Michael Gray, CPA's Tax and Business Insight
October 4, 2023
© 2023 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
- Boo! The year is almost over!
- Family celebrations
- Live Michael Gray, CPA lunchtime seminar about proposed SECURE Act regulations.
- The federal government avoids shutdown.
- Individual and C corporation tax returns due October 16.
- Most California residents qualify for extended date to make 2022 IRA contributions.
- California passthrough entity payments due October 16, 2023.
- Most California trust and estate tax returns due October 16, 2023.
- Watch estimated tax payments catch up for disaster relief.
- Avoid California e-pay requirement by making smaller estimated tax payments.
- Foreign bank account form due October 16.
- Hawaii wildfire victims get tax relief.
- Idalia storm victims get tax relief.
- Need help with getting your extended tax returns, amended returns, and elections done?
- IRS issues guidance for amortizing research or experimental expenditures.
- Businesses must efile cash payments report, effective January 1, 2024.
- California eliminates incomplete gift trusts.
- Corporate rental scheme didn't work.
- Incarcerated spouse wasn't taxable for IRA distributions and life insurance distributions.
- Do you sell services or software to CPAs?
- Attention CPAs-would you like help with marketing your services?
- Attention CPAs-do you need support for tax issues?
- Attention Accountants! Speed up processing your business closings!
- Please share your good experiences with Michael Gray, CPA.
- Financial Insider Weekly past episodes.
- Visit our new book review: The Persuasion Story Code
- Follow me on social media!
- Check out my blogs.
- Subscribe/Remove from Michael Gray, CPA's Tax & Business Insight
Janet's Halloween display for 2023 Boo! The year is almost over!
Halloween is already almost here! And after Halloween, the year roars to a close with the holiday season.
Halloween decorations are out in my neighborhood and in my home.
I expect more children will be out for tricks and treats this year. Hope your family has some fun.
Family celebrations.
My wife, Janet Gray, celebrates her birthday during October. Janet is a great blessing to me and our family. Happy birthday!
Live Michael Gray, CPA lunchtime seminar about proposed SECURE Act regulations.
The IRS issued Proposed Treasury Regulations implementing the provisions of the SECURE Act of 2019 on February 24, 2022. Some of the provisions of the Proposed Treasury Regulations relating to retirement accounts (including IRAs and 401(k)s) surprised specialists in planning for retirement accounts. The IRS recently announced the Proposed Treasury Regulations won't be effective before 2024. Michael Gray, CPA, past president and past chairperson for the Tax Interest Group of the Silicon Valley San Jose Chapter, CalCPA and co-author of How To Use Roth & IRA Accounts To Provide A Secure Retirement, 2023 Edition, will explain the highlights of the Proposed Treasury Regulations and how planners should apply them for estate planning and administering accounts after a death.
The lunchtime seminar for the Personal Financial Planning interest group of the Silicon Valley San Jose chapter of CalCPA will be at Marcum Accountants/Advisors, 111 W St John St. Suite 515, San Jose, CA 95113 from noon to 1:30 p.m. on Wednesday, October 18, 2023. Advance registration is required. (No walk-in registration.) Registration is $30 for CalCPA members and $65 for nonmembers. Registration includes lunch. Plan to pay a small fee for parking.
Here is a link to register. https://store.calcpa.org/catalog/activity/svsj-financial-planning-interest-group--secure-act-proposed-regulations---n2181023
The federal government avoids shutdown.
Congress has passed a short-term funding measure to November 17, 2023, temporarily avoiding a shutdown.
Individual and C corporation tax returns due October 16.
The due date for 2022 individuals and calendar year corporations for which timely extensions were filed is October 16, 2023. Most California individuals and calendar corporations have an October 16, 2023 extended due date (no extension form was required to be filed) as disaster relief. If you haven't filed your 2022 income tax returns yet, see your tax advisor about whether you qualify for the October 16, 2023 filing date.
Most California residents qualify for extended date to make 2022 IRA contributions.
Together with the disaster relief filing extension, most Californians also qualify to make 2022 IRA contributions by October 16, 2023.
California passthrough entity payments due October 16, 2023.
Most California passthrough entities qualify for extended payments of their passthrough entity taxes on October 16, 2023 as disaster relief. The first payment is normally due on or before June 15 of the year of election. That payment is the greater of $1,000 or 50% of the elective tax paid for the prior year. The second payment is due on the due date of the business's income tax return, without extensions (March 15 for calendar-year S corporations and partnerships). The extension applies to applicable payments for 2022 and 2023. Be sure to use the correct form when mailing a payment or to correctly identify the year for electronic payments.
Most California trust and estate tax returns due October 16, 2023.
Most California calendar-year trusts and estates have an October 16, 2023 due date as disaster relief.
Watch estimated tax payments catch up for disaster relief.
As disaster relief, most California residents are required to "catch up" their Federal and California estimated tax payments for the first three quarters of 2023 by October 16, 2023. Be sure to correctly identify these payments and not combine them with your 2022 tax due payments. As a reminder, I'm repeating the next reminder about making smaller California estimated tax payments.
Avoid California e-pay requirement by making smaller estimated tax payments.
California requires corporations and individuals to make their tax payments electronically after the taxpayer either has:
- Made a single estimated tax or extension payments exceeding $20,000, or
- Filed an original return with a tax liability exceeding $80,000.
In 2023, taxpayers in 55 counties were granted disaster relief extending the tax return filing and estimated tax payment due date to October 16, 2023.
If a taxpayer makes a combined estimated tax payment exceeding $20,000, all future California tax payments will be required to be made electronically!
