Michael Gray, CPA's Tax and Business Insight

July 7, 2021

© 2021 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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Janet Gray at the Dragon's Gate at Chinatown, San Francisco.
Janet Gray at the Dragon's Gate at Chinatown, San Francisco.

Call a cousin on Cousins Day!

Cousins Day is observed on July 24. How long has it been since you've seen or talked with one of your cousins? Cousins Day is a great reason to give a call and get back in touch.

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Need help with getting your extended tax returns, amended returns, and elections done?

To make an appointment, contact Thi Nguyen, CPA at thi@atl-cpa.com.

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Estimated fee payment due July 15 for some calendar year LLCs.

California LLCs pay two items to the Franchise Tax Board: an annual tax of $800 and an annual fee based on the gross receipts of the LLC. The estimated annual fee is paid with Form 3536 by July 15 for calendar year LLCs or online using WebPay at https://webapp.ftb.ca.gov/webpay/login/belogin? There is no fee when the gross receipts for the LLC are less than $250,000. The estimated fee can be based on last year's income tax return when it is for twelve months.

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Sales and Use Tax Return deadline extended.

The deadline for California sales and use tax returns that were originally due on April 30, 2021 has been extended to July 31, 2021, provided the taxpayer is reporting less than $1 million.

(Spidell's California Taxletter, June, 2021, p. 16, "Thumb Tax - April 30 sales and use tax return deadline extended.")

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Supreme Court upholds Obamacare.

In a 7-2 decision, the Supreme Court held that state and individual plaintiffs had no standing to challenge the essential coverage of the Affordable Care Act, so the Act remains in effect.

(California v. Texas, U.S. Supreme Court, June 17, 2021.)

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IRS Child Tax Credit Update Portal.

The IRS has created a Child Tax Credit Update Portal. Here's a URL for the portal: https://www.irs.gov/credits-deductions/child-tax-credit-update-portal. The Child Tax Credit was modified by the American Rescue Plan enacted March 11, 2021. Under the new system, the IRS will start issuing advance payments to taxpayers of the estimated Child Tax Credit monthly, starting July 15, 2021. If the taxpayer doesn't qualify for the credit, it will be recaptured on the taxpayer's individual income tax return. Since the estimated credit could be based on low income years due to the pandemic, many taxpayers may find they will have a recapture when they file their income tax return. THEY CAN AVOID THIS BY OPTING OUT of receiving the credit at the Child Tax Credit Update Portal. Please note that the election to opt out can't be changed.

If you need additional help with this issue, consult with your tax advisor.

(IR 2021-130, June 22, 2021.)

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What is the current federal tax rate for long-term capital gains and qualified dividends?

If your adjusted gross income exceeds $1 million ($500,000 for married, filing a separate return), we don't know. President Biden has proposed a rate of 43.4%, including the investment income tax. The rate would be retroactive to the "date of announcement." President Biden issued a Fact Sheet for The American Families Plan on April 28, 2021, which included the tax increase proposal. That could be the "date of announcement."

Here is a URL to the General Explanations of the Administrations Fiscal Year 2022 Revenue Proposals. https://home.treasury.gov/system/files/131/General-Explanations-FY2022.pdf

Other proposals include repealing Section 1031 Tax-Deferred Exchanges and treating the transfer of property by inheritance or gift as an income taxable event, in addition to the federal estate tax. Those proposals would be effective for transfers after December 31, 2021.

I suggest that you should write your representatives in Congress to let them know whether you favor these changes.

If you expect to have adjusted gross income exceeding $1 million ($500,000 for married, filing a separate return), prepare yourself for a big tax bill for your long-term capital gains and qualified dividends received during 2021.

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California legislature sends tax relief legislation to Governor Newsom.

Several tax relief and stimulus bills have been sent to Governor Newsom, who is expected to approve them.

SB 139 includes a second round of Golden State Stimulus payments of up to $1,100 to taxpayers with California adjusted gross income of $75,000 or less.

AB 150 includes an elective passthrough entity tax of 9.3% for qualified S corporations and partnerships (including LLCs taxed as S corporations and partnerships) for 2021 through 2025. The tax is imposed on the consenting shareholder's or partner's passthrough income and consenting owners may claim a credit equal to their portion of the passthrough entity tax paid. The IRS has approved this method of avoiding the $10,000 limitation of the federal income tax deduction for state and local income taxes.

AB 128 and SB 151 include a variety of new stimulus grants. See your tax advisor for detail.

(Spidell's Flash E-Mail, "Tax relief/stimulus payment bills sent to Governor," July 2, 2021.)

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Basis adjustment for cancellation of debt for depreciable business property must be made in the year of sale, not following year.

The Tax Court upheld the IRS in finding that the basis adjustment for a cancellation of indebtedness relating to properties sold "short" had to be made in the year of sale, not the year following the cancellation. Normally the basis adjustment is made the following year, but there is an exception when the real estate is sold in the year of cancellation under Internal Revenue Code Section 1017(b)(3)(F)(iii). The reason is the exclusion for the cancellation of indebtedness is limited to the adjusted tax basis of the real estate, so the basis must be adjusted immediately before the sale.

The Court also ruled that another indebtedness wasn't cancelled during 2013, as the IRS claimed. Charging off the debt on the bank's records doesn't mean it was cancelled, and the bank didn't issue Form 1099C relating to the item, as it did for the taxpayer's other cancelled debts.

(Hussey v. Commissioner, 156 TC No. 12, June 24, 2021.)

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Residence of owners established LLC as doing business in California.

The California Office of Tax Appeals ruled that, since the only two member/owners of an LLC taxed as a corporation were California residents, the business was commercially domiciled in California and doing business in California. Therefore, it was required to file a California income tax return and pay California franchise taxes.

(Appeal of DPMG Juniper, LLC, 2021-OTA-146, March 9, 2021.)

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Private foundations must efile their excise tax returns.

The IRS has announced that Private Foundation Excise Tax Return, Form 4720, with a due date on or after July 15, 2021, must be filed electronically.

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Farmers can elect out of CARES Act NOL rules.

The IRS has issued a Revenue Procedure explaining how taxpayers with a net operating loss for any tax year that begins in 2018, 2019 or 2020, all or a portion of which consists of a farming loss, can elect to not apply certain net operating loss rules constaine in the Coronavirus Aid, Relief and Economic Security Act (CARES Act).

(Revenue Procedure 2021-14.)

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Revived corporation could pursue a refund claim.

The California Office of Tax Appeals has ruled that a claim for refund filed by a corporation during a period when it was suspended was retroactively validated when the corporation revived its corporate status. The retroactive validation was only allowed because the suspended corporation was revived before the statute of limitations to file a refund claim had expired.

(Appeal of Cornerstone Compounding Pharmacy, Inc., 2021-OTA-196P, April 27, 2021.)

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Do you sell services or software to CPAs?

Maybe I can help. Call me, Michael Gray, at 408-918-3161 or email mgray@taxtrimmers.com.

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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 private group, and I will approve your membership.

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Attention Accountants! Speed up processing your 2020 business closings!

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. http://www.eztrialbalance.com

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Check my blog for coronavirus-related tax developments.

We have been sending most of my blog posts relating to coronavirus-related tax developments to you. You can find them at www.michaelgraycpa.com.

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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 visit AngiesList.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. Back episodes 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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