Michael Gray, CPA's Tax and Business Insight

October 13, 2015

© 2015 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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Clive Baker decorates a pumpkin.
Clive Baker decorates his first pumpkin for this season.

Happy Halloween!

Halloween will soon be here. October 31 falls on a Saturday this year, which will make trick or treating a great weekend activity and make Halloween parties more convenient to schedule.

Halloween is the second most popular holiday in the United States and makes a great theme for business promotions. It's interesting to note that it isn't widely celebrated in other countries, although American expatriates are exporting the holiday.

Please have a safe holiday and exercise restraint with your "tricks!"

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It's time for year-end planning

Halloween is the "unofficial" beginning of the holiday season. The year is three-quarters over! Schedule your year-end appointment now. With vacation and celebrating holidays, the times for appointments will be very limited. Call Dawn Siemer at 408-918-3162 on Mondays, Tuesdays or Thursdays to reserve your appointment now.

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Family celebrations.

My wife, Janet Gray, is celebrating her birthday this month. Our family treasures Janet as a terrific wife, mother and grandmother. Happy birthday, Janet!

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October 15 is the final due date for 2014 individual income tax returns.

Remember October 15 is the final due date for extended individual income tax returns. If your tax return preparer doesn't have your information by now, you will probably have to file your tax returns late. There generally is no penalty for late filing provided you don't owe any income taxes and you don't procrastinate much longer.

It's still possible to set up a Simplified Employee Pension (SEP) account and make a retirement plan contribution for 2014. See your tax advisor for details.

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Half-price introductory offer for two new books by Michael Gray.

We are issuing 2015 updates for two books, Employee Stock Options - Executive Tax Planning and How to use Roth and IRA accounts to build a secure retirement. We expect to be able to ship the books by mid-November 2015.

You can buy the books for half price - $14.99 plus $5 shipping and handling and $1.75 California sales tax for California residents. This offer expires November 30, 2015.

To reserve your copy, call Dawn Siemer at 408-918-3162 on Monday, Tuesday or Thursday or fax the reservation forms to 408-998-2766. For Employee Stock Options - Executive Tax Planning, 2015 Edition, visit www.siliconvalleypublishingcompany.com/products/employee-stock-options-executive-tax-planning-2012-edition. For How to Use Roth & IRA Accounts To Provide A Secure Retirement, 2015 Edition, visit www.siliconvalleypublishingcompany.com/products/how-to-use-roth-and-ira-accounts-to-provide-a-secure-retirement.

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CEO's compensation had to be capitalized.

The Fifth Circuit Court of Appeals upheld the Tax Court and the IRS in requiring that compensation to employees, including $1,318,000 paid to the CEO, had to be capitalized as indirect production costs of a home builder.

The CEO didn't keep records of his time to substantiate that his activities didn't relate to the production of homes.

The Court of Appeals directed that this case shouldn't be published or cited as authority, but it is an indication that the IRS could be more aggressive in requiring capitalization of indirect costs under the uniform capitalization rule.

(Frontier Custom Builders, 2015-2 U.S.T.C. 50,485, September 16, 2015.)

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IRS published simplified business expense amounts.

The IRS has published per diem rates for taxpayers to use when substantiating ordinary and necessary business expenses when they are travelling away from home, effective for travel after September 30, 2015.

The meals and incidental rate for taxpayers in the transportation industry is $65 per day within the continental United States and $68 for travel outside the continental United States.

The rate for incidental expenses, such as fees and tips for porters, baggage carriers, bellhops, hotel maids, stewards or stewardesses and others on ships is $5 per day. (Cheapskates!)

The daily allowance for meals and lodging is $275 for travel to a high-cost locality (includes San Francisco and San Jose), and $185 for travel to any other location in the continental United States. The amount for meals and incidental expenses included in the allowance is $68 for high-cost localities and $57 for low-cost localities.

Higher expenses can be substantiated with actual documentation.

(Notice 2015-63, September 16, 2015.)

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Out of state businesses - California Franchise Tax Board wants their $800!

