Michael Gray, CPA's Tax and Business Insight

August 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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Minnie Turns 6
Minerva Siemer, who is my granddaughter, celebrates her 6th birthday with Grandma Janet. Mom and Dad -- Dawn and John Siemer -- made the cake.

School Days, School Days, dear old Golden Rule Days...

It's hard to believe, but summer vacation is almost over and most children will be back in school by the end of August! Please drive carefully and enjoy your end of summer activities!

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Family celebrations.

August is a month with many celebrations for my family.

Minerva Siemer, who is Dawn's daughter and my granddaughter is celebrating her birthday this month. My sister-in-law, Gail Johnston, is also celebrating a birthday.


Janet and I are celebrating our 47th wedding anniversary during August. We consider ourselves blessed in sticking together through good times and bad times - mostly good.

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Our schedules.

I (Michael Gray) will be away from my office after August 20, returning August 27. I will also be away from my office on August 28.

Dawn Siemer will be away from her office after August 3, returning August 13.

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It's time for cleanup and extensions.

Maybe you have an issue for which you would like a second look on the income tax returns you just filed. Maybe you have extended income tax returns that you need to have prepared. Or maybe you have some planning issues for which need advice. To make an appointment, call Thi Nguyen, CPA at 408-286-7400, extension 206.

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Special offer for update of The Real Estate Tax Handbook, 2018 Edition.

We have been hard at work getting our books updated for the Tax Cuts and Jobs Act of 2017, enacted last December and mostly effective at the beginning of 2018. The Real Estate Tax Handbook, 2018 is now available to our subscribers for half price through August 31, 2018.

The half-price investment for the book is $29.99 plust $5.00 shipping and handling and $3.24 California sales tax for California residents. Follow this link https://www.siliconvalleypublishingcompany.com/products/real-estate-tax-handbook-2014-edition to buy online using the coupon code RETH2018 or call in your order to Dawn Siemer weekdays at 408-918-3162.

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Do you love travel?

I have created a Facebook travel group, called Travel Adventures, for members to share travel photos, experiences and tips. If you are on Facebook, you can use this URL to join: https://www.facebook.com/groups/207423476536726/, or search "Groups" on Facebook. You have to use the "join" button to join the group. This is a closed group, and I will approve your membership.

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Do you love Disney?

I have created a Facebook group, called Disney Magic, for members to share Disney photos, experiences and tips. I am also posting developments for Disney films, television shows, and amusement parks there. If you are on Facebook, you can use this URL to join: https://www.facebook.com/groups/2006739209578437/, or search "Groups" on Facebook. You have to use the "join" button to join the group. This is a closed group, and I will approve your membership.

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September 15 due dates.

The due date for extended income tax returns for calendar-year partnerships and S corporations is September 15.

Federal estimated tax payments for individuals are also due September 15. There is no California estimated tax payment due September 15 because estimate payments for April and June are "front loaded."

The federal estimated tax payment can be based on the income tax reported on the 2017 federal income tax return. If the 2017 federal adjusted gross income was more than $150,000 (or $75,000 if married filing separately), the payment can be based on 110% of the income tax on the 2017 federal income tax return. Alternatively, the payment can be based on 90% of the actual tax for 2018. Although the tax payment is 25% of the annual tax liability, the computations can be made using income and deductions through August 31.

With the tax law changes for 2018, you might want to get professional help with your estimated tax payments this year.

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More tax cuts?

There is talk in Congress of extending the tax cuts for individuals set to expire after 2025. This would increase the deficit cost of the legislation signficantly. I think it's highly unlikely Congress will be able to pass this proposal before the elections in November.

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Unilateral capital gains tax cut?

The Trump administration is investigating whether it can reduce federal income taxes on capital gains by indexing the tax basis (cost for computing gain or loss) of capital assets for inflation. I don't think that the Executive Branch should be able to do this by executive order without the consent of Congress.

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Update your internet browser.

For security reasons, the California Franchise Tax Board will no longer allowing access to its online services for older browsers. Effective July 1, 2018, the restriction will apply to online services like Check Your Refund, Web Pay, MyFTB, etc. Effective November 1, the restriction will apply to the rest of its web site. The solution is simple. Update your Web Browser.

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IRS extends tax relief to students whose private education loans were discharged.

