Michael Gray, CPA's Tax and Business Insight

April 6, 2021

© 2021 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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Bird of Paradise flower
Our Bird of Paradise is blooming!

Finally! Kids return to school.

After remote learning for a year, kids are returning to school. The rate at which they return and the times and days are varying by community and whether the school is public or private. From what I have seen and heard (mostly from my own grandchildren), most of the children are excited to return to school and be with classmates. Remember these kids have been mostly staying indoors the past year, so their safety habits might not be the best. Please be extra careful when driving around them.

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Family celebrations.

April is a big birthday month for my family. My daughter and office manager, Dawn Siemer, her husband John and her daughter, Kara, all have April birthdays! Allen Le, Thi Nguyen's husband, is also celebrating his birthday this month. Happy Birthdays!

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Due date for 2020 calendar year estates and trusts, and calendar year corporation income tax returns is April 15, 2021.

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Due date of 2020 individual income tax returns has been changed to May 17, 2021.

The IRS has announced the due date for individual income tax returns only has been changed to May 17, 2021. The California Franchise Tax Board has agreed to conform to this change. Check with your tax return preparer or your state's tax web site about the status of your state. The due date for estimated tax hasn't changed. This might create an issue for taxpayers who apply their overpayment from their 2020 income tax returns to estimated tax for 2021. See below.

The American Institute of Certified Public Accountants and other groups are still trying to persuade the IRS and Congress to further extend the due date for all 2020 calendar year income tax returns and the initial estimated tax payment due date to June 15, 2021. Watch for a last-minute announcement.

(IR-2021-59, Notice 2021-21.)

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Remember that an estimated tax payment is still due on April 15.

The first 2021 estimated tax payment for individuals and most other calendar year entities is still due on April 15, 2021. The penalties for late payment of estimated taxes are computed as simple interest. 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.

(For individuals with adjusted gross income exceeding $150,000 or $75,000 for married persons filing a separate income tax return, the prior-year exception is 110% of last year's tax liability.)

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Remember the second California real estate tax payment is due April 12.

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?

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Cutoff for preparing tax returns will soon be here!

If you provide complete information for preparing your 2020 income tax returns by April 15, your tax returns should be finished in time to file them by May 17. Otherwise, an extension form should be submitted with a payment of any estimated balance of tax by May 15. If you are self-employed, it's likely you will need to submit an extension form.

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Make your tax return preparation interview appointment now.

There is still time for a few personal interview appointments for preparing 2020 individual income tax returns. Many clients send their information without having an interview, but if you need that personal attention, you should schedule your interview appointment now. Interviews are done remotely by video conference. Contact Ms. Thi Nguyen, CPA at thi@atl-cpa.com.

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American Rescue Plan of 2021 enacted.

President Biden approved the American Rescue Plan of 2021 on March 11, 2021. The plan includes another Economic Impact Payment, which many of you should have already received. The income threshold for phaseout of the Economic Impact Payment is lower than it was for the first two payments, and is based on the later filed of the taxpayer's 2019 and 2020 federal income tax returns that the IRS has received. For details about the third Economic Impact Payment, see the IRS explanation at FS-2021-04. You can check the status of your third Economic Impact Payment here. https://www.irs.gov/coronavirus/get-my-payment

The new law also includes an exclusion for state unemployment compensation for 2020. If you already filed an income tax return without claiming the exclusion, the IRS says no amended return is required. They'll fix it for you. (IR 2021-71.)

There are many tax provisions, including extension of CARES Act tax breaks, included in the Act. Most of them are effective for 2021. They are beyond the scope of this newsletter.

(Public Law 117-2, H.R. 1319.)

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Michael Gray explains highlights of tax provisions of the American Rescue Plan of 2021.

I will be presenting a lunchtime video conference for the Silicon Valley, San Jose chapter of CalCPA on April 27, 2021. You don't have to be a member to attend. The event is free for CalCPA members and $5 for nonmembers. You can get details and register online here. https://tinyurl.com/rescuetax

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Should married persons who received unemployment compensation file separate income tax returns for 2020?

It appears the $150,000 income threshold to phase out the federal exclusion of up to $10,200 of unemployment compensation applies to each separate spouse's income tax return instead of one $150,000 income threshold for a joint income tax return. There are also disadvantages for filing married, filing separate income tax returns. See your tax advisor. If you already filed your federal income tax return, this might be one situation where you should file superseding income tax returns by May 17, 2021. Taxpayers who file a joint return before the original due date can't change their filing status to married filing separate returns after the due date. Note taxpayers must use the same filing status for California as they do on their federal income tax returns.

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Deadline extended to apply for a Paycheck Protection Program loan.

President Biden approved the PPP Extension Act of 2021, which extends the due date to submit a Paycheck Protection Program loan from March 31, 201 to May 31, 2021. The Act also extends the date for the Small Business Administration to process PPP loans to June 30, 2021.

(P.L. 117-6.)

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California conformity for how forgiven Paycheck Protection Program loans are reported is on hold.

Legislation, AB 80, was introduced in California for partial conformity to a federal tax law change allowing a federal income tax deduction for expenses paid using funds from a Paycheck Protection Program loan that was forgiven. California has requested guidance from the U.S. Treasury about whether California can enact AB 80 without losing federal relief payments to the state.

