Michael Gray, CPA's Tax and Business Insight

November 3, 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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Clive Baker prepares to work at Marché Aux Fleurs for the
Clive Baker prepares to work at Marché Aux Fleurs for the "Dime and Donate" Fundraiser Event.

Happy Thanksgiving!

Thanksgiving is Thursday, November 26. Hope you can enjoy the holiday with your family or loved ones.

Travel safely!

Our office will be closed on Thanksgiving Day and Black Friday, November 26 and 27.

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It's time for year-end planning

Halloween is the "unofficial" beginning of the holiday season. The year is three-quarters over! Schedule your year-end appointment now. With vacation and celebrating holidays, the times for appointments will be very limited. Call Dawn Siemer at 408-918-3162 on Mondays, Tuesdays or Thursdays to reserve your appointment now.

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Family celebrations.

My brother Steve and I are celebrating our birthday this month. We are grateful for good health and having family around us.

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Michael Gray will be out of the office the first two weeks of November.

Michael Gray will be on vacation the first two weeks of November, returning November 16.

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Half-price introductory offer for two new books by Michael Gray.

We are issuing 2015 updates for two books, Employee Stock Options - Executive Tax Planning and How to use Roth and IRA accounts to build a secure retirement. We expect to be able to ship the books by mid-November 2015.

You can buy the books for half price - $14.99 plus $5 shipping and handling and $1.75 California sales tax for California residents. This offer expires November 30, 2015.

To reserve your copy, call Dawn Siemer at 408-918-3162 on Monday, Tuesday or Thursday or fax the reservation forms to 408-998-2766. For Employee Stock Options - Executive Tax Planning, 2015 Edition, visit www.siliconvalleypublishingcompany.com. For How to Use Roth & IRA Accounts To Provide A Secure Retirement, 2015 Edition, visit www.taxtrimmers.com/rothbook.shtml.

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IRS announces retirement plan limitations for 2016.

Since the cost of living was almost unchanged for 2015, the retirement plan limitations for 2016 will be the same as for 2015. The 401(k) elective contribution limit will be $18,000. The defined contribution limit for profit sharing plans and money purchase pension plans will be $53,000. The maximum wage base for defined benefit plans will be $210,000.

(IR-2015-118.)

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IRS releases updated tax brackets and various limitations.

The IRS has released the tax brackets and various limitations for 2016. Since the cost of living was almost unchanged for 2015, the changes are minor.

The most significant change is the increase in the estate and gift tax applicable exclusion from $5,430,000 for 2015 to $5,450,000 for 2016.

Due to recent legislation, many penalties are dramatically increasing.

(Revenue Procedure 2015-53, October 21, 2015.)

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Payments to charities might be deductible business expenses.

A business had a regular promotion where amounts were paid to charities in appreciation of actions by customers.

The IRS Chief Counsel said the payments were expenses of the business and not paid as an agent for the business's customers.

The Chief Counsel also said that if the business expects to receive a commensurate financial return as a result of making a donation, it may be deducted as a business expense instead of as a charitable contribution.

(CCA 201543013, July 10, 2015.)

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Taxpayer succeeds in documenting losses for unreported sales.

James Hughes failed to file income tax returns for 1995 through 2006.

The IRS filed deficiency assessments, principally relating to the sale of securities. The IRS assessments were computed with no cost and reporting the income as short term capital gains.

James had his tax returns prepared by a CPA, who determined the cost of the securities using Mr. Hughes's brokerage statements and transaction confirmations.

A U.S. District Court ruled the IRS didn't rebut Mr. Hughes's determination of the cost basis for the securities, and found he actually had net losses.

Mr. Hughes would have saved himself a lot of trouble and expense by simply having his tax returns prepared on time.

(Hughes, 2015-2 U.S.T.C. 50,514, October 5, 2015.)

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Series of cash payments subject to Form 8300 reporting.

A pawnbroker made a series of loans to the same customer in the same year, who repaid them in cash (currency). The individual payments were less than $10,000, but the total during a taxable year exceeded $10,000. Do the payments have to be reported on Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business?

According to the IRS Chief Counsel, the answer is "yes." Internal Revenue Code Section 6051I(a) says that any person engaged in a trade or business who, in the course of that trade or business, receives more than $10,000 in cash in one transaction or two or more related transactions, shall file a return reporting the transactions.

In this case, the Chief Counsel said the fact the loans are separate transactions does not make them unrelated.

(CCA 201540013, April 11, 2008.)

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California penalty to apply to federal form.

Effective for taxable years beginning on or after January 1, 2016, California has conformed to the $10,000 minimum penalty for failing to file Form 8938, Statement of Specified Foreign Financial Assets.

Since a copy of the form should be included with Federal Form 1040 and attached or included with the efiled California Form 540, taxpayers who are diligent in complying with the federal reporting requirement will also satisfy the requirement for California reporting.

(Spidell's Flash Email, October 10, 2015.)

Since the cumulative penalties for failing to file on federal and California returns are significant, get a copy of Form 8938 and instructions at the IRS web site, www.irs.gov, and review the requirements.

(AB 154, "California will impose a $10,000 penalty for failing to file Form 8938", Spidell's California Taxletter®, November 1, 2015, page 7.)

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De minimis supplies exception doesn't apply for California property taxes.

Many taxpayers are (correctly) making the election to deduct de minimis materials and supplies that cost less than $500 ($5,000 with an (usually audited) "applicable financial statement") on their business income tax reports.

County assessors are reminding taxpayers this exception doesn't apply for property tax reporting. A separate list should be kept of long-lived equipment items and they should be included on the personal property tax report.

("IRC § 263(a) repair regulations and California property taxes", Spidell's California Taxletter®, November 1, 2015, page 8.)

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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 November and December.

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 November and December:

November 6, 2015, Professor Patricia Cain, Santa Clara University School of Law, "Tax concerns of same-sex couples and unmarried couples"
November 13 and November 20, 2015, Dick Blakeley, CEO, The Blakeley Group, "Family Wealth Education"
November 27, 2015, Lisa Barr, Silicon Valley Community Foundation, "How to promote community giving as a family value"
December 4, 2015, G. Scott Haislet, CPA and attorney at law, "Real estate professionals and passive activity losses"
December 11, 2015, G. Scott Haislet, CPA and attorney at law, "Section 1031 tax-deferred exchanges"
December 18, 2015, G. Scott Haislet, CPA and attorney at law, "Sale of a principal residence"
December 25, 2015, Don Pollard, CLU, ChFC, Advanced Professionals, "Medical insurance for individuals"

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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