Michael Gray, CPA's Tax and Business Insight
April 5, 2022
© 2022 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 Easter!
- Family celebrations
- Due date for 2021 individual, calendar year estates and trusts, and calendar year corporation income tax returns is April 18, 2022.
- What if you don't have the money to pay the tax?
- Remember that an estimated tax payment is also due on April 18.
- Remember the second California real estate tax payment is due April 11.
- Remember the Foreign Financial Accounts Report, FinCEN Form 114, is also due on April 18.
- Remember to compute the Recovery Rebate Credit on your individual income tax return.
- Remember to reconcile the 2021 Child Tax Credit and advance Child Tax Credit payments received on your 2021 federal individual income tax return.
- Disclosure required on federal income tax return for PPP loan cancellation.
- New California tax form for COVID-19-related benefits.
- California postpones requiring a separate tax basis disclosure for partnerships, including most LLCs.
- S corporation shareholders might have to include a new tax basis form with their 2021 individual income tax returns.
- New California passthrough entity tax results in e-pay headaches.
- California won't accept federal identification numbers for partnership electronic payments.
- Legal settlement from a malpractice claim was taxable.
- A marketing legend passes away.
- 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: Subscribed
- Follow me on social media!
- Check out my blogs.
- PS Marché Aux Fleurs
- Subscribe/Remove from Michael Gray, CPA's Tax & Business Insight
Janet's dolls are ready to celebrate Easter! Happy Easter!
Easter will be celebrated on April 17 this year. Darn! It's the day before that tax deadline. Spring is already here, but I think of Easter as the beginning of spring. It's also a special family holiday for many people, as well as a religious holiday to think about making a fresh start, based on the resurrection of Jesus. Have a happy and safe holiday.
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!
Due date for 2021 individual, calendar year estates and trusts, and calendar year corporation income tax returns is April 18, 2022.
If you are having your income tax returns prepared and haven't given your information to your preparer yet, you'll probably have to file an extension. Get your information to your preparer right away! If you're looking for a preparer, contact Ms. Thi Nguyen, CPA at thi@atl-cpa.com.
What if you don't have the money to pay the tax?
The IRS will allow you to file an extension without paying the tax. You are still required to include an estimate of the tax due on the form. (The extension will not be accepted without this amount being entered.) The late filing penalty will be waived provided your income tax returns are filed on the extended due date, which is October 17, 2022 for most individuals.
California automatically allows the extension without filing a form.
A late payment penalty of 1/2% per month will apply for any tax due not paid by April 18, 2022, unless at least 90% of the tax finally determined was paid by that date.
Interest will also be charged for the unpaid tax and can't be waived. (The current rate is 6% for individuals.)
If a 2021 individual income tax return isn't filed by April 18, 2022 and a valid extension isn't filed by that date, the late filing penalty is 5% of the unpaid tax per month filed late, to a maximum of 25%. (In some cases, California will assess a penalty on the entire tax without reduction for payments received. See your tax advisor for details.)
Remember that an estimated tax payment is also due on April 18.
The first 2022 estimated tax payment for individuals and most other calendar year entities is also due on April 18, 2022. The penalties for late payment of estimated taxes are computed as simple interest, but the interest rate has been increasing. 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.
Remember the second California real estate tax payment is due April 11.
There is a nasty penalty for paying real estate taxes late, and the date slips past us because we're thinking about April 18. Why not make this payment now, so you don't forget it?
Remember the Foreign Financial Accounts Report, FinCEN Form 114, is also due on April 18.
Here's a link to an IRS explanation for when you are required to report ($10,000 or more of foreign financial accounts): https://www.irs.gov/businesses/small-businesses-self-employed/report-of-foreign-bank-and-financial-accounts-fbar
Remember to compute the Recovery Rebate Credit on your individual income tax return.
The amount of your Recovery Rebate Credit is computed based on the facts on your 2021 federal income tax return. The credit is reduced for any Economic Impact Payments that you received during 2021 and early 2022. Some taxpayers who didn't receive Economic Impact Payments will qualify for the Recovery Rebate Credit and should file a 2021 federal income tax return, even if it otherwise isn't required. Remember to report this item on your 2021 federal income tax returns or to provide the amounts of the payments that your received to your tax return preparer.