In their monthly newsletter, the California Franchise Tax Board published a reminder that, although Federal Public Law 86-272 protects out-of-state business entities from being taxed by California from taxes measured by income when the sole in-state activities are limited to the solicitation of orders for goods, businesses are still subject to taxes not measured by income, including the $800 minimum tax for corporations, limited partnerships and limited liability companies.

The example is an out of state corporation that sells $1,000,000 of goods to California buyers over the internet, but has no property or payroll in California. The corporation is doing business in California, should file a California tax return and pay the $800 minimum corporate franchise tax.

("Public Law 86-272: Let's Be Clear", Tax News, October, 2015, p. 7.)

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California extension of cancellation of debt exclusion vetoed.

Governor Brown vetoed AB 99 (Perea), which would have extended California's partial conformity to the Federal exclusion of cancellation of indebtedness income relating to a principal residence through December 31, 2014. California taxpayers who had cancellation of indebtedness for their principal residence, usually from a short sale or foreclosure, must rely on other exceptions such as for insolvency or nonrecourse debt. Otherwise, the income is probably taxable on your California income tax return. See my article "Tax Consequences of a Short Sales of Real Estate vs. Foreclosure" at realestateinvestingtax.com/shortsale.shtml.

(Spidell's Flash Email, October 10, 2015.)

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Governor Brown signs California conformity bill.

Governor Brown has signed legislation (AB 154) to conform certain California tax laws with federal tax laws. A popular provision excludes cell phones from listed property. The new legislation left California's threshold for medical deductions for individuals at 7.5% of AGI and didn't adopt the federal 10% threshold.

(Spidell's Flash E-mail, September 30, 2015.)

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California enacts relief for disaster victims.

In the past, California hasn't conformed to federal rules (Internal Revenue Code Section 165(i)) allowing taxpayers who suffer disaster losses to carry them back and recover previously-paid taxes when only the Governor, but not the President has declared the disaster.

Effective for tax years beginning on or after January 1, 2014 and before January 1, 2024, California has enacted new legislation allowing a loss to be carried back when only the Governor has declared a state of emergency. The election is available when either the President of the United States or the Governor of California declares a state of emergency for a city or county in California.

A taxpayer may be able to claim the loss for the current year (of the disaster), throwback to the immediate prior year, and, if a net operating loss is created, to an additional two years of carryback of the net operating loss. Any remaining net operating loss can be carried forward.

Note that on January 17, 2014, Governor Brown declared a state of emergency in California due to the drought. Since the state of emergency didn't relate to a city or county, the disaster loss throwback treatment isn't available.

("Disaster loss deductions in California just got better", Spidell's California Taxletter, October 1, 2015.)

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Does your group need a speaker?

We are seeking opportunities to speak before groups. Topics include recent tax developments, tax issues relating to real estate, how estate planning has changed recently, tax issues relating to alternative investments using retirement accounts, and marketing topics such as "How I created a public access television show broadcast on eleven Bay Area stations." To make arrangements, call Michael Gray at 408-918-3161.

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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, siliconvalley.citysearch.com, and Google+.

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Financial Insider Weekly broadcast schedule for October and November.

Financial Insider Weekly is broadcast in San Jose and Campbell on Fridays at 9:30 p.m., Pacific Time. You can watch it on Comcast channel 15 for San Jose and Campbell. The show is broadcast as streaming video at the same time at www.creatvsj.org.

Here are the scheduled interviews for October and November:

October 16 and 23, 2015, Paul Duren, Heritage Bank, "Small business financing"
October 30 and November 6, 2015, Professor Patricia Cain, Santa Clara University School of Law, "Tax concerns of same-sex couples and unmarried couples"
November 13 and November 20, 2015, Dick Blakeley, CEO, The Blakeley Group, "Family Wealth Education"
November 27, 2015, Lisa Barr, Silicon Valley Community Foundation, "How to promote community giving as a family value"

Financial Insider Weekly is also broadcast as follows:

Past episodes are available at https://www.youtube.com/user/financialinsiderweek.

Let me know any ideas that you have for topics or guests. Guests will usually have to be located in or near the Silicon Valley in California.

Hope you can watch or record the show. Please tell your friends about it!

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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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