Michael Gray, CPA's Tax and Business Insight
September 19, 2014
© 2014 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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Table of Contents
- Emancipation Proclamation anniversary.
- September celebrations.
- New hours for our office manager.
- The "Titans of Direct Response" conference was awesome.
- A memorable week visiting New York City.
- Extended 2013 individual income tax returns due October 15.
- IRS issues forms for health coverage reporting.
- Amounts paid to "limited" LLC members are subject to self-employment tax.
- Straddle regulations say debt can be a "leg" in a straddle.
- Items received from redeeming bank "thank you points" can be taxable income.
- The Internal Revenue Service won't be able to provide as much service.
- Final repair regulations issued relating to dispositions.
- Proper planning can avoid California property tax reassessment.
- Bright-line California sales tax test adopted for restaurant tips.
- Do you need help with amended income tax returns?
- Does your group need a speaker?
- Please share your good experiences with Michael Gray, CPA.
- Financial Insider Weekly broadcast schedule.
- Visit our new article: The Heart of Money.
- Follow me on social media!
- Do you have employee stock options?
- Do you have real estate tax issues?
- Check out my blog.
- PS Marché Aux Fleurs
- Subscribe/Remove from Michael Gray, CPA's Tax & Business Insight
Here are all my grandchildren: Kyan, Minerva, Kara and Clive at Roaring Camp. Emancipation Proclamation anniversary.
President Abraham Lincoln proclaimed all of the slaves held in the Confederate States to be free on September 22, 1862, putting black Americans on the road to freedom and equality. Something for all of us to think about and to celebrate.
September celebrations.
My daughter Holly Baker and her son Kyan Baker are both celebrating birthdays this month. Happy birthdays!
New hours for our office manager.
Dawn Siemer will be working all day Monday, and 9am to 2pm Wednesday through Friday starting next week. As always, you're welcome to leave her voicemail at (408) 918-3162 any time.
The "Titans of Direct Response" conference was awesome.
In memory of direct response marketing leader Marin Edelstein at the suggestion of Dan Kennedy, Brian Kurtz and Boardroom Incorporated hosted a two-day "Titans of Direct Response" conference in Stamford, Connecticut. The speakers included Brian Kurtz, Dan Kennedy, Joe Sugarman, Jay Abraham, Gary Bencivenga, Perry Marshall, Ken McCarthy, Arthur Johnson, David Deutsch, Eric Necropolis, Greg Renker and more. I went to witness this once-in-a-lifetime "gathering of eagles." The audience spent a lot of the time on its feet applauding. Participants received a shower of gifts from Boardroom, including a copy of Breakthrough Advertising by Eugene M. Schwartz, which isn't currently widely available. This was a memorable event. I hope some of what these folks have accomplished rubbed off onto me!
A memorable week visiting New York City.
The Marriott Hotel in Stamford, Connecticut is located next to a train station that connects to Grand Central Station in New York City. Janet and I decided to stay for a week so that we could visit NYC. We took downtown and uptown tours, took the (free!) Staten Island Ferry to see the Statue of Liberty, visited the Metropolitan Museum of Art, walked through Times Square, walked through half of Central Park and saw a Broadway Show, Kinky Boots. We had a great time.Extended 2013 calendar year individual income tax returns are due October 15.
Remember the extended due date for 2013 income tax returns is October 15, less than two months away. If you haven't done so already, get the information to prepare your tax returns to your tax return preparer now. This is the extended tax season for tax return preparers, so plan on preparers being under stress and grumpy.
IRS issues forms for health coverage reporting.
The IRS has developed reporting forms for reporting information about health care coverage required under the Patient Protection and Affordable Care Act (Obamacare). The forms are Form 1094-B and Form 1095-B. If the health care coverage is provided using an insured plan, only the insurance company will be required to provide the forms. The health care reporting requirements for health care coverage providers aren't effective until 2015. The IRS has posted FAQs about the requirements at its web site, www.irs.gov.
Chief Counsel says amounts paid to "limited" LLC members are subject to self-employment tax.
An investment management firm organized as a limited liability company designated its members (owners) as "limited partners." The members provided services to its clients and received Forms W-2 for compensation relating to their services. The firm claimed the income in excess of the W-2 wages was not subject to self-employment tax under the rules that apply to limited partners.
The IRS Chief Counsel issued advice stating an LLC is not the same as a limited partnership. The members were in fact active in the business and the earnings of the business were for rendering services. Therefore, the income in excess of W-2 wages is subject to self-employment tax.
(CCA 201436049.)
