Michael Gray, CPA's Tax and Business Insight
September 4, 2020
© 2020 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 September 30.
- Individual and C corporation tax returns due October 15.
- Business owners can still set up a SEP-IRA for 2019.
- It's time for cleanup and extensions.
- Check your 2020 withholding.
- IRS has a Tax Withholding Estimator on its web site.
- California wildfire victims may qualify for federal disaster relief.
- California conforms to federal reporting requirements for Paycheck Protection Program loan forgiveness.
- Working remotely in another state could result in being required to file another income tax return.
- Employee payroll tax deferrals might be a good benefit to NOT use.
- Section 1031 tax-deferred exchange deadline clarification.
- 2019 federal amended individual income tax return may be electronically filed.
- Losses from vacation properties were non-rental passive activity losses.
- Offering for rent was not trade or business use.
- Final regulations relating to charitable contributions as business expenses and for quid pro quo state tax credits.
- Bad debt deduction for related party loan disallowed.
- Deadline for final property tax determinations extended.
- IRS issues proposed regulations for "carried interests."
- Want help with your promotions, web pages, newsletters, blog posts, emails or books?
- Do you love Disney?
- Attention Accountants! Speed up processing your 2019 business closings!
- Check my blog for coronavirus-related tax developments.
- Please share your good experiences with Michael Gray, CPA.
- Financial Insider Weekly past episodes.
- Our new book review: Cold Reading for Business
- Follow me on social media!
- Check out my blogs.
- PS Marché Aux Fleurs
- Subscribe/Remove from Michael Gray, CPA's Tax & Business Insight
A LEGO project assembled by Clive Baker, who is my grandson. 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 2019 federal income tax return. If the 2019 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 2018 federal income tax return. Alternatively, the payment can be based on 90% of the actual tax for 2019. 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 have become so complex that I recommend using the "protected estimate" based on 2018 tax approach.)
If you aren't making your payments based on your 2019 income tax, you might want to get professional help with your estimated tax payments this year.
Trusts and estate tax returns due September 30.
The due date for 2019 calendar-year trusts and estates for which timely extensions were filed is September 30, 2020.
Individual and C corporation tax returns due October 15.
The due date for 2019 individuals and calendar year corporations for which timely extensions were filed is October 15, 2020.
Business owners can still set up a SEP-IRA for 2019.
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 2019 up to October 15, 2020. 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 already 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 2020 withholding.
Even with updated Forms W-4, federal income tax withholding might not match up with your income tax return. I recommend that you review your withholding with your tax advisor now to consider whether you should increase your federal tax withholding. The current interest rate for computing the penalty for underpayment of estimated tax is 3%. 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.
IRS has a Tax Withholding Estimator on its web site.
Here is a link to the IRS's Tax Withholding Estimator. https://www.irs.gov/individuals/tax-withholding-estimator.
California wildfire victims may qualify for federal disaster relief.
President Trump has approved California's request for a Presidential Major Disaster Declaration relating to wildfires in Lake, Napa, San Mateo, Santa Cruz, Solano, Sonoma and Yolo counties.
People who sustained losses in the designated areas can apply for assistance at https://www.disasterassistance.gov or by calling 800-621-3362 or 800-462-7585 TTY.
(California Board of Accountancy E-News, August 24, 2020, "Disaster Relief Information.")
California conforms to federal reporting requirements for Paycheck Protection Program loan forgiveness.
The California legislature has passed AB 1577, which conforms California income tax reporting requirements with the federal rules for cancellation of Paycheck Protection Program loans. Governor Newsom is expected to approve the legislation. Cancellation of a Paycheck Protection Program loan is excluded from taxable income, and the expenses paid using the proceeds of a cancelled Paycheck Protection Program loan are NOT tax deductible.
(California AB 1577.)
Working remotely in another state could result in being required to file another income tax return.
Wages are generally sourced to the state where they are earned. If you are working remotely in a state away from your residence, the income could be taxable in the state where you worked. The following states are excluding from taxable income for workers who have moved there temporarily because of the pandemic: Alabama, Georgia, Illinois, Indiana, Massachusetts, Maryland, Minnesota, Mississippi, Nebraska, New Jersey, Pennsylvania, Rhode Island and South Carolina. State tax credits may be available to reduce double taxation. (The credit is usually based on the lowest state income tax that applies.) See your tax advisor about how this might apply to you. If you usually prepare your own income tax return, you might want to get professional help for 2020.
Employee payroll tax deferrals might be a good benefit to NOT use.
President Trump has issued a Presidential Memorandum directing the Secretary of the Treasury to defer the withholding, deposit and payment of the EMPLYEE'S portion of Social Security taxes relating to payroll from September 1 through December 31, 2020.
Since the taxes do eventually have to be paid and the EMPLOYER is ultimately responsible for paying the taxes, it seems best for employers to NOT offer the deferral to their employees.
(Spidell's Flash E-mail, "Employee payroll tax deferrals are a messy proposition," August 28, 2020.)
Section 1031 tax-deferred exchange deadline clarification.
The IRS has clarified on its website that the deadlines for the 45-day identification period and the 180-day completion period that would have fallen during the period from April 1, 2020 and before July 15, 2020 is extended to July 15, 2020.
2019 federal amended individual income tax return may be electronically filed.
The IRS has announced that taxpayers may efile Form 1040-X, Amended U.S. Individual Income Tax Return for tax year 2019 only.
