Michael Gray, CPA's Tax and Business Insight

July 1, 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!

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

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Father's Day
Clive Baker enjoys some summer fun on Father's Day.

Happy Independence Day!

July 4 is a great day for our families and communities to celebrate our great nation. With all of our failings, our nation still inspires individuals throughout the world. Many people still want to come here for the freedoms and opportunities we have to offer. God bless the USA!

(We will be closed July 3 for the holiday.)

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The year is half over!

Time is sneaking by us again! How is 2015 going for you? Is there any way we can help you reach your goals? How is your tax picture shaping up this year? Call Dawn Siemer at 408-918-3162 or Michael Gray at 408-918-3161 to make a planning appointment now.

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Family celebrations.

My son, James Gray, is celebrating is 35th birthday this month.

My daughter (and office manager), Dawn Siemer, and her husband John are celebrating their 9th wedding anniversary this month.

Congratulations!

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Dawn Siemer out of office.

Dawn Siemer will be out of the office from July 13, returning August 3. Please be patient with us while she's away. It's best to call Michael Gray directly at 408-918-3161 until she returns.

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Michael Gray out of office.

Michael Gray will be out of the office on July 13 and 14, returning July 15. He will respond to messages when he returns.

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Health care reform is here to stay.

In its second ruling supporting federal health care reform, the Supreme Court ruled in the King decision that the federal government's subsidies of health care premiums for participants in states using a federal exchange instead of setting up their own exchanges are legal. If the Court had ruled against the subsidies, most commenters believe the health care reform legislation would have fallen because many people couldn't have afforded to pay their premiums.

Since millions of people are now insured that couldn't get health care insurance before, I believe it's highly unlikely the legislation will be repealed even if we have a Republican President and Congress. (Last week was a very good week for President Obama.)

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Same sex marriages are now legal throughout the United States.

In what was probably the most historic Supreme Court ruling since approving inter-racial marriages during the 1960's, the Supreme Court ruled in Obergefell that same-sex marriages are guaranteed by the Fourteenth Amendment to the United States Constitution.

Since the majority of states have already legalized same sex marriages, it appears this is an idea whose time has come.

From a tax perspective, our national tax system is now greatly simplified because everyone can now file their state income tax returns with the same status as married or not consistently with how they file their federal income tax returns.

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IRS will now only issue estate tax closing letters on request.

In the past, the IRS has issued "closing letters" indicating an estate tax return is accepted as filed. Receiving the letter was an indication it was safe to proceed with distributing an estate or trust.

Now the IRS says that effective for federal estate tax returns filed after May 31, 2015, it will only issue closing letters on request.

This means that tax return preparers, attorneys, trustees and executors will need to make an addition to their administration checklists to request a closing letter from the IRS when an estate tax return is filed. (Note the statute of limitations won't close for the estate tax return of the first-deceased spouse when a portability election is made until the deceased spouse's unused exemption amount (DSUE) is used by the surviving spouse.)

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Final regulations issued for estate tax portability election.

The IRS has issued final regulations for the estate tax portability election. The final regulations are effective June 12, 2015. When the election is made, the surviving spouse can use the unused federal estate tax exemption of the last previously-deceased spouse. The election enables some taxpayers to simplify their estate plans and may eliminate the need for a "bypass trust" that was commonly used in the past.

In order to qualify for the election, a federal estate tax return according to specifications by the IRS must be timely filed for the first deceased spouse.

The final regulations are similar to temporary regulations previously issued by the IRS, but includes some changes that are especially important for surviving spouses who aren't U.S. citizens.

The final regulations are mandatory reading for estate planners.

(T.D. 9725, June 15, 2015.)

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Payment of wages to IRA owner by an entity owned by his IRA was a prohibited transaction.

The Eighth Circuit Court of Appeals upheld a Tax Court decision that the payment of wages to the general manager of an LLC owned by an IRA was a prohibited transaction. The LLC was 98% owned by the general manager. When an IRA has a prohibited transaction, it is considered to be terminated and distributed as of the beginning of the year, so the entire balance of the IRA is taxable.

The Court didn't accept the taxpayer's argument that the receipt of income as compensation for services rendered in the performance of duties for the plan are exempt from classification as a prohibited transaction. The services weren't rendered to the plan, but an investment of the plan.

In this case, the taxpayer/general manager only received wages of $9,754 in 2005 and $29,263 in 2006, but he had taxable income from the termination of the IRA exceeding $300,000 plus penalties and interest.

Self-directed IRAs are being aggressively marketed, but need to be handled very carefully to avoid the prohibited transactions tax trap.

(Ellis, 2015-1 U.S.T.C. 50,328, June 5, 2015.)

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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 July and August.

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 July and August:

July 3, 2015, Michael Desmarais, attorney at law, "Your rights as a beneficiary"
July 10 and 17, 2015, Jeffrey Hare, APC, attorney at law, "Settling legal disputes our of court"
July 24 and 31, 2015, Lori Greymont, CEO, Summit Assets Group, "Real estate investment alternatives"
August 7 and 14, 2015, Nancy Ross, Bauer Shepherd & Ross & Associates, "How a collaborative approach can make divorce a less painful process"
August 21, 2015, Janis Carney, attorney at law, Carney Elder Law, "Senior Estate Planning"
August 28, 2015, Janis Carney, attorney at law, Carney Elder Law, "Caring for seniors today: challenges in getting quality care"

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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