Michael Gray, CPA's Tax and Business Insight
September 7, 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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Table of Contents
- Happy autumn!
- Family celebrations.
- September 15 due dates.
- Trusts and estate tax returns due September 30.
- Individual and C corporation tax returns due October 15.
- Extension for Hurricane Ida victims.
- Extension for California wildfire victims.
- Some business owners can still set up retirement plans for 2020.
- Temporary guidance for California passthrough entity tax.
- Check your 2021 withholding.
- Need help with getting your extended tax returns, amended returns, and elections done?
- IRS received your document after a deadline and no postmark?
- No tax deduction allowed when searching for new business opportunities.
- Author's income was subject to self-employment tax.
- Additional automobiles are eligible for the plug-in electric drive motor vehicle credit.
- Did you receive an IRS tax assessment after filing a Tax Court petition?
- Do you sell services or software to CPAs?
- Do you love Disney?
- Attention Accountants! Speed up processing your 2020 business closings!
- Attention business owners with remote workers or remote customers!
- Check my blog for coronavirus-related tax developments.
- Please share your good experiences with Michael Gray, CPA.
- Financial Insider Weekly past episodes.
- Visit our new book review: Renegade Millionaire
- Follow me on social media!
- Check out my blogs.
- PS Marché Aux Fleurs
- Subscribe/Remove from Michael Gray, CPA's Tax & Business Insight
Janet and me at the Flow Restaurant in Mendocino. We returned to the Heritage House, located near Mendocino, to celebrate our 50th wedding anniversary. Heritage House was our honeymoon place when we were newlyweds. Happy autumn!
Summer ends and autumn begins on September 22. The year is 2/3 over! Are you ready for the year end?
Family celebrations.
My daughter, Holly Baker and her son, Kyan, are both celebrating birthdays during September. Happy birthdays! Thi Nguyen and her husband, Allen Le, are celebrating their wedding anniversary during September. Happy Anniversary!
September 15 due dates.
The due date for extended income tax returns for calendar-year partnerships and S corporations is September 15.
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 2020 federal income tax return. If the 2020 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 2020 federal income tax return. Alternatively, the payment can be based on 90% of the actual tax for 2021. Although the tax payment is 25% of the annual tax liability, the computations can be made using income and deductions through August 31. (The computations have become so complex that I recommend using the "protected estimate" based on 2020 tax approach.)
Individuals with California adjusted gross income for the current year that is equal to or exceeding $1 million ($500,000 for married persons or registered domestic partners filing a separate return) must figure their California estimated tax based on their current year tax and aren't eligible for estimated tax payments based on their 2020 income tax.
If you aren't making your payments based on your 2020 income tax, you might want to get professional help with your estimated tax payments this year.
Trusts and estate tax returns due September 30.
The due date for 2020 calendar-year trusts and estates for which timely extensions were filed is September 30, 2021.
Individual and C corporation tax returns due October 15.
The due date for 2020 individuals and calendar year corporations for which timely extensions were filed is October 15, 2021.
Extension for Hurricane Ida victims.
The IRS has announced that victims of Hurricane Ida now have until January 3, 2022 to file various individual and business tax returns and make payments. The relief applies to residents of Louisiana. Residents of Ida-impacted localities designated by the Federal Emergency Management Agency (FEMA) in neighboring states will be eligible for the same relief. Here's a link to the IRS's disaster relief web page. https://www.irs.gov/newsroom/tax-relief-in-disaster-situations
The relief postpones tax filing and payment deadlines that occurred starting August 26, 2021. This means tax returns and payments (including estimated tax payments) that would have been due on September 15, 2021, September 30, 2021 and October 15, 2021 won't be due until January 3, 2022. (Tax payments for 2020 individual income tax returns were due May 17, 2021, so those payments aren't eligible for this relief.)
(IR-2021-175, August 31, 2021.)
Extension for California wildfire victims.