For now, the Franchise Tax Board is telling taxpayers to make tax payments assuming the legislation won't be enacted. In most cases, I would recommend that the taxpayer should follow the procedure for extending the due date and wait to file the income tax return until this issue is resolved (not later than the extended due date).

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Have significant assets? Consider making big gifts this year.

Tax reform proposals are being introduced in Congress that would impose significant taxes on family transfers. The step-up in basis at death could be repealed. A gift could be treated as a taxable sale. The estate tax exemption could be dramatically scaled back. Minority interest discounts for transfers to family members could be repealed. These are trial balloons that will be argued about in Congress and might not be enacted, but it seems likely some estate and gift reform will happen this year. Why not take advantage of the generous exclusion that's currently available? Be sure to meet with your estate planning attorney and your tax advisor before taking action. The effective date for any change is a big question mark.

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IRS issues guidance on Employee Retention Credit.

The Employee Retention Credit is a significant benefit to help businesses impacted by the COVID-19 pandemic. The credit is claimed on an employer's payroll tax returns. The deduction for wages on a business income tax return is reduced for the credit. Wages paid using funds from a Paycheck Protection Program loan aren't eligible for the credit. The Consolidated Appropriations Act, 2021 includes a provision allowing employers who receive a Paycheck Protection Program loan to claim the Employee Retention Credit, which was previously prohibited. The IRS has issued guidance for computing and applying for the credit. Notice 2021-20 explains the credit for wages paid after March 12, 2020 to December 31, 2020. Notice 2021-23 is an explanation of the credit for wages paid during the first two quarters of 2021. See your tax advisor or the Notices for details. You might need to file an amended federal payroll tax return to claim the credit for 2020.

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Received Form 1099-G for fraudulently-claimed unemployment compensation? Tell the EDD.

If you received Form 1099-G for California unemployment compensation that you didn't actually receive due to fraud, you should notify the California Employment Development Department (EDD) so that a corrected Form 1099-G can be issued. Use this link. https://askedd.edd.ca.gov/ReportFraud.aspx

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Are Federal Rental Assistance payments taxable?

The IRS has published FAQs on its website about the taxation of emergency rental assistance payments received under the Consolidated Appropriations Act, 2021. According to the FAQs, payments received by a renter are not taxable and payments received by a landlord a public utility are taxable.

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IRA distribution after 401(k) rollover was subject to 10% early distribution penalty.

A taxpayer rolled his 401(k) account to an IRA when he retired at age 55. If he received a distribution directly from the 401(k) plan, the distribution wouldn't have been subject to the 10% early distribution penalty. Instead, he took a distribution from his IRA after the rollover and claimed the 10% early distribution penalty shouldn't apply. The Tax Court upheld the IRS in finding the penalty did apply, since the distribution was from an IRA, not a 401(k) plan, and different penalty rules apply.

(Catania v. Commissioner, TC Memo 2021-33, March 15, 2021.)

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California Office of Tax Appeals accepts Franchise Tax Board's computation to allocate RSU income.

A taxpayer received restricted stock units (RSUs) while employed by Facebook. Initially, in 2007, the taxpayer worked in California and, starting in 2010, had overseas assignments for Facebook.

Ordinary income is reported as RSUs vest.

The taxpayer claimed income allocated to California for RSUs that vested during 2012 should be limited to $7.27 per share, the fair market value for the shares when he started working out of state in 2010.

The Office of Tax Appeals upheld the Franchise Tax Board in allocating income to California based on the fair market value on the vesting date, $28,00 per share, times a ratio of the total days worked in California to total working days for the period the taxpayer held the RSUs.

(Appeal of Prince, 2021-OTA-088, January 5, 2021.)

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Income from a California client wasn't taxable in California.

A taxpayer provided consulting services to a federally-funded UCLA program from her home in New York. The program issued Form 1099-MISC for the services provided. The Franchise Tax Board claimed that, since the customer was located in California, the income should be taxable in California.

The California Office of Tax Appeals ruled against the Franchise Tax Board and in favor of the taxpayer. The work that she did involved supervising and coordinating the development of consortium studies located in Africa and Latin America from her New York residence and visiting the sites in Africa and Latin America.

She also worked with consortium staff located in Maryland from her New York residence.

The Office of Tax Appeals found the benefit of the taxpayer's services was received in Africa, Latin America, and Maryland, not California.

(Appeal of Krown, 2021-OTA-078, November 23, 2020.)

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Want help with your promotions, web pages, newsletters, blog posts, emails or books?

Michael Gray is available for promotional and content writing assignments, including chatbots. Want more information? Call Michael Gray weekdays at 408-918-3161.

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Do you love Disney?

I have created a Facebook group, called Disney Magic, for members to share Disney photos, experiences and tips. I am also posting developments for Disney films, television shows, and amusement parks there. If you are on Facebook, you can use this URL to join: https://www.facebook.com/groups/2006739209578437/, or search "Groups" on Facebook. You have to use the "join" button to join the group. This is a private group, and I will approve your membership.

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Attention Accountants! Speed up processing your 2020 business closings!

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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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.

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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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P.S.

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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