Michael Gray, CPA's Tax and Business Insight

March 5, 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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Minerva Siemer on a rock.
Minerva Siemer is Queen of the Mountain at Happy Hollow Park in San Jose

Happy St. Patrick's Day!

St. Patrick's Day is the occasion when all Americans celebrate being Irish! It's time for the wearin' of the green! The luck of the Irish be with ye!

Did you know that St. Patrick used the THREE-leafed clover as an analogy for the Holy Trinity? The four-leaf clover is actually an American tradition.

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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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Due date for partnership and S corporation tax returns will soon be here.

The due date for calendar year 2017 partnership and S corporation income tax returns is March 15, 2018. If the information for preparing them isn't complete, extension forms should be submitted with the estimated balance of tax by March 15.

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Cutoff for preparing tax returns will soon be here!

If you provide complete information for preparing your 2017 income tax returns by March 15, your tax returns should be finished in time to file them by April 17. Otherwise, an extension form should be submitted with a payment of any estimated balance of tax by April 17.

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Make your tax return preparation interview appointment now.

There is still time for a few personal interview appointments for preparing 2017 individual income tax returns. 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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IRS issues new Form W-4.

The IRS has released a revised 2018 Form W-4, Employee's Withholding Allowance Certificate. The new form reflects changes for 2108 in the Tax Cuts and Jobs Act of 2017, including the increase in the standard deduction, the elimination or reductions of itemized deductions, and dependent tax credits. You can get the form at https://www.irs.gov/pub/irs-pdf/fw4.pdf.

California has its own withholding form, Form DE-4. Your California withholding allowances might be quite different for the federal allowances. You can get the form at http://www.edd.ca.gov/pdf_pub_ctr/de4.pdf.

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Bipartisan Budget Act includes tax extenders.

The Bipartisan Budget Act of 2018 includes a number of tax provisions that weren't previously included in the Tax Cuts and Jobs Act of 2017.

There are more than 30 provisions that had previously expired, mostly for one year through 2017. Three key provisions are (1) the exclusion for up to $2 million ($4 million for married, filing separate returns) discharged home mortgage debt; (2) the "above the line" deduction for up to $4,000 of qualified tuition and related expenses. (The deduction is phased out for taxpayers whose AGI exceeded $65,000, or $130,000 on a joint return. No deduction is allowed when the taxpayer files a married, filing separate tax return.); (3) the deduction of mortgage insurance premiums for acquisition of a qualified residence. The deduction is phased out for AGI exceeding $100,000, or $50,000 for married persons filing a separate tax return.

The Act also includes a liberalization for hardship distributions from 401(k) plans, eliminating the 6-month prohibition of contributions to the plan when a hardship distribution is received.

Victims of California wildfires who don't itemize deductions can deduct personal casualty losses in excess of a $500 threshold. The 10% penalty on up to $100,000 of pre-age 59 1/2 payouts from retirement plans is waived for these taxpayers. The payment of tax for these withdrawals can be spread over three years.

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IRS announces 2018 estate and gift tax exemption.

The method of computing inflation adjustments was changed by the Tax Cuts and Jobs Act of 2017. The IRS has announced that the 2018 lifetime exemption equivalent for estate and gift tax reporting is $11,180,000.

(Revenue Procedure 2018-18, March 2, 2018.)

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Business deductions disallowed for lack of substantiation.

Duncan Bass has a "side business" providing landscaping and janitorial services. He didn't keep contemporary records of the business use of his vehicles and for other business expenses. He didn't keep a separate bank account for the business. The Tax Court upheld the IRS in disallowing his business deductions for lack of substantiation, despite the deductions being "reasonable."

This case is just another reminder of the importance of keeping good records. Many business owners feel oppressed with the records they have to keep. We suggest that receipts should be scanned and copies kept "in the cloud." Business owners should maintain a paper or electronic log of the use of vehicles. Your accountant can help to set up a system to help maintain these records.

(Burke v. Commissioner, T.C. Memo. 2018-19, February 21, 2108.)

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Forfeited deposit was ordinary income.

The Eleventh Circuit Court of Appeals upheld the Tax Court in ruling that a deposit received for the sale of a hotel and the sale was cancelled was ordinary income. Such payments can be capital gains when the deposit is received for the sale of a capital asset. Business assets, such as land or buildings, aren't capital assets.

(CRI-Leslie v. Commissioner, 121 AFTR 2d 2018-794, February 15, 2018.)

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Time extended for claiming casualty loss for pyrrhotite in foundations.

Homeowners who are mostly located in Connecticut and experienced repair costs for defective concrete foundations containing pyrrhotite have received an extension of time for paying repair expenses and claiming a deduction on the taxpayers' 2017 income tax return. The expenses may be paid up to the time they file their 2017 federal income tax return, including extensions. If the expenses are paid after the original Form 1040 is filed for 2017, they may still be deducted on Form 1040X provided the expenses are paid by the due date for Form 1040X for 2017.

(Revenue Procedure 2018-14.)

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Franchise Tax Board procedure for cash payments for cannibis industry.

Businesses in the cannibis industry currently aren't permitted to have bank accounts in federal banks. The Franchise Tax Board has acknowledged the difficulty of making cash payments. These businesses can apply for a waiver of penalties for failure to make electronic payments using form FTB 3711. Once the Franchise Tax Board grants the waiver, cash payments can be deposited at a field office. Appointments to make cash deposits must be made at least two business days before the date the deposit will be delivered. The Franchise Tax Board also requests that Form 4107, Mandatory e-Pay Election to Discontinue or Waiver Request for Individuals or Form 3816, Electronic Funds Transfer Election to Discontinue or Waiver Request for Business Entities, be submitted each time a cash payment is made. (Is it really worth the hassle to be in this type of business?)

(State of California Franchise Tax Board, March Tax News, "Cannibis Clients Who Need to Pay in Cash")

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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. Past episodes are available at https://www.youtube.com/user/financialinsiderweek.

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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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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
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