Michael Gray, CPA's Tax and Business Insight
September 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 autumn
- Family celebrations
- September 15 due dates.
- Trusts and estate tax returns due October 1.
- Individual and C corporation tax returns due October 15.
- Last chance to "undo" a Roth conversion.
- Business owners can still set up a SEP-IRA for 2017.
- It's time for cleanup and extensions.
- Check your 2018 withholding.
- CPAs! Want help with your promotions, newsletter, online articles, or books?
- Special pre-publication offer for update of Secrets of Tax Planning for Employee Stock Options, 2018 Edition.
- Do you love travel?
- Do you love Disney?
- IRS issues draft 2019 Form W-4.
- IRS issues proposed regulations for 20% deduction for business income.
- IRS blocks state workarounds for federal deduction limit.
- Real Estate Developer denied deduction for his yacht
- IRS Voluntary Annual Filing Season Program upheld.
- Taxpayer's charitable contribution scheme fails.
- Proposed regulations issued for bonus depreciation.
- Please share your good experiences with Michael Gray, CPA.
- Financial Insider Weekly past episodes.
- Visit our new article: Quench Your Own Thirst 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
Janet and me at Lake Tahoe during a recent vacation visit Happy autumn!
Summer ends and autumn begins on September 22. The year is 2/3 over! Are you ready for the year end?
Family celebrations.
My daughter, Holly Baker and her son, Kyan, are both celebrating birthdays during September. Happy birthdays! Thi Nguyen and her husband, Allen Le, are celebrating their wedding anniversary during September. Happy Anniversary!
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 estimated 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. (The computations for the tax law changes for 2018 are so complex that I recommend using the "protected estimate" based on 2017 tax approach.)
With the tax law changes for 2018, you might want to get professional help with your estimated tax payments this year.
Trusts and estate tax returns due October 1.
The due date for 2017 calendar-year trusts and estates for which timely extensions were filed is October 1, 2018.
Individual and C corporation tax returns due October 15.
The due date for 2017 individuals and calendar year corporations for which timely extensions were filed is October 15, 2018.
Last chance to "undo" a Roth conversion.
You can still change your mind for a 2017 conversion of a regular IRA to a Roth IRA. The correction must be done by October 15, 2018. This procedure is no longer available for tax years after 2017. It was repealed by the Tax Cuts and Jobs Act of 2017.
Business owners can still set up a SEP-IRA for 2017.
Certain businesses that don't have other qualified plans and have extended the filing date for the income tax returns can still set up and fund a SEP-IRA plan and make a retirement plan contribution for 2017 up to October 15, 2018. See your tax advisor.
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.
Check your 2018 withholding.
With the tax law changes for 2018, many taxpayers will find their payroll tax withholding isn't enough to protect them from penalties for underpayment of estimated tax. I recommend that you review your withholding with your tax advisor now to consider whether your should increase your federal tax withholding. The current interest rate for computing the penalty for underpayment of estimated tax is 5%. Also, since personal exemptions have been repealed for federal tax reporting but not for state tax reporting, you should probably give your employer separate state income tax withholding instructions. The California form is DE-4.
Special pre-publication offer for update of Secrets of Tax Planning for Employee Stock Options, 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. We are now accepting preorders for Secrets of Tax Planning for Employee Stock Options, 2018 Edition from our subscribers for half price through September 30, 2018. The book has just been submitted to the printer, so it should be shipped during the last half of September.
The half-price investment for the book is $149.99 plus $20.00 shipping and handling and $15.72 California sales tax for California residents. Here are links for details, or call in your order to Dawn Siemer weekdays at 408-918-3162. Follow the links to buy online https://www.siliconvalleypublishingcompany.com/products/secrets-of-tax-planning-for-employee-stock-options-2014-edition using the coupon code SESO2018.
CPAs! Want help with your promotions, newsletter, online articles, or books?
Michael Gray, CPA is available for promotional and content writing assignments. In addition, some of our publications and articles are available for licensing (use for a fee). Want more information? Call Michael Gray weekdays at 408-918-3161.
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.
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.
IRS issues draft 2019 Form W-4.
