Michael Gray, CPA's Tax and Business Insight
June 2, 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!
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Table of Contents
- Remember Father's Day!
- Congratulations, graduates!
- Summer vacation for students is here!
- Michael Gray, CPA's schedule.
- June 15 is an estimated tax due date.
- Estimated fee payment due June 15 for some calendar year LLCs.
- Foreign account reports are due June 30.
- 'Tis the season for extensions.
- Michael Gray gives LIVE seminar presentation for tax professionals.
- IRA tax break is permanent.
- Consider a Roth contribution for your student.
- New overtime rules will make more employees eligible.
- District Court says ACA cost-sharing payments are unconstitutional.
- Student allowed American Opportunity Tax Credit in year tuition paid.
- Accountant couldn't deduct law school tuition.
- Retirement income was subject to self-employment tax.
- IRS changes policy for initial contact for an audit.
- House of Representatives cuts IRS funding.
- Does your group need a speaker?
- Please share your good experiences with Michael Gray, CPA.
- Financial Insider Weekly broadcast schedule.
- Visit our new article: Why Smart People Do Dumb Things.
- 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
My grandson Clive Baker gets in the summer spirit! Remember Father's Day!
This year, Father's Day falls on Sunday, June 19. Remember to express your appreciation to your father (and other influential "fathers" in your life).
Congratulations, graduates!
June is a traditional month for graduations. Congratulations to all graduates and their families. Now the real fun begins - finding your career path! Good luck!
Summer vacation for students is here!
Children will soon be out of school for the summer. Please drive carefully!
Michael Gray's schedule.
Michael Gray will be out of the office from June 8 through 10, and won't be able to respond to emails or telephone calls on those days. He will return on Monday, June 13.
June 15 is an estimated tax due date.
The second estimated tax payment for most individuals and calendar year corporations and fiduciaries is June 15.
For individuals, federal estimated tax payments (for estimated tax exceeding withholding) can be based on 110% of 2015 tax on your income tax return if your adjusted gross income exceeds $150,000. Alternatively, you can make payments based on your income and deductions for 2016.
The California payment is 40% of estimated tax for the year. Like federal estimated tax payments, California payments can be 110% of 2015 tax, unless your adjusted gross income is $1 million or more. In that case, your estimated tax payments should be based on your actual income and deductions for 2016.
If you want our help computing your second quarter estimated tax payments, call Dawn Siemer at 408-918-3162 on Mondays, Tuesdays or Thursdays to make an appointment for a consultation.
Estimated fee payment due June 15 for some calendar year LLCs.
California LLCs pay two items to the Franchise Tax Board: an annual tax of $800 and an annual fee based on the gross receipts of the LLC. The estimated annual fee is paid with Form 3536 by June 15 of the taxable year for calendar year LLCs. There is no fee when the gross receipts for the LLC are less than $250,000. The estimated fee can be based on last year's income tax return when it is for twelve months.
Foreign account reports are due June 30.
The due date for FinCEN 114, the report of foreign accounts for 2015, is June 30, 2016. It applies for foreign bank and brokerage accounts and certain other financial accounts exceeding $10,000 at any time during 2015 owned by the taxpayer or for which the taxpayer had signature authority. The form must be efiled. If you have any questions about this form, consult with your professional tax advisor.
'Tis the season for extensions.
If you need help preparing your income tax returns for which you have filed an extension, call Dawn Siemer at 408-918-3162 on Mondays, Tuesdays or Thursdays to make an appointment.
Michael Gray gives a LIVE seminar presentation for tax professionals.
Michael Gray will present an "Alternative Minimum Tax for Individuals Refresher" for the Tax Interest Group, Silicon Valley San Jose chapter of CalCPA. The presentation will be from noon to 1:30 p.m. on Tuesday, June 21 at Abbott Stringham & Lynch, 1550 Leigh Ave. in San Jose. Lunch is included. The investment with an advance reservation is $20 for CalCPA members and $30 for nonmembers. For reservations, call Susie Riffel at 650-522-3168 or register online at www.calcpa.org/events-and-programs/event-details?id=d439f60b-765a-42b4-9921-820e862ce27c
IRA tax break is permanent.
Individuals age 70 1/2 and older can transfer up to $100,000 each year from their IRAs directly to charity at any time during the year. The distribution is counted for the minimum distribution requirements. This break was made permanent in tax legislation passed last December, eliminating uncertainty that we had before. These transfers aren't taxable and aren't subject to the limitations that otherwise apply for charitable contribution deductions.
Consider a Roth contribution for your student.
If your child or grandchild has a summer job, a Roth contribution can be made on his or her behalf. The maximum contribution is the lesser of $5,500 or the 2016 earnings. A contribution by a parent or grandparent is a gift, but up to $14,000 of gifts can be made to a donee by a donor with no tax consequence. The account grows tax free and withdrawals can be tax free if certain requirements are met.
New overtime rules will make more employees eligible.
The Department of Labor has issued new regulations that increase the threshold for certain employees to be eligible for overtime under the Fair Labor Standards Act. The regulations are effective December 1, 2016. The details are beyond the scope of this newsletter. Please consult with a human resources expert.
District Court says ACA cost-sharing payments are unconstitutional.
