Michael Gray, CPA's Tax and Business Insight

April 22, 2013

© 2013 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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Minerva Siemer
Minerva Siemer's all dolled up!

Tax season is done. Extension season is here.

Thank you to the clients we were able to serve during tax season 2013.

The extended due date for 2012 individual income tax returns is October 15, 2013.

The extended due date for calendar year 2012 corporate, partnership and fiduciary income tax returns is September 16, 2013.

If you would like us to prepare your extended income tax return, please call Dawn Siemer at 408-918-3161 for an appointment.

We can also prepare amended income tax returns to clean up tax returns that were previously filed.

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Family birthdays.

April is a big birthday month for my family. My mother, Eleanor Gray, is celebrating her 91st birthday this month.

Daughter Dawn Siemer, her husband John Siemer, and daughter (my granddaughter) Kara Siemer are all celebrating birthdays this month.

Happy birthdays to you all!

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Missed the tax filing deadline? File your tax return soon.

The late filing penalty is 5% of the unpaid tax per month, to a maximum of 25%. In some cases, California imposes a penalty based on the total tax without considering payments. To avoid these penalties, finish and file your income tax returns right away.

If your tax returns are more than two years late, you can also lose your tax refund. Another reason to keep current with filing your income tax returns.

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Some California sales tax rates increased April 1.

The sales tax rate for Santa Clara County increased from 8.625% to 8.75%. The sales tax rate for Campbell, California increased from 8.875% to 9.00%. To find the rate for your location in California, go to www.boe.ca.gov and click “City and County Tax Rates.”

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Business property tax reports are due.

California business property tax statements are now filed online. The “extended” due date is April 30 for the 2013 property tax statement.

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Congratulations to Lamarr Baxter!

Lamarr Baxter of Accuplan Benefits Services is the winner of our referral promotion for the 2013 tax season. Lamarr will receive a $600 gift certificate for the Sea and Sand Inn in Santa Cruz. Congratulations, Lamarr, and thanks!

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Mortgage interest deduction disallowed for unpaid interest.

The Tax Court upheld the IRS in disallowing residential mortgage interest deductions when the payments made by the taxpayers weren’t enough to pay the interest accrued for the year and the unpaid interest was added to the mortgage balance. The interest must be paid to be currently deductible. The disallowed interest deductions for the taxpayer were $75,000 and $83,000 for the years at issue.

(Smoker v. Commissioner, TC Memo. 2013-56.)

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Sale of U.S. partnership interest by a nonresident alien was subject to U.S. tax.

The IRS has ruled that the sale of an interest in a partnership engaged in a U.S. trade or business was subject to U.S. tax. The gain from the sale was effectively connected income from the U.S., even though the individual was never present in the U.S. for 183 days or more.

(FAA 20123903F)

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Private annuity sale upheld.

The Tax Court held in favor of the taxpayer that the sale of a family partnership interest for a private annuity was for full and adequate consideration. The IRA tried to have the sale disregarded and the partnership interest included in the decedent’s taxable estate.

No payments were made on the annuity at the time of the decedent’s death three years after the arrangement was made.

The Tax Court found that the IRS annuity tables were acceptable for making the annuity computations, because the taxpayer didn’t have a terminal illness when the arrangement was made. The decedent expected to receive payments and the children were financially capable of making them.

(Estate of Kite v. Commissioner, TC Memo. 2013-43.)

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IRS continues “hands off” audit directive for repairs.

The IRS has directed its auditors not to begin auditing repair expenses pending the issuance of final regulations. The directive applies for tax years beginning on or after December 31, 2012 and before 2014. The directive now applies to tax years beginning in 2012 and 2013.

(LB&I 04-0313-001.)

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Financial Insider Weekly broadcast schedule for April and May.

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 April and May:

April 19, 2013, attorney Jeffrey Hare, APC, “How to settle legal disputes out of court”
April 26, 2013, attorney Jeffrey Hare, APC, “Using a checkbook LLC to invest Roth & IRA funds”
May 3, 2013, attorney James V. Quillinan of Hopkins & Carley, “Impact of 2013 “Fiscal Cliff” tax legislation on estate planning”
May 10, 2013, attorney James V. Quillinan of Hopkins & Carley, “Estate planning with portability of a deceased spouse’s federal estate and gift tax exemption amount”
May 17, 2013, attorney James V. Quillinan of Hopkins & Carley, “Tax planning for real estate change of ownership in California”
May 24, 2013, Don Pollard, CLU, ChFC of Advanced Professionals, “Health insurance for individuals”
May 31, 2013, Don Pollard, CLU, ChFC of Advanced Professionals, “Group health insurance plans for small businesses”

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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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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