Michael Gray, CPA's Tax and Business Insight

June 7, 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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Michael and Janet Gray visit the Berlin Wall in Germany.
Janet and I visited part of the remains of the Berlin Wall during our Baltic cruise.

My spring vacation…

Janet and I just returned from a two-week Baltic cruise on the Holland America ship Ryndam. We traveled with Janet's sister, Gail Johnston and our brother in law, Lane, and another couple. Ports of call included Dover, Copenhagen, Berlin, Tallin in Estonia, St. Petersburg, Helsinki, Stockholm, and Visby. The cruise (especially the food) was great, if a little hectic with all of the ports of call and sights to see. The air travel and jet lag were grueling. We're still recovering and suffering nights with little sleep, but are glad that we made the trip and can check the Baltic cruise off our “bucket list.”

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June 16 is Father's Day.

Now is the time to honor and express appreciation to your father and other fathers who have contributed to your life. Remember Father's Day on Sunday, June 16.

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Congratulations, graduates!

Some students have already graduated, but June is the traditional “graduation month”, especially for high school seniors. For those who have graduated or will graduate this spring, congratulations. High school graduation is one of a few rites of passage to adulthood that remain in our society. Graduation is especially an accomplishment for parents, who graduates should also thank. This isn't an ending, but a beginning. Now the real work of becoming independent starts. Good luck!

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Second quarter 2013 estimated tax payment is due June 17.

The second 2013 estimated tax payment for individuals and calendar year corporations, estates and trusts is June 17. California requires some taxpayers to make estimated tax payments electronically, generally using Web Pay at www.ftb.ca.gov. The IRS also requires that businesses make their payments electronically, generally at www.eftps.gov.

Remember that California individuals who have gross income exceeding $1 million must compute their estimated tax based on current year taxable income.

High income taxpayers subject to the increased federal tax rates and the new tax on net investment income and who aren't making estimated tax payments based on their 2012 income tax liability will have an especially challenging time making the computations this year, and should probably seek professional help. Even the professionals will find it difficult.

The good news is the interest rates used to compute the penalties for underpayment of estimated tax are currently very low, so the penalty shouldn't be onerous if you do underpay the estimated tax.

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California LLC “fee” payment is due June 17.

California assesses a “fee” when LLCs doing business in California have at least $250,000 of gross income. The estimated fee payment for calendar year LLCs for 2013 is made for Form 3536 online using Web Pay at www.ftb.ca.gov and is due June 17. The fee payment is “protected” from penalties when it is for at least the fee amount on the last year's LLC income tax return.

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Foreign account report is due June 30.

The annual Foreign Bank Account Report (FBAR), Form TD F 90-22.1, for 2012 is due June 30, 2013. The form is required for foreign bank and brokerage accounts either owned by a U.S. citizen or resident or over which a U.S. citizen or resident has signature authority. It also can apply to foreign financial accounts such as life insurance policies that have cash surrender values. The report is required when the total balances for the accounts equal or exceed $10,000. This is a separate report from your income tax return, and no extension of time to file is allowed. The penalties for failure to report are severe, and the IRS is on the war path about enforcing this reporting requirement, even though no tax may be involved.

You can get the form at the IRS web site, www.irs.gov. Next year (2014), electronic filing will probably be required for this form.

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Temporary expansion of employee classification program expires June 30, 2013.

The IRS is temporarily waiving some of the requirements that used to apply to qualify for its Voluntary (employee) Classification Settlement Program. This program enables employers who have been reporting employees as independent contractors to get in compliance with payroll reporting requirements with reduced exposure to penalties.

For example, previously an employer who had an income tax audit in process wasn't eligible to participate in the program. Another example is employers who didn't issue Forms 1099 to the employees weren't eligible to participate. Until June 30, they can now.

Interested employers apply for the program using Form 8952, Application for Voluntary Classification Settlement Program, at least 60 days before they want to begin treating the workers as employees.

For more information, see your tax advisor.

(IR-2013-23, Feb. 27, 2013.)

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Extension season is here.

If you would like us to prepare your extended 2012 income tax returns, please call Dawn Siemer Mondays, Wednesdays or Fridays from 9 a.m. to 5 p.m.

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

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Attention tax professionals! Michael Gray live tax planning presentation.

Michael Gray will give a luncheon presentation to the Santa Cruz Discussion Group of the Silicon Valley, San Jose chapter of CalCPA. The title is “Income tax planning in a new tax environment.” It will take place from noon to 1:30 p.m. on Thursday, June 13 at Michael's on Main in Soquel. The investment is $20 for CalCPA members and $25 for nonmembers. For details, see the CalCPA web site resources, www.calcpa.org, local chapters or call Stephanie Stewart at 408-983-1122.

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Loan guarantees were prohibited transactions.

A company was owned by individual retirement accounts. The owners of the IRAs guaranteed a $200,000 promissory note to the seller of the business to the IRAs. The IRAs were converted to Roth accounts and the corporate stock resold.

The Tax Court found the loan guarantees were prohibited transactions. Therefore, the IRAs became disqualified and considered distributed as of the beginning of the year of disqualification. The sale of the stock by the Roth accounts was taxable.

This case illustrates the sensitivity of making alternative investments in an IRA. It should only be done with great care to avoid disqualification of the IRA and current taxation to the owner.

(Peek v. Commissioner, 140 TC No. 12.)

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Participation by trustee as corporate officer disregarded for passive activity loss limit.

An individual was a corporate president and shareholder in two S corporations. He was also a special trustee of trusts owning stock in the S corporations. The IRS Chief Counsel ruled the participation as corporate president was in a separate capacity than as a trustee, and couldn't be attributed to the trusts. Therefore, the S corporations were passive activities of the trust, subject to the passive activity loss limitations.

(TAM 201317010.)

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Marin County broadcast time changes for Financial Insider Weekly.

Starting Saturday, June 15, the broadcast time for Financial Insider Weekly will change from 1:30 p.m. to 1 p.m. in Marin County. The program is broadcast on Comcast channel 26 and AT&T U-verse channel 99.

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Financial Insider Weekly broadcast schedule for June and July.

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 June and July:

June 7, 2013, attorney David Howard of Hoge, Fenton, Jones & Appel, “Federal reporting requirements for foreign bank and brokerage accounts”
June 14, 2013, Dick Blakeley, The Blakeley Group, Inc., “Benefits of a virtual family office”
June 21, 2013, attorney Scott Haislet, “Passive real estate loss limitations and electing to be a real estate professional”
June 28, 2013, attorney Scott Haislet, “Tax considerations for selling a principal residence”
July 5, 2013, attorney Scott Haislet, “The new federal tax on net investment income”
July 12, 2013, Dick Blakeley, The Blakely Group, Inc., “How family business meetings can help avoid financial elder abuse”
July 19, 2013, Craig Martin, CFP®, The Family Wealth Consulting Group, “Asset class investing”
July 26, 2013, Craig Martin, CFP®, The Family Wealth Consulting Group, “Investment diversification using alternative investments”

Financial Insider Weekly is also broadcast as follows:

Past episodes are available at https://www.youtube.com/user/financialinsiderweek.

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 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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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
2482 Wooding Ct.
San Jose, CA 95128
(408) 918-3162
FAX: (408) 938-0610
Hours: 8am - 5pm PDT Monday - Friday

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