Michael Gray, CPA's Tax and Business Insight
March 5, 2024
© 2025 by Michael C. Gray
ISSN 1539-395X
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Table of Contents
- Happy St. Patrick's Day!
- Daylight Savings Time Reminder
- Family celebrations.
- Michael Gray explains retirement plan distribution rules for the Sacramento Estate Planning Council.
- Trust distribution deadline is March 6, 2025.
- Have you received your tax preparation materials?
- Tax return filing deadlines have been extended for some taxpayers.
- Remember federal income tax returns for calendar-year S corporations and partnerships are due March 17.
- The election to be an S corporation for existing calendar-year corporations is due March 15.
- Due date for 2024 individual, calendar year estates and trusts, and calendar year corporation income tax returns is April 15, 2025.
- Remember that an estimated tax payment is also due on April 15.
- Remember the second California real estate tax payment is due April 10.
- IRS to lay off probationary employees.
- "Buyout" offer postponed for IRS workers.
- President Trump proceeds with tariffs on Canada, Mexico and China.
- No medical deduction for surrogate IVF and pregnancy.
- Did you sell shares received from exercising nonqualified stock options during 2024?
- Remember this AMT adjustment for disqualified dispositions of ISO shares after the year of exercise.
- Do you sell products, 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: No B.S. Guide to Successful Marketing Automation
- Follow me on social media!
- Check out my blogs.
- Subscribe/Remove from Michael Gray, CPA's Tax & Business Insight
Spring is almost here! Happy St. Patrick's Day!
St. Patrick's Day is the occasion when all Americans celebrate being Irish! This year it falls on Sunday, March 17. It's time for the wearin' of the green! The luck of the Irish be with ye!
Will you be droppin' by the pub for a pint of green beer? Or maybe a Guinness?
Daylight Savings Time reminder.
Daylight Savings Time starts at 2 a.m. this Sunday, March 9, 2025. Remember to "spring" your clocks forward one hour.
Family celebrations.
My sister Arlene Gray McLean and my brothers-in-law Wade Allison and Lane Johnston, are celebrating birthdays this month. Happy Birthdays!
Michael Gray explains retirement plan distribution rules for the Sacramento Estate Planning Council.
Michael Gray will give a live presentation about Highlights of the Final and Proposed Regulations for Retirement Plan Distributions, including for inherited accounts on Wednesday, March 26, 2025, for the Sacramento Estate Planning Council. He will also discuss the outlook for 2025 tax legislation. The meeting is from 5 p.m. to 7:30 p.m. and the presentation is from 6:30 p.m. to 7:30 p.m. Registration closes March 18, 2025.
The registration fee is $75 for members and $80 for nonmembers.
Here's a link to register for the event. https://www.sacepc.org/events/event/26717
Trust distribution deadline is March 6, 2025.
Estates and irrevocable trusts for which the trustee has discretion for making distributions can elect to treat distributions made within 65 days after the year-end as made during the previous year. Distributions generally reduce taxable income for the estate or trust and carry taxable income to the beneficiaries of the estate or trust, who might have a lower marginal tax bracket. For 2024 calendar year trusts and estates, the deadline for making a distribution to make the election is March 6, 2025. Trustees and executors should consult with their tax advisor about whether their trust or estate and its beneficiaries would benefit from making such an election.
Have you received your tax preparation materials?
If you are having your income tax returns professionally prepared and haven't received an organizer from your preparer, you should contact them now and request one.
Tax return filing deadlines have been extended for some taxpayers.
Here's a link to the IRS web site to find the affected areas. https://www.irs.gov/newsroom/tax-relief-in-disaster-situations
At this time, Los Angeles County is the only California county eligible for relief. The automatic extended due date is October 15, 2025. The California Franchise Tax Board has announced it will conform to the federal extension for Los Angeles County. https://www.gov.ca.gov/2025/01/11/california-provides-tax-relief-for-those-affected-by-los-angeles-wildfires/
Remember federal income tax returns for calendar-year S corporations and partnerships are due March 17.
(Federal income tax returns for calendar-year C corporations are due April 15.)
The election to be an S corporation for existing calendar-year corporations is due March 15.
See the instructions for Form 2553 for new corporations.
Due date for 2024 individual, calendar year estates and trusts, and calendar year corporation income tax returns is April 15, 2025.
Remember that an estimated tax payment is also due on April 15.
