Michael Gray, CPA's Tax and Business Insight

March 3, 2016

© 2016 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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Minnie Siemer at the Santa Cruz Beach Boardwalk.
My granddaughter, Minnie Siemer, on a ride at the Santa Cruz Beach Boardwalk.

Happy March holidays!

It's time again for the "wearin' of the green!" Saint Patrick's Day, when all Americans are Irish, falls on Thursday, March 17 this year.

Easter falls early this year, on Sunday March 27. The Church has no consideration of tax season! We wish you a safe and fun Easter and hope you can be with family or friends for the holiday.

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Family celebrations.

My sister Arlene Gray McLean and my brothers-in-law Wade Allison and Lane Johnston, are celebrating birthdays this month. Happy Birthdays!

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Make your tax return preparation reservation now!

It's tax season! Before we know it, it will be April 18! (The deadline is later than usual this year.)

Our clients should have received their organizers and many have already brought their tax information to us. If you bring your information after March 15, plan on having an extension done.

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

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Calendar-year corporation tax deadline is March 15.

The due date for income tax returns of calendar-year corporations, including most S corporations, is March 15. Hopefully these businesses have already submitted information to their tax return preparers for preparing their income tax returns and extensions!

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Filing deadline for estates to report basis is extended to March 31.

Estates that are required to file an estate tax return are also required to make a report of the values of property reported to beneficiaries who receive the property with a copy to the IRS. The due date is generally the earlier of (1) 30 days after the estate tax return, Form 706, is filed, or (2) 30 days after the deadline, including extensions, for filing the estate tax return. The information is reported using Form 8971.

The IRS previously extended the deadline to February 29, 2016, but has now further extended the deadline to March 31, 2016.

The IRS only recently issued the final version of Form 8971, Information Regarding Beneficiaries Acquiring Property From a Decedent, with instructions.

(Notice 2016-19.)

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Tax Court honors IRA investment when custodian doesn't.

Raymond McGaugh told the custodian for his self-directed IRA to directly purchase corporate stock. The custodian refused. Mr. McGaugh directed the custodian to wire $50,000 directly to the corporation, which issued its stock with the title to the custodian for the IRA. The custodian refused to hold the stock and reported the payment of funds as a distribution to Mr. McGaugh.

Mr. McGaugh didn't report the income, and the IRS billed him for tax plus early distribution penalties.

The Tax Court ruled that Mr. McGaugh didn't have taxable income. He never received the funds and the stock was issued in the name of the IRA. He held the stock certificate as a conduit for the IRA.

Mr. McGaugh should have found a different IRA custodian that was willing to purchase and hold the stock, and made a direct transfer of funds to that custodian before purchasing the shares. Then no distribution would have been reported by the custodian to the IRS.

Some custodians won't accept permissable IRS investments. Mr. McGaugh had to go to considerable time and expense to defend not reporting this income.

(Raymond S. McGaugh v. Commissioner, T.C. Memo 2016-28, February 24, 2016.)

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IRS says to not complete optional questions on Form 5500.

The IRS has issued a notice on its web site that optional compliance questions on 2015 Form 5500 shouldn't be completed. (Walters Kluwer Federal Tax Weekly, March 3, 2016, p. 101.)

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Beware of tax-related "phishing."

We are seeing a lot of misleading emails, including from phony prospective clients, this tax season. Be very careful about opening emails and attachments, opening up your computer to be hacked!

Also beware of telephone calls and emails purporting to be from the IRS to collect income taxes. The IRS will always initiate collection by mail. Call the tax authorities or consult with a tax professional if you have a question about whether threatening calls are legitimate.

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Social Security benefit is expiring. Some married people should apply now.

A Social Security benefit, called "file and suspend," will no longer be available after April 29, 2016. The lower earning spouse applies for his or her own benefit while the benefits relating to the higher earning spouse are suspended to accrue higher amounts. In order to make the "suspend" election, three requirements must be made.

  1. The individual must be age 66 on or before April 29, 2016 (born on or before April 30, 1950.)
  2. The individual must file for the benefit on or before April 29, 2016.
  3. The individual must suspend his or her benefit on or before April 29, 2016.

Sharon Lacy, CFP® of United Capital Management has created a web tool to optimize Social Security benefits. It's www.bedrockcaptial.com/ssanalyze. The tool is free. You don't have to give your email address to use it.

Note that waiting to receive your Social Security benefits past your Full Retirement Age until age 70 increases your benefit by 8% per additional year. If you visit a Social Security office, they will try to start your benefits, so in most cases you should "just say no!"

I received this information at a seminar presentation by Sharon Lacy.

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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 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 February March:

March 4, Peter Moss, Wymac Capital, Inc., "Mortgage market update"
March 11, Phil Price, EA, The Price Company, "Qualified retirement plans for small businesses"
March 18 and 25, Richard H. Lambie, professional fiduciary, "The role of the professional fiduciary"
April 1 and 8, William J. Mitchell, CPA, "I'm being audited by the IRS! Now what?"
April 15, William J. Mitchell, CPA, "Appealing your tax audit"
April 22 and 29, William J. Mitchell, "I owe the IRS! Now what?"

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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