The IRS has issued a Revenue Procedure that says taxpayers who had private student loans to finance attending schools owned by Corinthian College, Inc. or American Career Institutes, Inc. and whose loans were discharged on the Department of Education's Defense to Repayment or Closed School discharged process won't have taxable income from the discharge. Students who previously reported taxable income from such a discharge for a tax year eligible to file an amended income tax return should do so.

(Revenue Procedure 2018-39, July 30, 2018.)

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California employers won't pay FUTA "credit reduction" for 2018.

The U.S. Department of Labor has announced the only place subject to the FUTA "credit reduction" make up payment for 2018 is the Virgin Islands. Virgin Islands employers will pay FUTA tax at a rate 2.4% higher than other employers. California employers won't be subject to the additional tax for 2018.

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IRS program manager says employer make up of missed withholding isn't additional wages.

The IRS issued a Program Manager Technical Advice stating that an employer's payment of taxes that should have been withheld from an employee in a prior year relating to taxable fringe benefit income provided to the employee but not timely reported to the IRS does not create additional wages to the employee for that taxable year. (Generally taxes paid by an employer on behalf of an employee are taxable wages, requiring a "gross up" computation. This was evidently an exception to that rule. The employee won't get credit for the withholding paid late by the employer on his or her behalf.)

(Program Manager Technical Advice 2018-015.)

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Estate and trust administration expenses are still tax deductible.

The IRS has issued a notice that it intends to issue regulations allowing tax deductions to estates and trusts for administration expneses, despite the repeal of tax deductions for miscellaneous itemized deductions under the Tax Cuts and Jobs Act of 2017.

(Notice 2018-61, July 13, 2018.)

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LLCs don't qualify for privacy protection.

The Sixth Circuit Court of Appeals affirmed a federal district court in finding that two limited liability companies did not have standing to sue the IRS under the Rict to Financial Privacy Act. LLCs are not "customers" under the Act's definition because they are not (1) individuals or (2) a partnership of five or fewer individuals. The IRS was protected by sovereign immunity.

(Hohman v. Eadie, No. 17-1869, 6th Circuit, July 5, 2018.)

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Relying on tax preparation software did not avoid penalties.

The Tax Court held that a couple was subject to penalties for substantially understating their tax liabilities because they did not seek advice from a qualified tax professional and relied entirely on tax return preparation software. Their tax deficiency amounts exceeded both $5,000 and 10% of the amounts required to be shown on theier income tax returns.

(Ayissi-Etoch v. Commissioner, T.C. Memo. 2018-107, July 9, 2018.)

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Tax return preparer forced to divulge client information to IRS.

A federal district court granted a permanent injunction against a tax return preparer from engaging in a tax return business and ordered the preparer to give the IRS the last known address and social security number for everyone for whom he prepared a tax return or assisted in preparing a tax return.

(U.S. v. Berden, 122 AFTR 2d, 2018 - 5123, (DC Florida) July 10, 2018.)

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Consider setting up a Roth IRA for your child or grandchild.

A Roth contribution can be made on behalf of an individual up to the lesser of $5,500 or amount of his or her earnings. You can count the earnings from a summer job. (A Form W-2 will have to be issued for the job.) There is no tax deduction for this contribution, but future earnings for the account will be tax-free, provided the account isn't disturbed for five years.

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Remember summer day camp costs qualify for the dependent care credit.

When a dependent child goes to day camp and both parents or a single parent work, the expense qualifies for the dependent care credit. Expenses for summer school, tutoring programs and overnight camps don't qualify.

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10th Circuit confirms marijuana dispensary can't deduct business expenses.

Since marijuana is still an illegal drug under fedral law, the only item deductible for a marijuana dispensary is the cost of sales (inventory sold).

(Hargis v. Koskinen, No. 17-1223, 10th Circuit Court of Appeals, July 3, 2018.)

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Home office deduction denied for storing records in a garage.

The Tax Court ruled that a business owner couldn't claim a home office expense for storing business records in his garage. The taxpayer wasn't in the trade or business of selling products at retail and his business records and invoices weren't inventory.

(Najafpir v. Commissioner, T.C. Memo. 2018-103, July 3, 2018.)

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Some states will tax certain distributions from Section 529 plans.

One of the provisions of the Tax Cuts and Jobs Act of 2017 is to exclude from taxable income up to $10,000 of amounts distributed from Section 529 plans to pay K-12 education expenses. While more than 30 states have said they will exclude the distributions from taxable income, California, Oregon, Michigan, Montana, New Jersey and Vermont will tax the distributions. New York is still deciding.

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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
Hours: 8am - 5pm PDT Monday - Friday

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