Michael Gray, CPA's Tax and Business Insight

February 1, 2018

© 2018 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 playing piano
Clive Baker practices playing the piano

Happy Valentine's Day!

Remember to show your love and appreciation for your loved ones on Tuesday, February 14. (Marché Aux Fleurs restaurant, located in Ross, California, is owned by my daughter, Holly Baker, and her husband, Dan. They are fully booked for Valentine's Day. Book your reservation at your favorite restaurant now!)

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Michael Gray, CPA's Tax & Business Insight is now formatted only.

I have transferred our newsletter list to a new email service provider, and eliminated the outdated text-only version. This will help me get our newsletters out more effeciently. Formatting is now supported universally, so I hope this won't be a problem for anyone.

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February celebrations.

My grandson, Clive Baker, and Thi Nguyen, CPA, who is now serving my former clients, are celebrating birthdays this month. Happy birthday Clive and Thi! My wife's sister, Gail Johnston, and her husband Lane are celebrating their wedding anniversary this month. Congratulations!

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Have you received your tax preparation materials?

If you haven't received a tax data organizer or instructions to submit information online and want tax return preparation service by my successor, Ms. Thi Nguyen, CPA, please call her at 408-286-7400, extension 206.

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Make your tax return preparation interview appointment now.

Most personal interview appointments for preparing 2017 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 Ms. Thi Nguyen, CPA at 408-286-7400, extension 206.

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File your tax return early, if you can.

Identity theft has become a rampant problem. Scammers are filing bogus income tax returns and claiming refunds for withholding and estimated tax payments of innocent taxpayers. It can take months to straighten out a duplicate filing situation. Your easiest defense is to be the first one to file an income tax return under your social security number. Individuals who have suffered from identity theft in the past can get a special identification number for electronic filing from the IRS. Meanwhile, many taxpayers must wait to receive documents like Schedule K-1 as late as September, and have to file for extension of time to file their tax returns.

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Kiddie tax changed by new tax law.

A nuisance for many years has been waiting for tax returns of the parents of children subject to the "kiddie tax" to be done before being able to complete the children's income tax returns. Individuals subject to the kiddie tax are generally dependent children under age 19 or under age 24 if a full time student. Under a simplification measure in the Tax Cuts and Jobs Act, effective starting 2018, each child's tax return will stand alone. The first $1,050 of unearned income is tax free. The next $1,050 of unearned income plus earned income is subject to the regular tax rates. Unearned income exceeding $2,100 will be taxed at the federal tax rates that apply for trusts and estates.

This change won't help for this tax season, but many tax returns will be submitted earlier next year. Some children might pay higher income taxes with the change, and some might pay less.

If Congress doesn't extend this change, it will expire after 2025 and the old rules will be reinstated.

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IRS issues new withholding tables.

The IRS has issued new withholding tables reflecting the reduced tax rates enacted in the Tax Cuts and Jobs Act of 2017. The IRS has asked employers to start using the new tables as soon as possible, but no later than February 15, 2018. If you use desktop payroll software, remember to update your software for the update.

(Note the IRS hasn't issued updated 2018 W-4 forms yet.)

(Notice 1036, IR-2018-05, January 11, 2018.)

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California college access credit can help reduce the tax increase from the reduced state tax deduction.

The combined federal tax deduction for state income taxes and real estate taxes for 2018 can't exceed $10,000. California now offers a 50% tax credit for contributions to the California College Access Credit Fund. Contributions to the fund are also deductible on the federal income tax returns as a charitable contribution, but are not deductible on the California income tax return.

You have to apply in advance to contribute, and the application period for 2017 has closed. Applications for 2018 will open March 1, 2018. See this web site for details. www.treasurer.ca.gov/cefa/catc/index.asp

The California legislature is working on an alternative approach for making a charitable contribution to the State of California qualifying for a bigger state tax credit.

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California forces attention to use tax.

Recently passed California tax legislation now requires taxpayers who report zero California use tax due to indicate whether no use tax is owed or the taxpayer has paid the obligation directly to the California Department of Tax and Fees Administration (CDTFA). Tax return preparers will have to ask their clients to provide this information when preparing their 2017 individual income tax returns.

(AB 1593 (Ch. 17-563.)

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Failure to file or pay taxes can lead to denial of a U.S. passport.

The Federal State Department can deny or revoke U.S. passports of individuals who have federal tax debts exceeding $51,000 or if a levy has been issued. This doesn't include individuals paying their taxes under an installment agreement, individuals in bankruptcy, people who live in a federally declared disaster area, or people with a tax debt the IRS has determined is uncollectible because of hardship.

(Notice 2018-7, January 16, 2018.)

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10th Circuit Court of Appeals denies fair market value donation deduction for a trust.

The 10th Circuit Court of Appeals overturned a federal district court decision and remanded the case. This case involved David and Barbara Green, whose family controls Hobby Lobby. A trust created by the Greens purchased real estate using accumulated income received from Hobby Lobby, and later donated the land to a qualified charity. The trust claimed a charitable contribution deduction for the fair market value of the land, which was about $10 million more than the cost of the land.

The 10th Circuit Court of Appeals said the rules for charitable contributions for trusts are different from those for individuals or corporations. A donation must be made from the "gross income" of the trust. Since a trust doesn't recognize gross income for a charitable contribution of appreciated property, the deduction is limited to the tax basis of the property (cost to report gain or loss for sale of the property).

I think the Greens will probably try to appeal this decision to the U.S. Supreme Court.

(David and Barbara Green 1993 Dynasty Trust v. U.S., 10th Circuit Court of Appeals, January 12, 2018.)

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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 past episodes.

After eight years of production, I have discontinued producing new interviews for Financial Insider Weekly. Doing the show has been a rewarding experience and I consider back episodes to be my legacy of financial literacy education to our community. Back episodes are now on our home page at www.financialinsiderweekly.com.

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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 articles!

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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
2482 Wooding Ct.
San Jose, CA 95128
(408) 918-3162
FAX: (408) 938-0610
Hours: 8am - 5pm PDT Monday - Friday

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