Michael Gray, CPA's Tax and Business Insight

May 3, 2018

© 2018 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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Dawn and John Siemer at Buca di Beppo
Dawn Siemer celebrates her April birthday with her husband, John Siemer, at Buca di Beppo

Happy Mothers' Day!

Mothers' Day will be celebrated on Sunday, May 13 this year. Remember to express your appreciation to your mother and other mothers who have contributed to your life.

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Happy Memorial Day!

Memorial Day will be celebrated on Monday, May 28 this year. Memorial Day is the unofficial beginning of summer. Break out the griller and enjoy the day while honoring those who died defending our country.

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Family celebration.

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 anniversary!

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It's time for cleanup and extensions.

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 Thi Nguyen, CPA at 408-286-7400, extension 206.

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Have you checked out Jay Abraham's outstanding FREE resources?

Jay Abraham is a highly respected marketing and business consultant who I study regularly. He has highly imaginative tactics and business success insights. He offers both written and video material that is available FREE at www.Abraham.com/50shades. Two of my favorite "shades" are the first two on "The Maven Matrix" and "Preeminence." If you haven't done so already, I highly recommend that you check out his "50 Shades" web site and join Jay's email list at the very bottom or at the introduction for each Shade. No opt in is required to access the material on the "50 Shades" web site.

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Certain California sales taxes must be separately reported.

The California Department of Tax and Fee Administration has announced that sales made at a California state-designated fairground must be separately stated on the California sales and use tax return, effective July 1, 2018. The separately stated amount is used for funding allocation purposes only, and no additional tax or fee is due for these sales.

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Distributed "tip jar" amounts are taxable wages.

The IRS Chief Counsel has issued advice that amounts distributed to individuals from a "tip box" (or tip jar) are taxable wages, subject to FICA (employment) taxes. In this case, the employer/taxpayer didn't pay wages to the individuals and treated them as volunteers. The individuals decided how to divide the tips and the employer/taxpayer had no system for tracing them. The tips are subject to the employer share of FICA tax when the IRS issues a notice and demand under Internal Revenue Code Section 3121(q).

If the employees reported the amounts of the tips to the employer, it would be deemed to be paid at the time the report was received.

(We recommend that systems should be in place for reporting employee tips to avoid disputes with the IRS.)

(CCA 201816010, December 4, 2017.)

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IRS adjusts 2018 HSA limitation.

In response to complaints about the administrative burden of a proposed $50 reduction in the limitation for individuals with family coverage to a health savings account (HAS), the IRS has changed the limitation back to $6,900, which was the amount announced in Revenue Procedure 2017-37 on May 4, 2017.

(Revenue Procedure 2018-27, April 26, 2018.)

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Nonconformity means California reporting headaches for Section 529 tuition plans.

California has not conformed to changes in the federal tax laws relating to Section 529 tuition plans, and is unlikely to conform. Therefore, distributions to cover up to $10,000 of a child's annual tuition expenses for an elementary or secondary public, private or religious school are not tax exempt for California tax reporting and might include taxable income.

California also hasn't conformed to repealing the tax deduction subject to a 2% of adjusted gross income floor for tax years beginning after 2017 and before 2026. That means you might be able to deduct a loss for a fully liquidated Section 529 account on a California income tax return, but not on a federal income tax return.

(Spidell's California Taxletter®, p. 3, "California doesn't conform to IRC § 529 tax reform changes May, 2018)

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Son defrauded parents relating to payroll tax liability.

An individual who managed a business owned by his parents fraudulently failed to disclose to them an unpaid $1 million unpaid liability for payroll taxes. That individual bought the company from his parents, but didn't disclose the payroll tax liability would remain with his parents.

The Fifth Circuit Court of Appeals ruled that this failure to disclose constituted fraud.

(Jeffrey Bailey, Rig-Up Services LLC v Shirley Bailey & Roger Bailey, Bailey Consulting, LLC, Rig-Up Electrical Services, Incorporated, U.S. Court of Appeals, Fifth Circuit, No. 14-20014.)

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Individual mandate payment is not a tax for bankruptcy.

A bankruptcy court has ruled the penalty for failure to get adequate health insurance is not a tax for bankruptcy, so it is a general unsecured claim, not qualifying for a liability preference and potentially dischargeable.

(Parrish, Bankruptcy Court, E..D., N.C.)

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Auto dealership manager could deduct vehicle expenses.

The Tax Court overruled the IRS and allowed a manager at an auto dealership to deduct vehicle expenses from traveling to and from auto auctions as employee business expenses. NOTE -- miscellaneous tax deductions for employee business expenses have been repealed for tax years beginning after 2018 and ending before 2026 by the Tax Cuts and Jobs Act of 2017. For the best tax results, employers should reimburse these expenses under an accountable plan. Then the employer can claim a business expense deduction for these expenses.

(Rademacher v. Commissioner, T.C. Memo. 2018-43, February 21, 2018.)

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IC DISC with Roth IRA OK'd.

The First Circuit Court of Appeals reversed the Tax Court and found that $1.4 million in dividend distributions from a domestic international sales corporation (DISC) to two Roth IRAs were not excess contributions subject to excise tax. The Court said that DISC distributions to IRA were permitted and consistent with the intent of Congress.

(Benenson v. Commissioner, First Circuit Court of Appeals, 2018.)

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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 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 are now on our home page at www.financialinsiderweekly.com.

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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
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