A federal district court has ruled that funding cost-sharing payments made by the federal government to insurers under Section 1402 of the Affordable Care Act is unconstitutional. Congress hasn't made appropriations to fund these payments. The court has stayed its injunction pending an appeal. This ruling will be appealed, so stay tuned.
(U.S. House of Representatives v. Burwell, et al., DC-D.C., May 12, 2016.)
Student allowed American Opportunity Tax Credit in year tuition paid.
The Tax Court ruled against the IRS and allowed a student to claim the American Opportunity Tax Credit for the year her tuition was paid using student loans. Most of the tuition was reported on Form 1098-T by the university for 2010, when it was billed. The tuition was adjusted for final course selections and paid in 2011. The student was able to provide documents to the Tax Court substantiating when the transactions occurred.
(Terrell, TC Memo 2016-85.)
Accountant couldn't deduct law school tuition.
The Tax Court upheld the IRS in disallowing a deduction for law school tuition and fees for an accountant. The Court refused to rule that an IRS regulation denying a deduction for education expenses leading a taxpayer to qualify for a new trade or business was invalid.
(Santos, TC Memo 2016-100.)
Retirement income was subject to self-employment tax.
A retired sales director of a direct sales organization received deferred compensation relating to her employment activities. Under the structure of the direct sales organization, she was self employed. The Eleventh Circuit Court of Appeals affirmed the Tax Court's ruling that the deferred compensation payments were subject to self-employment tax.
(Peterson, CA-11, 2016-1 USTC 50,289, May 24, 2016.)
IRS changes policy for initial contact for an audit.
The IRS has changed a policy permitting initial contact with a taxpayer for an audit by telephone. Now the initial contact must be by mail. The change is in response to complaints that scammers have been calling taxpayers claiming to be IRS representatives and allowing IRS agents to make telephone calls to initiate audits was causing confusion. Now if you receive a telephone call from someone claiming to be from the IRS and it's an initial contact, not a follow up to a letter, you can be assured the caller isn't from the IRS.
House of Representatives cuts IRS funding.
The House Appropriations Financial Services and General Government Subcommittee has issued a $10.9 billion budget for the IRS for fiscal year 2017. The bill cuts IRS funding by $236 million compared to fiscal year 2016. The current level of funding for taxpayer services is the same. This reduction doesn't make sense to me, since it's the IRS that provides the funding for our government.
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 and siliconvalley.citysearch.com.
We use Angie's List to assess whether we're doing a good job keeping valued customers like you happy. Please visitAngiesList.com/Review/4258970 in order to grade our quality of work and customer service.
Financial Insider Weekly broadcast schedule for June and July.
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 June and July:
- June 3 and 10, David Howard, Attorney at Law, "Reporting requirements for foreign bank and investment accounts"
- June 17, Sharon Lacy, CFP®, CPWA® United Capital Financial Advisors, "Social Security basics"
- June 24, Sharon Lacy, CFP®, CPWA® United Capital Financial Advisors, "Social Security concerns for married couples"
- July 1 and 8, G. Scott Haislet, attorney at law and CPA, "1031 Exchanges"
- July 15, G. Scott Haislet, attorney at law and CPA, "Real estate professionals and passive activity losses"
- July 22 and 29, G. Scott Haislet, attorney at law and CPA, "Sale of a principal residence"
Financial Insider Weekly is also broadcast as follows:
- Sundays at 10:00 a.m. in San Mateo County on PenTV, Comcast Channel 26 and Astound Channel 27.
- Sundays at 1 p.m. on Comcast channel 26 in Santa Cruz County and on Charter Communications Channel 72 in Watsonville and Capitola
- Sundays at 10:00 p.m. in San Mateo County on PenTV, Comcast Channel 26 and Astound Channel 27.
- Mondays at 1:30 p.m. in San Mateo County on PenTV, Comcast Channel 26 and Astound Channel 27
- Mondays at 6:30 p.m. on Midpeninsula Media Center, Comcast Channel 28 in Palo Alto, East Palo Alto, Stanford, Menlo Park & Atherton
- Mondays at 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 7:30 p.m. on Comcast channel 15 in Saratoga
- Tuesdays 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
- Tuesdays at 10:00 a.m. in San Mateo County on PenTV, Comcast Channel 26 and Astound Channel 27.
- Tuesdays at 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
- Wednesdays 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
- Thursdays at 10:00 a.m. in San Mateo County on PenTV, Comcast Channel 26 and Astound Channel 27.
- Fridays at 11:00 a.m. on Comcast channel 26 in Santa Cruz County and on Charter Communications Channel 72 in Watsonville and Capitola.
- Fridays at 3:30 p.m. on KCAT, Comcast channel 15 in Los Gatos
- Fridays at 4:00 p.m. on KMTV cable channel 15 in Cupertino, Los Altos and Mountain View
- Fridays at 6:00 p.m. on Comcast and Astound channel 29 in San Francisco. Online streaming video at www.bavc.org, "public access TV"
- Fridays 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
- Saturdays 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
- Saturdays at 10:00 a.m. in San Mateo County on PenTV, Comcast Channel 26 and Astound Channel 27.
- Saturdays 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.
Visit our new article!
- Why Smart People Do Dumb Things Book Review at www.profitadvisors.com/dumb.shtml
Follow me on Social Media!
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Check out my blog.
I have also started a blog at www.michaelgraycpa.com. Check it out!
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 - Friday
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