Taxpayers who don't expect to otherwise exceed the thresholds in the future can avoid exceeding the threshold during 2023 by breaking down their estimated tax payments and making several smaller payments instead of a big one. To avoid having your bank question whether your payments are fraudulent, consider making the payments a few days apart.
Taxpayers who exceed the thresholds may request a waiver from the requirement to make future payments electronically for a "reasonable cause." Why subject yourself to having to make that request when it can be easily avoided?
If you have any questions about this matter, consult with your tax advisor.
(Podcast: The e-pay mandate: don't combine California estimates, Spidell Publishing, September 3, 2023.)
Foreign bank account form due October 16.
FinCEN Form 114 is due April 15, and the due date is automatically extended to October 6, 2023 for 2022. FinCEN Form 114 is required to be filed when an individual has $10,000 or more of foreign financial assets, including foreign bank accounts and foreign brokerage accounts. See your tax advisor about foreign insurance policies, annuities and retirement accounts.
Hawaii wildfire victims get tax relief.
The IRS has announced tax relief for Hawaii wildfire victims in Maui and Hawaii counties. The due dates for already extended income tax returns, payroll tax and excise tax returns and for estimated tax payments have been extended to February 15, 2024.
(IR-2023-151, August 18, 2023.)
Idalia storm victims get tax relief.
The IRS has announced tax relief for individuals and businesses affected by Idalia in 46 counties in Florida. The due dates for already extended income tax returns, payroll tax and excise tax returns and for estimated tax payments have been extended to February 15, 2024.
(IR-2023-159, August 30, 2023.)
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.
IRS issues guidance for amortizing research or experimental expenditures.
The IRS has issued guidance for capitalizing and amortizing research or experimental expenditures, including examples of costs to be capitalized and amortized. Effective for taxable years beginning on or after January 1, 2022, under a provision of the Tax Cuts and Jobs Act of 2017, these expenses are required to be capitalized and amortized over five years, even when the intellectual property created is abandoned.
The IRS is providing this guidance about its intentions for future proposed regulations.
The guidance was issued too late to be of much use when preparing 2022 income tax returns.
(Notice 2023-63, September 8, 2023.)
Businesses must efile cash payments report, effective January 1, 2024.
Businesses that receive currency payments over $10,000 must report the payments to the IRS. Form 8300 is an information return that is subject to the efiling requirement that applies to other information returns, such as Form 1099 and Form W-2.
If a business files fewer than 10 information returns of any type, besides Form 8300, it is not required to efile Form 8300.
(IR-2023-157, August 30, 2023.)
California eliminates incomplete gift trusts.
Governor Gavin Newsom approved Senate Bill 131 on July 10, 2023, eliminating incomplete gift trusts (INGs), retroactive to January 1, 2023. Those trusts were designed to be incomplete gifts, includable in the grantor's estate for estate tax purposes, but as a separate taxable entity for income tax purposes. The purpose of the ING trust is to avoid state income taxes. (The trust was a "resident" of a low-tax or no-tax state.)
With the change, the ING will be treated as a grantor trust and the income and deductions for the trust will be reported on the grantor's income tax returns.
There is a narrow exception for trusts in which at least 90% of the distributable net income is payable to charity and the trustee elects to be taxable as a resident trust. These trusts will be treated as a separate taxpayer, subject to the lower tax rate thresholds that apply for other trusts.
Possible ways to deal with an ING trust include:
- The distribution committee of the ING trust can wind up the trust.
- The grantor can move out of California.
- The grantor can complete the gift.
If your estate plan includes an ING, consult with your estate planning attorney.
(Steve Leimberg's Estate Planning Newsletter, September 18, 2023, "California Eliminates Incomplete Gift Trusts", by Bruce Steiner.)
Corporate rental scheme didn't work.
An S corporation had three shareholders. The corporation didn't have a central office, and paid rent to each shareholder for use of the personal residences as executive office space for monthly meetings. The corporation deducted close to $300,000 of rent expenses over three years. The shareholders excluded the income as rent paid for 14 days or less in a year, although rental payments were made monthly.
They didn't keep records relating to the business conducted during the meetings.
The Tax Court upheld the IRS in disallowing all be $10,500 of rent deductions. (The IRS agent allowed $500 per meeting with written minutes documenting a business purpose for the meeting.)
(Sinopoli v. Commissioner, Tax Court Memorandum decision 2023-105.)
Incarcerated spouse wasn't taxable for IRA distributions and life insurance distributions.
Joseph Balint was imprisoned from December 17, 2013 through January 6, 2015.
During 2014, Joseph issued a Power of Attorney to his wife. She used the power of attorney to take withdrawals of $137,469 from his IRA and life insurance policy. She later withdrew those funds from their joint checking account and deposited them in her own account. She used the funds to relocate to another state and care for her mother. She filed for divorce from Joseph.
Joseph reported the income on his 2014 individual income tax return, filing a married, separate return. Then he applied for innocent spouse relief because he didn't know she had taken the money.
The Tax Court found Joseph's wife was the distributee for the funds. She had breached her fiduciary duty with the Power of Attorney and used the funds for her own benefit.
(Balint v. Commissioner, T.C. Memorandum Decision 2023-118.)
Do you sell services or software to CPAs?
Maybe I can help with writing promotional material and marketing ideas. Call me, Michael Gray, at 408-918-3161 or email mgray@taxtrimmers.com.
Attention CPAs-would you like help with marketing your services?
Maybe I can help with writing promotional material and marketing ideas, including encouraging referrals from your current clients. Call me, Michael Gray, at 408-918-3161 or email mgray@profitadvisors.com.
Attention CPAs-do you need support for tax issues?
Michael Gray, CPA can help you with research and guidance on complex tax planning and tax return reporting issues. mgray@profitadvisors.com.
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. http://www.eztrialbalance.com
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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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