Form W-4 is the form submitted by employees to their employers for computing withholding for the employees' payroll. Since personal exemptions were repealed in the Tax Cuts and Jobs Act of 2017, the 2019 Form W-4 is quite different from what we have seen before. Here is a link to a draft version of the form. https://www.irs.gov/pub/irs-dft/fw4--dft.pdf I'm afraid both employees and employers will be confused in using the form. Remember, you can just use the standard deduction and don't have to submit the details requested on the form.
More importantly, employees should separately complete the state version of the withholding form. In California, that's Form DE-4. Here is a link to the 2018 version of that form: https://www.edd.ca.gov/pdf_pub_ctr/de4.pdf California still has personal exemptions and hasn't limited or repealed itemized deductions that were repealed for federal tax reporting.
If not sooner, I recommend that you have your tax return preparer help you with these forms for 2019 when you have your 2018 income tax returns prepared.
IRS issues proposed regulations for 20% deduction for business income.
The 20% deduction for qualified domestic business income of noncorporate and S corporation businesses is one of the most complex provisions of the Tax Cuts and Jobs Act that was enacted last December. The IRS has finally issued proposed regulations as initial guidance. I have summarized the proposed regulations in a special report. Click this link for a blog post with the report. http://www.michaelgraycpa.com/posts/irs-issues-proposed-regulations-for-the-20-of-domestic-trade-or-business-income-deduction/
IRS blocks state workarounds for federal deduction limit.
California, New York and other states have been passing or proposing laws for taxpayers in those states to avoid the $10,000 annual federal itemized deduction limit for state and local taxes (including real estate taxes). The states have proposed qualifying payments as charitable contributions with a state tax offset.
Under the proposed regulations, the state tax credit expected in exchange for a charitable contribution is a "quid pro quo" (benefit received in exchange) disqualifying the deduction for that amount.
There is a di minimus rule in the proposed regulation allowing a taxpayer to receive a state tax credit for up to 15% of the donation.
The regulations are proposed to be effective for charitable contributions made after August 27, 2018.
The regulations also apply to state tax laws that were in effect before the Tax Cuts and Jobs Act of 2017 was enacted, so it eliminates the tax benefit of California's College Access Tax Credit (50% of donation amount) for charitable contributions made after August 27, 2018.
(REG-112176-18, August 23, 2018.)
Real Estate Developer denied deduction for his yacht.
The Tax Court upheld the IRS in disallowing trade or business deductions of a real estate developer for his yacht. The taxpayer claimed he bought the yacht for "relationship marketing" with prospective customers. The expenses were buried in such categories as "dues and subscriptions." The Tax Court said the business use of the yacht wasn't substantiated. Fortunately for the taxpayer, the Tax Court ruled against the IRS in applying accuracy-related penalties.
(Becnel v. Commissioner, Tax Court Memorandum 2018-120, August 2, 2018.)
IRS Voluntary Annual Filing Season Program upheld.
The D.C. Circuit Court of Appeals reversed a District Court ruling and ruled against the American Institute of Certified Public Accountants (AICPA) and found the IRS Annual Filing Season Program does not violate the Administrative Procedure Act. The Circuit Court first found the AICPA has standing to contest the program. The AICPA claimed the IRS didn't have the authority to regulate tax return preparers who aren't enrolled to practice before the IRS, like Entrolled Agents are.
The Circuit Court said the program merely provided unenrolled preparers the opportunity to participate and satisfy the Program requirements.
(AICPA v. IRS, D.C. Circuit No. 16-5256, August 14, 2018.)
Taxpayer's charitable contribution scheme fails.
Estelle Grainger created her own personal tax shelter. She bought clothing at a discount, then donated the clothing to charities and claimed a tax deduction for the retail value of the clothing. The Tax Court upheld the IRS in limiting her deduction to the cost of the clothing.
(Grainger v. Commissioner, Tax Court Memorandum 2018-117, July 30, 2018.)
Proposed regulations issued for bonus depeciation.
The IRS has issued proposed regulations for bonus depreciation, incorporating changes enacted in the Tax Cuts and Jobs Act of 2017. New rules for "qualified improvement property" and used property are included. Taxpayers may rely on the proposed regulations until final regulations are issued.
(REG-104397-18, August 8, 2018.)
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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 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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