(IR 2020-182, August 17, 2020.)
Losses from vacation properties were non-rental passive activity losses.
The Ninth Circuit Court of Appeals upheld a federal district court ruling that losses from three vacation properties located in Mexico, Colorado and Hawaii were not rental losses. The taxpayers grouped the properties with thirty-three other properties and claimed real estate professional status.
Under the passive activity loss rules, the rental of the property is excluded from the definition of rental activity when the average period of customer use for the property is seven days or less during the tax year.
The taxpayers claimed the "customers" renting the properties were the property managers for the properties, and the period of the rental was the entire year.
The court found that the management companies were acting as agents for the taxpayers, and the customers were the individuals who paid for the use of the property.
Therefore, based on the IRS's assertion that the renters used the property for an average of less than seven days, the three vacations properties weren't eligible to be grouped with the other properties and they generated business losses subject to the passive activity loss limitations.
(Eger et al v. U.S., No. 19-17022, (9th Cir. August 10, 2020.)
Offering for rent was not trade or business use.
The Second Circuit Court of Appeals has upheld the Tax Court in finding that the sale of a renovated property that was offered for rent while it was being renovated but never actually rented resulted in a capital loss. The property was continuously listed for sale and was never advertised for rent. It was only shown for rent by a rental agent one time. The property wasn't offered for rent after the renovations were completed.
(Keefe v. Commissioner, No. 18-2357 (2d Cir. July 17, 2020.)
Final regulations relating to charitable contributions as business expenses and for quid pro quo state tax credits.
The IRS has issued final regulations relating to the deductibility of charitable contributions as business expenses and for a quid pro quo state tax credit reducing state tax liabilities.
Payments to a charity that directly relates to a taxpayer's trade or business and that are made with a reasonable expectation of financial return commensurate with the amount of the payment may be deductible as a business expense.
When a C corporation makes a charitable contribution and receives a state tax credit that reduces its state tax liability, the payment is deductible as a business expense up to the amount of the state tax credit received.
When an individual makes a charitable contribution and received a state tax credit that reduces its state tax liability, the payment is treated as a payment for state income taxes.
The new regulations are effective for charitable contributions made on or after June 11, 2019. A taxpayer may elect to apply the regulations to payments made after August 27, 2018.
(TD 9907, August 11, 2020.)
Bad debt deduction for related party loan disallowed.
The Seventh Circuit Court of Appeals upheld the Tax Court in finding that loans to an individual by a corporation owned by his family were never intended to be repaid and $92 million of bad debt deductions claimed by the corporation from 2004 through 2013 were disallowed.
(VHC, Inc. v. Commissioner, Nos. 18-3717 & 18-3718, 7th Cir., August 6, 2020.)
Deadline for final property tax determinations extended.
Governor Newsom has extended the deadline for a County Board of Equalization or Assessment Appeals Board to issue a decision on a pending property tax assessment appeal that was timely filed before March 4, 2020 to January 31, 2021.
(Spidell's California Taxletter, September, 2020, p. 16 "Deadline for final property tax determinations extended.")
IRS issues proposed regulations for "carried interests."
The IRS has issued proposed regulations relating to carried interests. Under the Tax Cuts and Jobs Act of 2017, certain long-term capital gains for the disposition of partnership interests transferred to or held by a taxpayer, directly or indirectly, in connection with the performance of substantial services by the taxpayer or any other related person, in any applicable trade or business, are recharacterized as short-term capital gains and transfers of those interests to a related person results in accelerating the taxation of any gain.
My copy of the proposed regulations is 162 pages long. I can't discuss them in detail here.
If you think they might apply to you, I recommend that you consult with your tax advisor.
(REG-107213-18)
Want help with your promotions, web pages, newsletters, blog posts, emails or books?
Michael Gray is available for promotional and content writing assignments, including chatbots. Want more information? Call Michael Gray weekdays at 408-918-3161.
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 private group, and I will approve your membership.
Attention Accountants! Speed up processing your 2019 business closings!
Do you still have 2019 business income tax returns on extension that need to be done? Check out this trial balance software, EZ Trial Balance, that's super-easy to set up and use. There is a desktop version and an online version. The online version includes consolidations and ratio analysis for analytical review. www.eztrialbalance.com.
Attention business owners with remote workers or remote customers!
Are you concerned about protecting your conversations and communications from hackers? Now there is a secure collaboration application including team member assignments, video conferencing (no Zoom bombing!), text messaging, voice messaging, PDF capture and large file transfer. Electronic signature and remote computer access features are almost complete. Communications take place in a secure envelope. Cloud application so no installation is required on your computer network. Meets IRS security standards. www.securelycollaborate.com.
Check my blog for coronavirus-related tax developments.
We have been sending most of my blog posts relating to coronavirus-related tax developments, including Paycheck Protection Program loans, to you. You can find them at www.michaelgraycpa.com. Congress is negotiating another COVID-19 relief bill, so watch for more developments. California has pending tax increase legislation. It's uncertain whether it will be passed.
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 visit AngiesList.com/Review/4258970 in order to grade our quality of work and customer service.
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 http://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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Michael Gray, CPA2482 Wooding Ct.San Jose, CA 95128(408) 918-3162FAX: (408) 938-0610email: mgray@taxtrimmers.comHours: 8am - 5pm PDT Monday - FridayFind us on Facebook
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