Michael Gray, CPA's Tax and Business Insight

January 11, 2017

© 2017 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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Here's my granddaughter, Minerva Siemer, at the San Francisco Zoo

Happy New Year!

The start of a new year is traditionally a time to set goals and resolutions for the coming year. If we can be of service in that process, please call us.

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January celebrations.

My son in law, Dan Baker, is celebrating his birthday this month. Happy birthday Dan!

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Tax preparation materials will soon be on the way.

We are in the process of mailing instructions to our clients next week. If we prepared your tax returns last year and you haven't received instructions by January 20 or you would otherwise like to receive instructions, call Dawn Siemer at 408-918-3162.

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Engagement letters will soon be mailed.

With Dawn's vacation the last two weeks of December and anticipating a tax cut for 2017, we haven't mailed our engagement letters yet. Your tax preparation materials have a higher priority, so expect to see engagement letters in a couple of weeks.

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Make your tax return preparation interview appointment now.

Most personal interview appointments for preparing 2016 individual income tax returns will be scheduled in February. Many clients send their information without having an interview, but if you need that personal attention, you should schedule your interview appointment now. Call Dawn Siemer Monday, Wednesday or Friday at 408-918-3162.

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IRS filing season starts January 23.

The IRS has announced that the 2017 filing season for individual income tax returns will start on January 23. Tax returns can't be processed before that date. The IRS also issued a reminder that Congress has enacted a delay for issuing refunds for income tax returns that include an earned income tax credit or an additional child tax credit. Those refunds can't be issued before February 15, and will probably not be issued until the week of February 27.

(IR-2017-01, January 5, 2017.)

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Fourth quarter estimated tax payment for non-corporate taxpayers is due January 17.

The final 2016 estimated tax payment for individuals and calendar-year estates and trusts is due January 17, 2017. (Thank the weekend and Martin Luther King's birthday!) Remember California taxpayers with taxable income of $1 million or more must pay their estimated taxes using the current year's facts.

If you miss the January 17 deadline, making a late estimated tax payment can stop penalties from accruing.

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W-2s, 1099s and DE 542 reminder.

Remember that most 2016 annual information returns, such as W-2s and 1099s, should be issued to payees and sent to the tax authorities by January 31, including electronically filed forms. (The new filing date applies to Form 1099-MISC for services.) Congress moved up the filing date to fight identity theft.

Amounts paid using a credit card should not be included on Form 1099. Those amounts are being reported by the merchant companies.

Also remember that Form 542, Report of Independent Contractors, should also be submitted for ongoing independent contractor arrangements by January 20. The due date is the earlier of 20 days after the date $600 or more of payments have been made to the independent contractor or the date a contract has been entered for $600 or more of services during a calendar year.

Although requirements for real estate operators to issue Forms 1099 were repealed, real estate operators that are real estate professionals should prepare them anyway See your tax advisor for details.

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Watch FUTA adjustment on year-end report.

California, among other states, has a cutback in its state credit for federal unemployment taxes. That means additional payments of up to $126 per employee will be due with Form 940. Be sure this adjustment is done with your year-end report for 2016 using Form 940, Schedule A.

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Estates and trusts should plan distributions.

An election is also available to treat distributions made during the first 65 days of the following year (for example, March 6, 2017) as distributed for a taxable year (for example 2016). The maximum federal income tax rate of 39.6% and the 3.8% tax on net investment income hit estates and trusts especially hard. They apply when the undistributed trust income exceeds $12,400 for 2016. (The income of some trusts is automatically considered distributed. See your tax advisor.) The beneficiaries should be involved in this decision and be informed about the additional income to be reported on their income tax returns (in writing) and to avoid unpleasant surprises.

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Remember to "reset" payroll on January 1.

Software providers will issue updates including the new payroll tax tables as of January 1, 2017. Be sure you have installed those updates before processing your first payroll for 2017.

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Watch new sales tax rates for 2017!

With a state sales tax decrease and local increases from last year's elections, sales tax rates are making weird changes as of January 1, 2017. The sales tax rate for Santa Clara County is 9%. Here is a link to look up sales tax rates by city. http://www.boe.ca.gov/app/rates.aspx

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Small employers might be able to reimburse individual medical insurance coverage.

Congress has passed and President Obama has approved legislation allowing certain small employers to reimburse employees for their individual medical insurance coverage on a pre-tax basis. The legislation included relief from penalties for such employer payments made before 2017.

The maximum annual reimbursement is $4,950 for an employee or $10,000 for family coverage.

These plans are not as liberal as previous arrangements. The health reimbursement plan must be non-discriminatory! (Virtually all employees have to be covered.)

Only employers with no more than 50 employees can offer such a plan. The employer can't offer other health insurance benefits.

This is not a "do it yourself" project. Employer group medical insurance plans are still the preferred approach. You should only adopt a small employer health reimbursement arrangement with professional advice.

(21st Century Cures Act, HR 34, December 13, 2016.)

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Business standard mileage rate decreases.

The IRS has announced the standard mileage rate for 2017 decreased to 53.5¢ per mile from 54¢ per mile for 2016. The standard mileage rate for medical and moving expenses decreased to 17¢ per mile for 2017 from 19¢ per mile for 2016.

(Notice 2016-79, December 13, 2016)

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Final guidelines issued for gambling winnings.

The IRS has issued final regulations relating to how operators report winnings for bingo, keno and slot machines. Under the regulations, the operator can aggregate winnings for an "information reporting period." Under proposed regulations, winnings were aggregated for a "session." Winnings exceeding $1,200 are to be reported for bingo and slot machines. The threshold for keno is $1,500. The winnings are not reduced by the wager for bingo and slot machines, but are reduced by the wager for keno.

The final regulations do no include proposed rules for electronically tracked slot machine play. The operators said the purpose of their tracking systems was for marketing and customer loyalty and the systems couldn't be relied upon as a mandatory method for tracking winnings and wagers for tax reporting. (This is too bad. It would have made tax reporting easier for the taxpayers.)

My best advice? Don't participate in gambling. Reporting gambling winnings and losses creates reporting headaches and can lead to tax audits.

(TD 9807, December 30, 2016.)

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Foreign-owned disregarded entities will have to report foreign assets.

The IRS has issued final regulations that treat a domestic (U.S.) disregarded entity that is wholly owned by a foreign person as a domestic corporation that is separate from its owner. This means those entities will be required to separately submit Form 5472, Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business. These entities were previously exempt from filing the form.

The regulations are effective December 13, 2016, for tax years beginning after December 31, 2016 and ending after December 12, 2017.

(TD 9796, December 12, 2016.)

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IRS issues LIFO clarification.

The IRS has issued proposed regulations relating to the computation of price indexes for dollar-value, last-in, first out inventories (LIFO.) The regulations clarify how inventories should be pooled to avoid commingling manufactured or processed goods and resale goods in the same dollar-value LIFO pool.

Taxpayers who use LIFO inventory reporting should consult with their tax advisors for the details.

(NPRM REG-125946-10, November 29, 2016.)

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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 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.

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Financial Insider Weekly broadcast schedule for January and February.

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 January and February:

January 13, Don Pollard, CLU, ChFC, Advanced Professionals, "Health Insurance Update for Small Businesses"
January 20 and 27, Peter Moss, Wymac Capital, "Residential mortgage market update"
February 3 and 10, Mark Erickson, attorney at law, "California divorce basics"
February 17, Mark Erickson, attorney at law, "California spousal and child support - Part 1 of 2"
February 24, Mark Erickson, attorney at law, "California spousal and child support - Part 2 of 2"

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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