Michael Gray, CPA's Tax and Business Insight

February 2, 2015

© 2015 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!

Route to _______   _______   _______   _______   _______

(If you find this information valuable, please pass it on to a friend!)

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Kara Siemer at Seymour Marine Discovery Center.
Kara Siemer explores the touch tank at Seymour Marine Discovery Center.

Are you ready for Valentine's Day?

Valentine's Day, February 14, will fall on a Saturday this year. Have you made your reservations for dinner yet? Dan and Holly Baker tell me Marché Aux Fleurs restaurant in Ross is already fully booked. Get your gift shopping done soon. Let your loved ones know you appreciate them!

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February celebrations.

Clive Baker, who is my grandson, will celebrate his seventh birthday this month. Happy Birthday Clive!

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Make your tax return preparation reservation now!

It's tax season! Notice how fast January flew by? Before we know it, it will be April 15!

Most of our clients send their documents and use an online organizer that we have available. A few like to have a meeting to bring their information. Most of our tax return preparation meetings are scheduled in February, and there are only a few slots left.

To make your appointment for a meeting now, call 408-918-3162.

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Dawn Siemer on temporary leave.

Dawn Siemer will be recovering from surgery on her hand during the first two weeks of February. Please be patient with her temporary replacement.

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Identity theft creates a race to file income tax returns.

The IRS processes the efile of the first tax return that it receives for a social security number. We had two clients who had to file paper income tax returns and submit documents to the IRS because someone else filed income tax returns with their social security numbers before we submitted their efilings. It's a mess to straighten this situation out.

This is another good reason to file your income tax returns as early as possible and avoid extending the time to file your income tax returns.

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IRS Chief Counsel says mortgage brokers aren't in a real estate business.

According to the IRS Chief Counsel, a mortgage broker may be considered a real property brokerage business under state law, but it isn't a real estate business for testing whether an individual qualifies as a real estate professional under federal law. It's a financing business. This is an important ruling under the passive activity loss rules, and some mortgage brokers who believed they qualified as real estate professionals may be unpleasantly surprised.

A side effect is mortgage brokers who don't qualify as real estate professionals may find they are subject to the 3.8% net investment income tax on their investment income, including from rental real estate.

(CCA 201504010.)

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Tax Court finds payments to egg donor were taxable income.

A taxpayer agreed to donate some of her eggs and received payments for "time, effort, inconvenience, pain and suffering" in donating her eggs. She did experience bruising and headaches relating to the procedure. She claimed the payments should be excluded from taxable income because they related to a physical injury.

The Tax Court upheld the IRS in holding the payments were taxable income. The payments were for the service of donating the eggs. She voluntarily agreed to the procedure, and her "side effects" were to be expected in the circumstances. There was no tort or threat of a lawsuit for physical injury.

(Perez, 144 TC No. 4.)

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President's tax proposals probably going nowhere.

President Obama made some tax proposals in his State of the Union address, last week. A major revenue raising proposal was to raise the maximum federal income tax rate for long-term capital gains to 28% for certain high-income taxpayers. With a Republican majority in both houses of Congress, it's highly unlikely that any of his proposals will be adopted.

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Failure of tax return preparer to efile is not "reasonable cause" for late filing.

The California State Board of Equalization ruled that two corporate taxpayers were subject to late filing penalties when they gave authorizations to their tax return preparer to efile their income tax returns, but the Franchise Tax Board had no record of receiving the returns.

The Franchise Tax Board sent late notices to the taxpayers, who submitted the returns immediately.

The taxpayer is responsible to assure its tax return is submitted on time. It's a good idea to get a confirmation from the tax return preparer that the tax authorities have accepted efiled income tax return.

(Appeals of Ford F. Mudgett, D.D.S. and William L. Neff, Jr., D.D.S. (August 5, 2014), California State Board of Equalization Case Numbers 670981, 711154.)

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Postponed taxable income from business debt cancellation starts being taxable in 2014.

As business income tax returns are prepared for 2014, some taxpayers and their tax return preparers need to remember that it's time to start "paying the piper" for certain business debt cancellation income.

As a tax relief measure for taxpayers who were suffering during the Great Recession during 2009 and 2010, Congress enacted Internal Revenue Code Section 108(i), which provided an election to postpone taxation of business debt cancellation and enabled taxpayers to spread the taxation ratably over a five-year period. For both years, the income starts being taxable for 2014.

If this applies to you, remind your tax return preparer (and tax return preparers should also remind clients when it applies to them.)

New form issued for annuities extending IRA payments.

A new type of annuity, called a Qualifying Longevity Annuity Contract (QLAC), enables certain taxpayers to postpone part of the IRA distributions that would otherwise be required for IRA owners over age 70 ½. The amount transferred to the QLAC is excluded from the base that is used to report the required minimum distribution for IRAs. New Form 1098-Q is used to report information for the accounts to the IRA owner. It is required for QLACs starting for tax year 2014, the first year the accounts were available.

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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.

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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+.

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Financial Insider Weekly broadcast schedule for February and March.

Financial Insider Weekly is broadcast in San Jose and Campbell on Fridays at 9:30 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 February and March:

February 6, 2015, Jennifer Cunneen, attorney at law, Hopkins & Carley, "Should a family trust be terminated considering recent federal tax law changes?"
February 13 and 20, 2015, Jennifer Cunneen, attorney at law, Hopkins & Carley, "California real estate reassessment change of ownership rules"
February 27, 2015, Richard Schachtili, attorney at law, Hopkins & Carley, "Succession planning for a family business"
March 6, 2015, Michael Malter, attorney at law, Binder & Malter, LLP, "Personal bankruptcy"
March 13, 2015, Michael Malter, attorney at law, Binder & Malter, LLP, "Corporate bankruptcy"
March 20, 2015, Greg Carpenter, BTI Group Mergers & Acquisitiions, "Buying a business"
March 27, 2015, Greg Carpenter, BTI Group Mergers & Acquisitions, "Selling a business"

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 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 www.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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