Michael Gray, CPA's Tax and Business Insight
April 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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Table of Contents
- Happy Administrative Professional's Day!
- Family celebrations.
- Due date for individuals and calendar year corporations, estates and trusts tax returns will soon be here.
- What if you don't have the money to pay the tax?
- Remember that an estimated tax payment is also due.
- Remember the second California real estate tax payment is due April 10.
- Most office parties and recreational facilities for employees are tax deductible.
- Budget legislation includes tax technical corrections.
- IRS says carried interest holding period requirement applies to S corporations.
- Single member LLC defense doesn't eliminate late filing penalty for a partnership income tax return.
- Please share your good experiences with Michael Gray, CPA.
- Financial Insider Weekly past episodes.
- Visit our new article: Giftology Review
- 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
For April Fool's Day, Santa showed up at our home on Easter this year! Happy Administrative Professional's Day!
Administrative Professional's Day will be celebrated on April 25, this year. You should always express your appreciation to the administrative professionals in your firm who help keep the wheels turning smoothly. Make an extra effort on April 25 to say, "Thanks!"
Family celebrations.
April is a big birthday month for my family. My daughter and office manager, Dawn Siemer, her husband John and her daughter, Kara, all have April birthdays! Allen Le, Thi Nguyen's husband, is also celebrating his birthday this month. Happy Birthdays!
Due date for individuals and calendar year corporations, estates and trusts tax returns will soon be here.
The due date for calendar year 2017 income tax returns for most individuals and calendar year corporations, estates and trusts is April 17, 2018. If the information for preparing them isn't complete, extension forms should be submitted with the estimated balance of tax by April 17. (The extension form is considered to be filed if an extension payment is made using Direct Pay at https://www.irs.gov/payments/direct-pay.) If you need help with your extension, call Ms. Thi Nguyen, CPA at 408-286-7400, extension 206.
What if you don't have the money to pay the tax?
The IRS will allow you to file an extension without paying the tax. You are still required to include an estimate of the tax due on the form. (The extension will not be accepted without this amount being entered.) The late filing penalty will be waived provided your income tax returns are filed on the extended due date, which is October 15, 2018 for most individuals.
California automatically allows the extension without filing a form.
A late payment penalty of 1/2% per month will apply for any tax due not paid by April 17, 2018, unless at least 90% of the tax finally determined was paid by that date.
Interest will also be charged for the unpaid tax and can't be waived. (The current rate is 5% for individuals.)
If a 2017 individual income tax return isn't filed by April 17, 2018 and a valid extension isn't filed by that date, the late filing penalty is 5% of the unpaid tax per month filed late, to a maximum of 25%. (In some cases, California will assess a penalty on the entire tax without reduction for payments received. See your tax advisor for details.)
Remember that an estimated tax payment is also due.
The first 2017 estimated tax payment for individuals and most other calendar year entities is also due on April 17, 2018. The penalties for late payment of estimated taxes are computed as simple interest. The federal estimate payment can be based on 25% of last year's tax liability. California "front loads" the first estimated tax payment as 30% of last year's tax liability.
Remember the second California real estate tax payment is due April 10.
There is a nasty penalty for paying real estate taxes late, and the date slips past us because we're thinking about April 15. Why not make this payment now, so you don't forget it?
Most office parties and recreational facilities for employees are tax deductible.
I recently discovered a misunderstanding that I had about the deductibility of office parties and recreational facilities under the Tax Cuts and Jobs Act of 2017.
It turns out that the expenses for most of these parties and company recreational facilities are tax deductible under the new tax law.
Under amended Section 274(e)(4), the prohibition for deducting expenses for entertainment or recreation or a facility for entertainment or recreation shall not apply to "Expenses for recreational, social or similar activities (including facilities therefor) primarily for the benefit of employees (other than employees who are highly compensated employees (within the meaning of section 414(q))). For purposes of this paragraph, an individual owing less than a 10-percent interest in the taxpayer's trade or business shall not be considered a shareholder or other owner, and for such purposes an individual shall be treated as owning any interest owned by a member of his family (within the meaning of section 267(c)(4)). This paragraph shall not apply for purposes of subsection (a)(3) (denial of deduction for club dues)."
Therefore, as long as the majority of the participants aren't owners, expenses for office parties, including meals provided, are fully deductible and not even subject to the 50% limitation for meals!
Budget legislation includes tax technical corrections.
President Trump signed the Consolidated Appropriations Act of 2018 on March 23, 2018. The legislation includes several technical corrections for various tax laws. As far as I can tell, it does not correct an error for failing to include language in the Tax Cuts and Jobs Act of 2017 for a 15-year recovery period and eligibility for bonus depreciation for "qualified improvement property." Hopefully that correction will be adopted in the near future, but it's not a slam dunk.
IRS says carried interest holding period requirement applies to S corporations.
Some commenters have suggested there is a loophole in the Tax Cuts and Jobs Act of 2017 that would exclude S corporations from a three-year holding period requirement for long-term capital gains of a carried interest. Carried interest is a tax break for investment fund managers. (Corporations aren't subject to the carried interest holding period requirement.) The IRS has announced it will issue regulations that will state the requirement does apply to S corporations. Some commenters have suggested the IRS would be exceeding its authority to issue such regulations. This could be another item for which Congress should enact a technical correction.
(Notice 2018-18.)
Single member LLC defense doesn't eliminate late filing penalty for a partnership income tax return.
Argosy, an LLC wholly owned by a married couple, filed late income tax returns for 2010 and 2011. The IRS assessed penalties for filing the tax return late. The owners claimed the penalties shouldn't apply because Argosy was a single member LLC. The Tax Court upheld the IRS in assessing the penalties. Since Argosy represented itself as a partnership on its tax returns, it couldn't argue that it was another entity.
(Argosy Technologies LLC v. Commissioner, TC Memo 2018-35, March 22, 2018.)
Please share your good experiences with Michael Gray, CPA.
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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.
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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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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