Straddle regulations say debt can be a "leg" in a straddle.
The IRS has issued final regulations stating an obligor's own debt as a position in personal property can be part of a straddle under Internal Revenue Code Section 1092. A loss can be disallowed as a current deduction under this rule. In order for the debt to be subject to this rule, the debt instrument must provide for payments that are linked to the value of personal property. For example, if the obligor agrees to pay interest on a debt, equal to the increase in a stock index, the payments would be linked to the index, and the obligor would have a position in the index.
The regulations are effective when the IRS originally promulgated proposed regulations with the rule for straddles established on or after January 17, 2001.
If you think this rule might apply to you, I recommend that you discuss it with a tax advisor that studies tax rules relating to securities.
(T.D. 9691.)
Items received from redeeming bank "thank you points" can be taxable income.
The Tax Court ruled that the value of an airline ticket received by redeeming bank "thank you" points were taxable income for the recipient. The points were earned by opening a bank account. The Tax Court said this arrangement was different from an airline giving frequent flyer miles. The bank gave the taxpayer something of value in exchange for using the taxpayers funds, which is a type of interest.
The taxpayer evidently disregarded a Form 1099 issued by the bank for the income. (Not a good idea.)
(Shankar, 143 T.C. No. 5.)
The Internal Revenue Service won't be able to provide as much service.
Congress has been reducing the budget of the Internal Revenue Service. The IRS budget for fiscal year 2014 is $11.29 billion - about $850 below the budget for FY 2010. The budget for FY 2015 is about $10.9 billion. The agency's total employment is down about 10,000 full-time employees compared to 2010, including 5,200 call center employees.
This also means reduced enforcement because there will be fewer tax audits, resulting in reduced revenue collected. In other words, our government is shooting itself in the foot.
And taxpayers will experience more and more frustration dealing with the IRS, because there won't be enough people to help.
Consider writing to your representatives in Congress about this issue.
("More Reductions in IRS Services Likely Due To Funding Cuts, Koskinen Predicts", Standard Federal Tax Reports, August 28, 2014)
Final repair regulations issued relating to dispositions.
The IRS has issued final Treasury Regulations that explain accounting rules for dispositions, including general asset accounts and partial dispositions. The regulations generally follow guidance issued in proposed and temporary regulations that previously issued.
The most significant change in the dispositions section of the repair and capitalization project is the ability to elect to deduct a partial disposition. In exchange for the election, the taxpayer must capitalize any repair or restoration of the disposed item.
The regulations are effective on August 14, 2014, and apply to taxable years beginning on or after January 1, 2014.
This is the final item scheduled to be issued in the IRS's repair and capitalization project.
Since the regulations require filing change of accounting method forms, tax advisors should be studying them and assembling information for 2014 tax reporting.
(T.D. 9689.)
Proper planning can avoid California property tax reassessment.
Michael Dell and his wife, Susan Lieberman Dell, negotiated to purchase the Fairmont Miramar Hotel in Santa Monica, California. Before the purchase was closed, it was restructured so that the hotel itself wasn't purchased, but the entity that owned it, Ocean Avenue LLC. The purchasers were 49% by Susan, 42.5% by Michael, and 8.5% by Hotel Investor LLC (mostly owned by Michael). When the dust settled, Susan owned 49% and Michael owned, directly and indirectly, 48.19%.
The County of Los Angeles tried to reassess the property for a change of ownership. The California Superior Court and the California Court of Appeals held there was no change of ownership because no one acquired a majority interest in the entity that held the property.
(Ocean Avenue, LLC v. County of Los Angeles, (June 4, 2014) 214 Cal. App. Unpub., "Sailing the Ocean decision to avoid property tax reassessments", Spidell's California Taxletter®, September, 2014, page 6.)
Bright-line California sales tax test adopted for restaurant tips.
The Califoria State Board of Equalization is adopting a bright-line test consistent with IRS Revenue Ruling 2012-18 for when tips are subject to California sales tax.
To be exempt from sales tax:
- The payment must be made free of compulsion;
- The customer must have the unrestricted right to determine the amount;
- The payment should not be the subject of negotiation or dictated by employer policy; and
- Generally, the customer has the right to determine who receives the payment.
Including a suggested gratuity on the bill will probably make it subject to sales tax, but listing alternative choices of gratuity on the bill will not.
If the employer has a policy of splitting tips among employees that isn't voluntary, the tips will be subject to sales tax.
If approved by the Office of Administrative Law, the changes will apply to sales made after December 31, 2014.