The IRS has announced that victims of wildfires that began July 14, 2021 now have until November 15, 2021 to file various individual and business tax returns and make payments. The relief applies to taxpayers affected by wildfires who reside or have businesses in Lassen, Nevada, Placer and Plumas counties.
The relief postpones tax filing and payment deadlines that occurred starting July 14, 2021. This means tax returns and payments that would have been due on September 15, 2021, September 30, 2021 and October 15, 2021 won't be due until November 15, 2021. (Tax payments for 2020 individual income tax returns were due May 17, 2021, so those payments aren't eligible for this relief.)
Penalties on deposits due on or after July 14, 2021 and before July 29, 2021 will be abated provided the tax deposits were made by July 29, 2021.
Estimated income tax payments due on or after July 14, 2021 and before November 15, 2021 won't be subject to penalties for late payment of estimated tax provided the payments are made on or before November 15, 2021.
(CA-2021-03, August 27, 2021.)
Some business owners can still set up retirement plans for 2020.
Businesses with extended due dates for their income tax returns can retroactively set up qualified retirement plans or a SEP-IRA for 2020 and make a retirement plan contribution for 2020 up to the extended due date of the business's income tax return. See your tax advisor.
Temporary guidance for California passthrough entity tax.
California has created a workaround to the $10,000 limit for the federal income tax deduction of state and local taxes that applies to individuals. The workaround is a tax paid by a passthrough entity based on the income of the passthrough entity, with a tax credit allowed to the owners of the passthrough entity. The workaround applies for tax years beginning on or after January 1, 2021 and before January 1, 2026. I highlighted that legislation in last month's newsletter.
The Franchise Tax Board has told Spidell Publishing workarounds for paying the tax until forms are issued.
- For entities that are filing a short-year return for 2021, taxpayers may make payments using Pending Audit Tax Deposit Vouchers. S corporations may use Form FTB 3579. Enter the tax year as "2021" and check the "Other" box. For federal purposes, the entities will only benefit from the reduction of net income on the 2021 K-1s if the payment is made before the end of the entity's 2021 taxable year.
- For taxpayers making third and fourth quarter estimated tax payments, taxpayers eligible to claim the credit may reduce their third and/or fourth quarter estimated tax payment to account for additional amounts that will be paid via the passthrough entity tax for 2021. The passthrough entity tax credit that is passed to owners will reduce their 2021 California income tax liability, provided the payment is made by the original due date of the passthrough entity's 2021 California tax return. (The election to make the entity-level payment must be made on the entity's income tax return by the extended due date. In order to make the payment on time, the taxpayer will have to plan in advance to make the election.)
(Spidell's Flash E-mail, "New passthrough entity tax information," August 27, 2021.)
Check your 2021 withholding.
Now would be a good time to be sure your federal and state income tax withholding will be enough to pay your income tax liabilities and avoid penalties for underpayment of estimated tax. The federal withholding form is Form W-4 and the California withholding form is Form DE-4. Withholding isn't as straightforward as it once was. You might need help from a tax professional.
Here is a link to the IRS's withholding estimator tool. https://www.irs.gov/individuals/tax-withholding-estimator
Need help with getting your extended tax returns, amended returns, and elections done?
To make an appointment, contact Thi Nguyen, CPA at thi@atl-cpa.com.
IRS received your document after a deadline and no postmark?
You might be stuck. The Federal Court of Claims upheld the IRS in finding that a claim received by the IRS after a deadline was late and invalid. The Court disagreed with a Tax Court ruling, Sylvan, that extrinsic evidence was admissible when there is no postmark on the envelope received by the IRS. In this case, the taxpayer had postage stamps that were printed at a USPS kiosk with the phrase "Sold on April 17, 2017." The taxpayer also presented an email sent to his accountant on April 17 stating he had just mailed the claim.
The Court of Claims said the Tax Court created the extrinsic evidence rule itself with no statutory or regulatory authority, so it is invalid. The deemed delivery rule states the document is deemed to be received on the earlier of the postmark date or the date actually received by the IRS. In this case, the claim was received by the IRS after April 18, 2017, the deadline for filing the claim, and there was no postmark.
