Michael Gray, CPA's Tax and Business Insight
August 5, 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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Table of Contents
- Janet and I celebrate our 50th wedding anniversary.
- School Days, School Days, dear old Golden Rule days.
- Other family celebrations.
- Need help with getting your extended tax returns, amended returns, and elections done?
- Are you reporting business or rental income from a California source on your individual income tax return?
- Executor was personally liable for an estate's federal income taxes.
- Congress negotiates infrastructure deal.
- Ford, Hyundai and Porsche models added to Plug-In Vehicle Credit list.
- IRS shouldn't levy on Advanced Child Tax Credit payments.
- Married taxpayers who received separate notices may file a joint Tax Court petition.
- French resident taxpayer is subject to California tax on ex-spouse's NQSO and RSU income.
- Franchise Tax Board SNAFU for 2020 overpayments applied to 2021 estimated tax.
- Do you sell services or software to CPAs?
- Do you love Disney?
- Attention Accountants! Speed up processing your 2020 business closings!
- Check my blog for coronavirus-related tax developments.
- Please share your good experiences with Michael Gray, CPA.
- Financial Insider Weekly past episodes.
- Visit our new book review: No B.S. Guide To Maximum Referrals & Customer Retention
- Follow me on social media!
- Check out my blogs.
- PS Marché Aux Fleurs
- Subscribe/Remove from Michael Gray, CPA's Tax & Business Insight
Janet and me on our wedding day and from a recent visit to the Cathedral Room at Lake Shasta Caverns Janet and I celebrate our 50th wedding anniversary.
Wow! The years certainly do pass quickly. Janet and I are celebrating our 50th wedding anniversary this month. Being married to Janet gave direction to my life. Being married at 19 and our first child being born at age 22 left no time for dilly-dallying. I had to finish college expeditiously and find a job or a career. I think things developed very well, with my eventually having my own business in a satisfying profession for many years. Janet has been a blessing as a wonderful mother and grandmother. We have three adult children and four grandchildren. When we celebrated our 25th anniversary, Dad said the second 25 years is a lot easier than the first 25. Our experience was he was right. If anyone asked what our secret was, I would say it was staying together through the hard times, enjoying the good times, and listening to each other.
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! Finally, most children will be returning for a school year of in-class learning. It will still be difficult for some to mask up and some will elect to continue remote learning. Personally, I hope a COVID-19 vaccine is soon approved for children under age 12.
Other family celebrations.
Our other August family celebrations include my granddaughter, Minerva Siemer's birthday amd Janet's sister, Gail Johnston, is celebrating a birthday. Happy birthdays!
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.
Are you reporting business or rental income from a California source on your individual income tax return?
California recently enacted legislation, AB 150, that includes an election to pay an entity-level California income tax that isn't subject to the annual $10,000 itemized deduction limit. The election is effective for tax years beginning on or after January 1, 2021 and expires after the tax year beginning on or after January 1, 2025. Many Californians pay more than $10,000 for their real estate taxes, so their state income taxes are otherwise nondeductible.
Businesses already organized as partnerships, S corporations, and LLC taxed as partnerships or S corporations that only have partners that are corporations, individuals, estates and trusts already qualify for the election. Those businesses should consult with their tax advisors about whether they should make the election on their 2021 California income tax return and what adjustments their owners should make for their individual estimated tax payments for the rest of 2021, because the entity-level tax is a tax credit claimed on the owner's California income tax return.
Businesses that are reporting their income as sole proprietorships (including rental income reported on Schedule E) should consult with their tax advisors and attorneys about possibly reorganizing to qualify to make the election. Remember this benefit will expire after 2025, and there could be offsetting costs, including the 2.5% income tax for California S corporations (no tax credit for that tax), LLC fees based on gross income, $800 minimum tax payments for S corporations and LLCs, possible changes in self-employment tax, for payroll, changing to a new federal identification number, assigning contracts, etc. This is NOT a slam dunk. A ballpark of the tax benefit is about 3.7% of entity taxable income (9.3% X 39.6% maximum federal income tax rate, disregarding alternative minimum tax and net investment income tax).
Executor was personally liable for an estate's federal income taxes.
