November 9, 2012, Kathleen Wright, attorney, American Red Cross, “Financial preparation for a disaster”
November 16, 2012, Emmett Carson, PhD, CEO, Silicon Valley Community Foundation, “How to promote community giving as a family value”
November 23, 2012, Phil Price, EA, The Price Company, “Qualified Retirement Plans for closely-held business”
November 30, 2012, William Mahan, attorney, of counsel to Gates Eisenhart Dawson, “Tax and financial considerations of title”
December 7, 2012, William Mahan, attorney, of counsel to Gates Eisenhart Dawson, “Why you need a will”
December 14, 2012, William Mitchell, CPA, “I’m being audited by the IRS! What should I do?”
December 21, 2012, William Mitchell, CPA, “I don’t agree with my IRS audit report. What should I do?”
December 28, 2012, William Mitchell, CPA, “I owe back taxes to the IRS! 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, 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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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 article!

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Follow me on Social Media!

Want to see new episodes of Financial Insider Weekly as soon as they're posted on Youtube? Want to see Michael Gray's blog posts as soon as they're live? We post them (and more) on social media!

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, LinkedIn, and Google+.

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

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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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