Michael Gray, CPA's Tax and Business Insight

August 6, 2020

© 2020 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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Elkhorn Slough
Janet Gray and granddaughter Kara Siemer paddle by a group of sea otters at Elkhorn Slough

School Days, School Days, dear old Golden Rule days...

It's hard to believe, but summer vacation is almost over and most children will be be back in school by the end of August! This will be a different "back to school" experience with most students in California remote learning due to the Coronavirus pandemic. (Yuck!)

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Family celebrations.

August is a month with many celebrations for my family.

Minerva Siemer, who is Dawn's daughter and my granddaughter, is celebrating her birthday this month. My sister-in-law, Gail Johnston, is also celebrating a birthday.


Janet and I are celebrating our 49th wedding anniversary during August. We consider ourselves blessed in sticking together through good times and bad times - mostly good.

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It's time for cleanup and extensions.

Maybe you have an issue for which you would like a second look at 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 you need advice. To make an appointment, call Thi Nguyen, CPA at 408-286-7400, extension 206 or send an email to thi@koehlercpa.com.

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Check out this great podcast interview!

My daughter, Holly Baker, was interviewed for a Magnetic Marketing podcast about how Marché Aux Fleurs restaurant adapted for the coronavirus pandemic. Check it out! https://forbesbooksradio.com/episodes/mmp-08-holly-baker/

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Due date to "undo" 2020 IRA required minimum distributions is August 31, 2020.

Normally distributions from IRAs that are required minimum distributions aren't eligible to be rolled over. Required minimum distributions are amounts that are required to be distributed that are based on the life expectancy of the account owner once the account owner reaches age 70 1/2 or usually based on the initial beneficiary's life expectancy for an inherited IRA account.

As a relief measure, the CARES Act suspended required minimum distributions for 2020. The reason was the value of many IRAs had fallen and distributions would deplete the value of the account. The CARES Act was passed on March 27, 2020, so many IRA owners and beneficiaries had already taken distributions.

In addition to the prohibition from rolling over required minimum distributions, there are two other restrictions blocking potential rollovers of the distributions: (1) Beneficiaries of inherited IRAs are prohibited from making rollovers and (2) Taxpayers are limited to one IRA rollover for a 12-month period.

The IRS provided additional relief from these requirements in Notice 2020-51. The IRS designates restoration of 2020 IRA required minimum distributions as "repayments." As repayments, the restoration of the funds to an IRA is not a rollover. Since they are not rollovers, beneficiaries of inherited IRAs are permitted to make restorations and the limitation to one IRA rollover for a 12-month period doesn't apply.

In order to qualify for this relief, a restoration must be completed by August 31, 2020.

If the deadline is missed, the only way to restore the funds will be as a rollover, subject to the once in a 12-month period limit and not available for inherited IRA accounts.

If you have a question about this matter, consult your tax advisor.

(Notice 2020-51, June 23, 2020.)

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Final regulations issued for business interest deduction limit.

The Tax Cuts and Jobs Act of 2017 included a provision limiting the deduction for business interest expenses for taxpayers with adjusted taxable income of more than $25 million and for certain defined "tax shelters" to 30% of adjusted taxable income. The limitation is effective for taxable years beginning after December 31, 2017. As a relief measure, the CARES Act of 2020 increased the limitation to 50% of adjusted taxable income for tax years beginning in 2019 or 2020.

The IRS has issued final regulations for computing the limitation. The regulations are generally effective 60 days after the date of publication in the Federal Register, and taxpayers may elect to apply them for tax years beginning after December 31, 2017.

My printout of the final regulations is 575 pages, so I'm not going to discuss them in detail.

In some cases, taxpayers may elect whether to use the proposed regulations or the final regulations.

Since many 2019 business income tax returns haven't been filed yet, tax return preparers should study the proposed and final regulations to determine which are most advantageous for their clients.

2018 and 2019 income tax returns may also be amended to incorporate changes in the final regulations.

The IRS has also issued proposed reliance regulations covering additional matters relating to the business interest deduction limit.

(TD 9905 and Prop. REG-10792-18, issued July 28, 2020.)

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Proposed regulations issued for small business accounting tax breaks.

The IRS has issued proposed reliance regulations to implement small business accounting tax breaks enacted in the Tax Cuts and Jobs Act of 2017. The breaks liberalize tax accounting for businesses with average annual gross receipts of up to $25 million.

Although the proposed regulations won't be effective until they are published as final regulations, taxpayer may rely on them for tax years beginning after December 31, 2017.

(Proposed Regulations REG-132766-18.)

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September 15 due dates.

The due date for extended income tax returns for calendar-year partnerships and S corporations is September 15.

Third quarter Federal estimated tax payments for individuals are also due September 15. There is no California estimated tax payment due September 15 because estimated payments for April and June are "front loaded."

The federal estimated tax payment can be based on the income tax reported on the 2019 federal income tax return. If the 2019 federal adjusted gross income was more than $150,000 (or $75,000 if married filing separately), the payment can be based on 110% of the income tax on the 2019 federal income tax return. Alternatively, the payment can be based on 90% of the actual tax for 2019.

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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. www.eztrialbalance.com.

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Attention business owners with remote workers or remote customers!

Are you concerned about protecting your conversations and communications from hackers? Now there is a secure collaboration application including team member assignments, video conferencing (no Zoom bombing!), text messaging, voice messaging, PDF capture and large file transfer. Electronic signature and remote computer access features are almost complete. Communications take place in a secure envelope. It's a cloud application so no installation is required on your computer network. Meets IRS security standards. www.securelycollaborate.com.

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Required copy of Form 3115 may be faxed.

The IRS has provided temporary procedures on its website allowing taxpayers to fax the required copy of Form 3115, Applications for Change in Accounting Method, when making an accounting method change using the automatic consent procedures.

The original Form 3115 is attached to the timely filed federal income tax return for the year of change and a copy of the signed Form 3115 is required to be sent to the IRS no earlier than the first day of the year of change and no later than the date the original is submitted with the taxpayer's federal income tax return for the year of change.

Effective July 31, 2020, the IRS copy may be faxed to 844-249-8134 instead of mailing the form.

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IRS resumes processing paper payroll tax reports.

The IRS closed its return processing centers during March 2020 in response to the COVID-19 pandemic. It has announced it has resumed processing paper-filed payroll tax returns, including:

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IRS extends accepting digital signatures and emailed documents.

The IRS has extending accepting digital signatures and emailed documents through December 31, 2020. Acceptances were previously scheduled to expire on July 31, 2020.

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Combining California tax payments can result in required electronic payments.

When a taxpayer makes a California tax payment exceeding $20,000, he or she is required to make all future California payments electronically. Taxpayers who combined their California tax payments due July 15, 2020 and the total amount was more than $20,000 will find they have an unexpected consequence. If they made separate estimated tax payments of less than $20,000 each on that date (and they weren't previously subject to the requirement), they shouldn't "trip" this "tax trap." Taxpayers may request a waiver of the mandatory electronic payment requirement by completing FTB Form 4107.

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Check my blog for coronavirus-related tax developments.

We have been sending most of my blog posts relating to coronavirus-related tax developments to you. You can find them at www.michaelgraycpa.com. Congress is negotiating another COVID-19 relief bill, so watch for more developments. California has pending tax increase legislation. It's uncertain whether it will be passed.

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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 visit AngiesList.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 available at https://www.youtube.com/user/financialinsiderweek.

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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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