The lesson is documents, including income tax returns, claims, etc., should be sent certified mail. Have the envelope and the certified mail receipt stamped at the window at the post office. Keep the receipt, with a description of the document sent.
(McCaffery v. U.S. Court of Federal Claims, August 9, 2021.)
No tax deduction allowed when searching for new business opportunities.
A taxpayer's homebuilding businesses were put in receivership, he conducted a search for a new trade of business through wholly-owned entities. The entities were disregarded entities, so tax deductions for business expenses relating to searching for a new business were claimed on his individual income tax returns.
The Tax Court upheld the IRS in disallowing the deductions for the business search. The Court upheld the IRS in finding the taxpayer had no trade or business after his homebuilding businesses were put in receivership, so business deductions weren't tax deductible.
(Estate of Morgan v. Commissioner, T.C. Memo. 2021-104, August 23, 2021.)
Author's income was subject to self-employment tax.
The Eleventh Circuit Court of Appeals upheld the Tax Court in finding that an author's income was all subject to self-employment tax. The taxpayer used a formula dividing her hours actually writing books to the total available work hours for the year to determine that 16.43% of her business income was subject to self-employment tax. Her income was for contracts with publishing companies, licensing of her likeness and name and for a noncompete agreement.
The taxpayer claimed her activities were too sporadic to be a trade or business subject to the tax. She also claimed the income for licensing her likeness and name and her noncompetition agreement didn't relate to her trade or business and shouldn't be subject to the tax.
The Court found that all of her activities were an integrated whole, and therefore subject to self-employment tax. The Court also said her business expenses wouldn't have been tax deductible if she didn't have a legitimate business.
(Slaughter, CA 11, August 3, 2021.)
Additional automobiles are eligible for the plug-in electric drive motor vehicle credit.
The IRS has added these models to its list of vehicles that qualify for the qualified plug-in electric drive motor vehicle credit:
- 2022 Audi e-tron Sportback, Audi e-tron, Audi A7 TFSO e Quattro, and Audi Q5 TFSO e Quattro. These models qualify for a $7,500 credit.
- 2022 BMW 330e, BMW 330e xDrive, BMW 530e, BMW t30e xDrive, BMW 740e xDrive. These models qualify for a $5,836 credit.
- 2022 Lincoln Aviator Grand Touring. This model qualifies for a $6,534 credit.
Here is a link to the IRS list of qualifying vehicles: IRC 30D New Qualified Plug-In Electric Drive Motor Vehicle Credit | Internal Revenue Service (irs.gov)
Did you receive an IRS tax assessment after filing a Tax Court petition?
The IRS and the Tax Court have fallen behind in their paperwork due to the pandemic. In some cases, the IRS has erroneously closed cases and assessed taxes because it wasn't aware the taxpayer had filed a Tax Court petition. The IRS has a special email address for taxpayers in this situation. It's taxcourt.petitioner.premature.assessment@irs.gov. Use this email address to request an abatement of a premature assessment.
Do you sell services or software to CPAs?
Maybe I can help with writing promotional material and marketing ideas. Call me, Michael Gray, at 408-918-3161 or email mgray@taxtrimmers.com.
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.
Attention Accountants! Speed up processing your 2020 business closings!
Do you still have 2020 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. http://www.eztrialbalance.com
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 (unlimited) team member assignments, video conferencing (no Zoom bombing!), text messaging, voice messaging, PDF capture, electronic signature and large file transfer. Remote computer access feature is almost complete. Communications take place in a secure envelope. Cloud application so no installation is required on your computer network. Meets IRS security standards. http://www.securelycollaborate.com
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.
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.
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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.
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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Check out my blog.
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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, CPA2482 Wooding Ct.San Jose, CA 95128(408) 918-3162FAX: (408) 938-0610email: mgray@taxtrimmers.comHours: 8am - 5pm PDT Monday - Friday