(Amendments to Title 18 Cal. Code Regs. ยง 1603, "When is a tip subject to sales and use tax?", Spidell's California Taxletter®, September, 2014, page 13.)
Do you need help with amended income tax returns?
We have already been meeting with folks who want a second look at their 2013 income tax returns for possible corrections. Call Dawn Siemer at 408-918-3162 on Mondays anytime, or Wednesdays, Thursdays, or Fridays before 2pm to make an appointment.
Does your group need a speaker?
We are seeking opportunities to speak before groups. Topics include recent tax developments, tax issues relating to real estate, how estate planning has changed recently, tax issues relating to alternative investments using retirement accounts, and marketing topics such as "How I created a public access television show broadcast on eleven Bay Area stations." To make arrangements, call Michael Gray at 408-918-3161.
Please share your good experiences with Michael Gray, CPA.
As you know, more and more people are going to the internet to find information about service providers. We hope you will share some good words about experiences that you have had with our firm. Some of the sites where you can share your experiences include yelp.com, siliconvalley.citysearch.com, and Google+.
Financial Insider Weekly broadcast schedule for September and October.
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 September and October.
- September 19, 2014, Dick Blakeley, CEO, The Blakeley Group, Inc., "Family Wealth Literacy" (repeat broadcast)
- September 26, 2014, G. Scott Haislet, attorney at law, "New repair and capitalization income tax rules for business and rental real estate owners"
- October 3, 2014, G. Scott Haislet, attorney at law, "The net investment income tax and real estate professionals"
- October 10, 2014, Janis Carney, attorney at law, Carney Elder Law, "The women's long-term care project"
- October 17, 2014, repeat of "The women's long-term care project"
- October 24, 2014, Michael Jones, CPA, Thompson Jones LLP, "Community property issues for retirement accounts"
- October 31, 2014, Michael Jones, CPA, Thompson Jones LLP, "Handling retirement accounts after a death"
Financial Insider Weekly is also broadcast as follows:
- Monday at 1:30 p.m. in San Mateo County on PenTV, Comcast Channel 26 and Astound Channel 27
- Monday at 4:00 p.m. and 7:00 p.m. Pacific Time on cable channel 19 in Morgan Hill and broadcast on the internet at the same time as streaming video at www.mhat.tv
- Mondays at 6:30 p.m. on Midpeninsula Media Center, Comcast Channel 28 in Palo Alto, East Palo Alto, Stanford, Menlo Park & Atherton
- Monday at 7:30 p.m. on Comcast channel 15 in Saratoga
- Tuesday at 2:30 a.m. and 12:30 p.m. on Midpeninsula Media Center, Comcast Channel 28 in Palo Alto, East Palo Alto, Stanford, Menlo Park & Atherton
- Tuesday at 4:00 p.m. and 7:00 p.m. Pacific Time on cable channel 19 in Morgan Hill
Broadcast on the internet at the same time as streaming video at www.mhat.tv- Wednesday at 6:00 p.m. on Comcast channel 26 in Santa Cruz County and on Charter Communications Channel 72 in Watsonville and Capitola
- Wednesday at 8:00 p.m. on Comcast channel 28 in Hayward, Alameda and Fremont and on AT&T U-Verse Channel 99, Hayward public access TV 28 in California
- Friday at 2 p.m. on Comcast channel 26 in Santa Cruz County and on Charter Communications Channel 72 in Watsonville and Capitola
- Friday at 1:30 p.m. in San Mateo County on PenTV, Comcast Channel 26 and Astound Channel 27
- Friday at 3:30 p.m. on KCAT, Comcast channel 15 in Los Gatos
- Friday at 4:00 p.m. on KMTV cable channel 15 in Cupertino, Los Altos and Mountain View
- Friday at 6:00 p.m. on Comcast and Astound channel 29 in San Francisco. Online streaming video at www.bavc.org, "public access TV"
- Friday at 8:00 p.m. on Comcast channel 28 in Hayward, Alameda and Fremont and on AT&T U-Verse Channel 99, Hayward public access TV 28 in California
- Saturday at 9:00 a.m. and 6:00 p.m. on Midpeninsula Media Center, Comcast Channel 28 in Palo Alto, East Palo Alto, Stanford, Menlo Park & Atherton
- Saturday at 1:00 p.m. on Comcast channel 26 and AT&T U-verse channel 99 in Marin County
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!
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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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, CPA2482 Wooding Ct.San Jose, CA 95128(408) 918-3162FAX: (408) 938-0610email: mgray@taxtrimmers.comHours: 8am - 5pm PDT Monday - FridayFind us on Facebook
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