Michael Gray, CPA's Tax and Business Insight

May 1, 2017

© 2017 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 playing violin
Clive Baker gives a mini violin recital for our family

Happy Mother's Day!

This year, Mother's Day is on Sunday, May 14. Remember to express your appreciation to your mother and the other mothers who have influenced your life.

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Hello! It's time for cleanup and extensions.

It's been a while since we've issued a newsletter. We are coming out of the fog of tax season. Maybe you have an issue for which you would like a second look on the income tax returns you just filed. Maybe you have extended income tax returns that you need to have prepared. Or maybe you have some planning issues for which need advice. To make an appointment, call Dawn Siemer on Mondays, Wednesdays or Fridays from 9 a.m. to 5 p.m. at 408-918-3162.

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Family celebrations.

The family of my daughter and office manager, Dawn Siemer, had a rash of birthdays during April. Dawn, her husband John and daughter Kara all celebrated birthdays. (Thankfully, they were after April 18!) My daughter Holly Baker and her husband Dan are celebrating their wedding anniversary during May. (By the way, springtime is a great time for enjoying a patio dinner at their restaurant, Marché Aux Fleurs in Ross, California!)

Happy birthdays and anniversary!

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Personal property tax statements are due.

The Assessor for Santa Clara County has issued a reminder that May 7, 2017 is the last day that the annual personal property tax statement can be filed online without incurring a late filing penalty.

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Master writer offers training.

John Carlton, who is one of my copywriting mentors, is offering coaching and training materials for learning to write "killer" advertising and sales letters. If you want to learn how to attract a hoard of customers to your business, use this link: https://m190.isrefer.com/go/sws/dgsiemer/.

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President Trump reveals tax proposals.

On April 26, the Trump administration released an outline of its tax proposals for Congress. The proposal includes a steep tax cut for corporations and businesses from 35% (39.6% for individual owners) to 15%. The maximum rate for individuals (other than for business income) would be reduced from 39.6% to 35%, and the 3.8% net investment income tax and the alternative minimum tax would be repealed. The thresholds for the tax rates haven't been specified.

No "border tax" for imports is proposed at this time. Corporations would move from a tax on worldwide taxable income to a "territorial" tax system, which would subject them to U.S. tax only for U.S. income.

On the deductions side, the standard deduction would be doubled to $24,000 for a married couple, and all itemized deductions would be repealed except the deduction for home mortgage interest and charitable contributions. (So with almost all deductions repealed, who needs an alternative minimum tax?)

A side effect of the increased standard deductions and repealing the deduction for real estate taxes is to eliminate the tax benefits of home ownership for almost all Americans except for those in very high cost areas like the San Francisco Bay Area.

With the high standard deduction, most taxpayers won't receive a tax benefit for making charitable contributions.

For many taxpayers who live in states like California, the state income tax deduction is their biggest tax deduction. It would be eliminated under this plan, and they might discover they will pay higher income taxes under these proposed changes.

Although the Trump administration proposes to provide more tax benefits for child care, single parents will probably find that is more than offset by a tax increase from the elimination of head of household status.

Another feature of the proposal is to repeal the federal estate tax, which currently only applies to the very wealthy, since a married couple already has almost an $11 million exclusion. The proposal didn't specify whether the federal gift tax would be repealed or not.

Many details still need to be provided, and the devil is in the details. The bare bones of this proposal would result in a huge tax windfall for the wealthy and tax deficits for the nation.

These proposals are only the beginning of a huge negotiation battle in Congress. Let your representatives in Congress know the changes that you favor and the changes you oppose. Here is a web site with contact information. https://www.usa.gov/elected-officials

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Trump calls tax regulations into question.

President Trump has signed an Executive Order, "Identifying and Reducing Tax Regulator Burdens." The Treasury Department (IRS) has been told to reevaluate all significant tax regulations issued on or after January 1, 2016. Any regulation that doesn't comply with specified policy standards regarding "undue compliance costs, complexity or overreaching of the IRS's authority" should be "revised or eliminated."

President Trump seems to be determined to reverse almost everything that was done during the last year of President Obama's term of office.

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Due date automatically extended for foreign account report.

The due date for FinCEN Form 114, Report of Foreign Bank and Financial Accounts, was recently changed to April 15. According to the instructions for Form 114, FinCEN (which administers these compliance rules) has automatically granted an extension of time to file Form 114 to October 15 each year. A specific request for an extension isn't required.

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For our readers who are CPAs.

I'm developing an initiative just for CPAs in public practice and need your contact information. Please send an email to mgray@taxtrimmers.com or call Dawn Siemer on Mondays, Wednesdays or Fridays at 408-918-3162. Just say "I'm a CPA in public accounting who reads your newsletter" and give your name, address, telephone number and email address. Thanks!

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No S corporation basis for loan guarantee.

A taxpayer was a 50% shareholder in an S corporation that was a real estate developer. The taxpayer guaranteed the S corporation's loan with a bank. When the Florida real estate market collapsed, the S corporation defaulted on its loan. The bank received judgements against the guarantors of the loans, but the taxpayer refused to pay the bank.

The taxpayer claimed tax basis (investment supporting a loss deduction) in the S corporation for the bank's judgement and used that basis to justify deducting S corporation losses and a net operating loss carryback.

The Tax Court upheld the IRS in finding the guarantee and judgements weren't enough for the taxpayer to receive additional tax basis. The taxpayer had to honor the guarantee and judgements by paying them.

(If the taxpayer had borrowed the funds directly from the bank and invested them directly in the S corporation, the tax basis would have been allowed.)

(Phillips v. Commissioner, T.C. Memo. 2017-061, April 10, 2017.)

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Trump budget blueprint cuts IRS funding.

President Trump has submitted a budget blueprint to Congress for the fiscal year ending in 2018. The proposal includes cutting the budget for the IRS by $239 million. The IRS's budget has been decreased every year since fiscal year ending 2010.

This is like trying to run a growing company while reducing staffing for accounts receivable (collections). It makes no sense.

Tax cheats are getting off free because the IRS can't administer the tax laws.

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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 visitAngiesList.com/Review/4258970 in order to grade our quality of work and customer service.

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Financial Insider Weekly broadcast schedule for May and June.

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 May and June:

May 5 and 12, Paul Duren, Bridge Bank, "Small business financing"
May 19 and 26, Jeffrey Hare, attorney at law, "Alternative dispute resolution"
June 2 and 9, Michael Jones, CPA, Thompson Jones, LLP, "Beneficiary designations for retirement accounts"
June 16, Peggy Martin, CLU, ChFC, The Family Wealth Consulting Group, "Long-term care insurance"
June 23 and 30, Peggy Martin, CLU, ChFC, The Family Wealth Consulting Group, "Life insurance basics"

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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