The first 2025 estimated tax payment for individuals and most other calendar year entities is also due on April 15, 2025. The penalties for late payment of estimated taxes are computed as simple interest, but the interest rate has been increasing. The federal estimated payment can be based on 25% of last year's tax liability. California "front loads" the first estimated tax payment as 30% of last year's tax liability. California taxpayers with taxable income of $1 million or more must make their estimated tax payments based on their actual income and deductions.
Remember the second California real estate tax payment is due April 10.
There is a nasty penalty for paying real estate taxes late, and the date slips past us because we're thinking about April 15. Why not make this payment now, so you don't forget it?
IRS to lay off probationary employees.
The Trump administration has ordered agencies, including the IRS, to lay off nearly all probationary employees who haven't gained civil service protection. About 7,000 workers were terminated. These employees will be terminated during tax season, which could impact taxpayer services.
"Buyout" offer postponed for IRS workers.
IRS workers in Taxpayer Services, Information Technology and Taxpayer Advocate Service units who accepted the White House's Office of Personnel Management's "buyout" offer to resign and continue receiving wages through September 30, 2025 have been told they must stay on the job through May 15, because their work is essential for the tax filing season.
(Accounting Today, February 6, 2025, "IRS employees who took buyout told to stay through May 15.")
President Trump proceeds with tariffs on Canada, Mexico and China.
President Trump has made effective 25% across-the-board tariffs on goods from Canada and Mexico and doubled the tariff on goods from China from 10% to 20% on Tuesday, March 4, 2025. He claims the tariffs are in retaliation for lax drug enforcement resulting in an influx of fentanyl into the United States. The tariffs apply to more than 40% of the value of all goods the U.S. imported last year.
Those nations are responding with retaliatory tariffs, and President Trump says this will lead to even higher tariffs being imposed by the United States.
Tariffs are taxes imposed on importers, not on the country that exports the products. Importers usually pass them onto their customers, American consumers. They can contribute to higher inflation.
President Trump has proposed creating an "External Revenue Service" to administer collecting tariffs. The existing U.S. Customs and Border Protection already collects them.
(CNN, March 4, 2025, "China and Canada immediately retailiate against Trump's tariffs. Mexico is next")
No medical deduction for surrogate IVF and pregnancy.
The IRS has privately ruled that medical expenses for in vitro fertilization (IVF) procedures, gestational surrogacy and related items were not tax deductible medical expenses because the expenses were not incurred for medical care of the taxpayers, but for the surrogate. Medical expenses for sperm donation by the husband may be tax-deductible, subject to itemizing and the adjusted gross income limitation. (PLR-107243-24, released January 31, 2025.)
Did you sell shares received from exercising nonqualified stock options during 2024?
Don't pay tax on the income twice. For employees, ordinary income from exercising a nonqualified stock option should be included on Form W-2 and, for independent contractors, on Form 1099NEC. The tax basis (cost for computing gain or loss) for the shares should be increased for the ordinary income reported for the exercise. The adjustment is reported at column (g) on Form 8949 with code "B" at column (f). When the option is exercised and sold on the same day, the gain or loss should be close to zero on Form 8949.
Remember this AMT adjustment for disqualified dispositions of ISO shares after the year of exercise.
For regular tax reporting, there is a disqualified disposition of shares acquired by exercising an incentive stock option (ISO) when the shares sold within the later of two years after the options were granted or one year after the exercise. Transactions involving ISO shares are reported differently for the alternative minimum tax (AMT). Adjustments for differences between the two systems are reported on Form 6251. For example, ordinary income for exercising vested ISO shares is reported for the year of exercise on Form 6251 on line 2i. Differences in capital gains and losses due to basis adjustments for ordinary income reported for AMT are reported at line 2k.
When there is a disqualified disposition in the year of exercise, there is no AMT adjustment, subject to a wash sale exception. (Internal Revenue Code Section 56(b)(3).) The disposition in the year of exercise takes the transaction out of the AMT.
Since there is no separate line on Form 6251 identified for an adjustment relating to a disqualified disposition after the year of exercise, the adjustment is commonly missed. It should be reported at Form 6251, line 3. The adjustment is a subtraction of the ordinary income reported as a part of wages on line 1 of Form 1040 for the disqualified disposition of the ISO shares for the year of the disqualified disposition. Those wages are a duplication of the ordinary income reported on Form 6251, line 2i for the year of exercise. Making this adjustment should enable the taxpayer to use his or her minimum tax credit to offset the regular tax for the ordinary income on the wages from the disqualified disposition.
The rules for income tax reporting for employee stock options are very confusing. It can be a worthwhile investment to have your income tax returns prepared by a professional income tax return preparer who knows the rules.
Do you sell products, 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@taxtrimmers.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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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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