The Tax Court upheld the IRS in finding that an executor was personally liable for an estate's personal income taxes. In this case, the executor received a notice from the IRS in April 2006 that the estate owed more than $1 million in federal estate taxes. In February 2007, the executor distributed $640,000 of estate assets, leaving on $183,000.
In March 2010, the Tax Court issued a decision finding the actual liability for estate taxes was $536,151.
Since the distribution was made despite the executor having knowledge or notice of the federal government's claim and the distribution rendered the estate insolvent, the executor was liable for the debt that wasn't funded by the estate. Note that, in this case, the executor was a licensed attorney.
Remember this case when you are an executor or trustee. Retain sufficient reserves to pay expected claims. It might not make you popular with the beneficiaries, but any shortfall can come from YOUR pocket!
(Estate of Lee v. Commissioner, TC Memorandum Decision 2021-92, July 20, 2021.)
Congress negotiates infrastructure deal.
Congress is still negotiating a $1.1 trillion infrastructure deal. A big question is how it will be funded, since many of the tax proposals in the Biden Administration's proposed legislation are unpopular. I think it was Mark Twain who said, "Nobody's life, liberty, or property is safe while Congress in in session!"
Ford, Hyundai and Porsche models added to Plug-In Vehicle Credit list.
The IRS has added additional Ford, Hyundai and Porsche models as qualifying for the Plug-In Vehicle Credit of up to $7,500. The models include the 2021 Mustang Mach-E GT, 2021 Ionique Plug-In Electric Vehicle and Electric Battery Vehicle, 2021 Cayenne E-Hybrid models and 2021 Panemera models.
IRS shouldn't levy on Advanced Child Tax Credit payments.
The IRS Small Business/Self-Employed Division has told its employees that, in most cases, they should not levy on bank accounts containing Advance Child Tax Credit payments and to release any levies that have already been made on those accounts.
Married taxpayers who received separate notices may file a joint Tax Court petition.
The Tax Court recently ruled that a married couple who received substantially identical notices from the IRS could file a single joint Tax Court petition. Since the IRS's current practice is to mail identical notices to each spouse that filed a joint income tax return, this just makes common sense and avoids the inconvenience and expense of requiring separate Tax Court petitions.
(Garcia v. Commissioner, 157 TC No. 1, July 19, 2021.)
French resident taxpayer is subject to California tax on ex-spouse's NQSO and RSU income.
A husband and wife lived in California. The husband was granted nonqualified stock options (NQSOs) and restricted stock units (RSUs) as part of his compensation. During 2011 and 2012, part of the NQSOs and RSUs vested, resulting in wage income of $4.2 million for 2011 and $2.7 million for 2012.
In 2008, the couple moved to France. For 2011, the couple excluded the wife's community property share of the income. The couple divorced in May 2012. For 2012 the husband excluded one-half of the income.
The wife claimed her share of the income from the NQSOs and RSUs wasn't California-source income and not subject to California income taxes.
The California Office of Tax Appeals found the wife's share of the income was taxable income in California. Since the couple were residents domiciled California when the NQSOs and RSUs were granted, they were community property. The NQSOs and RSUs were compensation for services provided in California, so the income from them was California-source income taxable in California. The OTA also imposed a late-filing penalty for the wife.
(Appeal of Cremel and Koeppel, 2021-OTA-222P, May 18, 2021.)
Franchise Tax Board SNAFU for 2020 overpayments applied to 2021 estimated tax.
The California Franchise Tax Board erroneously issued notices that overpayments from 2020 income tax returns that taxpayers elected to apply to estimated tax would be refunded. The reason is the original filing date for the income tax returns, May 15, 2021 due to a COVID-related deadline change, was after the due date of the first estimated tax payment: April 15, 2021.
The Franchise Tax Board is manually correcting this error to correctly apply the overpayments to 2021 estimated tax as taxpayers requested. No action is required on the part of taxpayers. You can verify the adjustment has been made via the taxpayer's online MyFTB account.
(Spidell's Flash E-mail, "FTB is fixing erroneous overpayment notices, July 12, 2021.")
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.
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 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
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.
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. 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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Check out my blog.
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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 - Friday
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