Remember to reconcile the 2021 Child Tax Credit and advance Child Tax Credit payments received on your 2021 federal individual income tax return.
Disclosure required on federal income tax return for PPP loan cancellation.
Although the income from PPP loan cancellation is tax-exempt, disclosure is required on the 2021 Form 1040 for the debt cancellation when the loan was cancelled during 2020 or 2021. The requirements are explained at page 23 of the Instructions for Form 1040. Here's a URL for the instructions. https://www.irs.gov/pub/irs-pdf/i1040gi.pdf
New California tax form for COVID-19-related benefits.
Beginning with the 2021 tax year, taxpayers who benefited from a California exclusion from taxable income for various loans and grants must complete and file Form FTB 4197, Information on Tax Expenditure Items, with their 2021 California income tax returns.
Here is a list of benefits for which the form is required:
- Paycheck Protection Program loan forgiveness (Code PPP)
- Other loan forgiveness (Code OLF)
- EIDL advance grants (Code EIDL)
Taxpayers operating a cannabis business must also complete Form 4197.
The information required is the taxpayer name and tax identification number, and the applicable code for the loan or grant received.
(Spidell's California Taxletter, March 2022, p. 8. "Did your client receive COVID-19-related benefits?")
California postpones requiring a separate tax basis disclosure for partnerships, including most LLCs.
The IRS is requiring Schedule K-1 disclosure of a partner's tax basis on 2021 federal partnership income tax returns. California included a requirement for a separate California tax basis Schedule K-1 disclosure in its instructions for 2021 California partnership income tax returns. After pushback from the professional tax return preparation community, the Franchise Tax Board has announced that it will delay the new requirement for one year. Partnerships filing a 2021 California partnership income tax return may report the federal tax basis on partners' Schedules K-1.
(Spidell's California Taxletter, April 2022, p. 1. "Tax basis capital reporting for partnerships and LLCs." Franchise Tax Board Notice 2022-01.)
S corporation shareholders might have to include a new tax basis form with their 2021 individual income tax returns.
The IRS has issued new Form 7203, S corporation Shareholder Stock and Debt Basis Computations, for 2021 individual income tax returns. The form is required to be included when one of these conditions apply:
- Claiming a tax deduction for an S corporation loss, including one previously disallowed because of tax basis limitations.
- Received a non-dividend distribution (accumulated adjustment account distribution).
- Disposed of any S corporation stock.
- Received a loan repayment from an S corporation for which the taxpayer is a shareholder.
Here is a URL to see the IRS form. https://www.irs.gov/pub/irs-pdf/f7203.pdf
The California Franchise Tax Board has said it won't be issuing a California version of Form 7203 for 2021.
New California passthrough entity tax results in e-pay headaches.
Many S corporations that were subject to mandatory e-pay requirements (not applicable to partnerships) made their passthrough entity tax payments with a check using Form FTB 3893, Pass-Through Entity Elective Tax Payment Voucher.
The Franchise Tax Board is issuing penalty notices for not making the payments using e-pay.
The Franchise Tax Board has declined to give automatic relief from the penalty, but will consider granting relief on a case-by-case basis. The request for relief may be submitted using Form FTB 3816, Electronic Funds Transfer Election to Discontinue or Waiver Request to EFT UNIT MS F-284. Franchise Tax Board, P.O. Box 1468, Sacramento, CA 95812-1468 or fax to 916-855-5556. The Franchise Tax Board's phone number for e-pay penalty questions is 916-845-4025.
(Spidell's California Taxletter, April 2022, p. 3. "Passthrough entity elective tax and e-pay mandated.")
California won't accept federal identification numbers for partnership electronic payments.
Partnerships doing business in California can't make electronic payments using their federal identification numbers. They must use their Secretary of State number (for LLCs electing to be taxed as partnerships) or use an entity number assigned by the Franchise Tax Board. The FTB-issued identification number can be received by emailing FTBPTSPNoticeInquiry@ftb.ca.gov.
The Franchise Tax Board will continue to accept partnership income tax returns (Form 565) submitted using a federal identification number.
(CalCPA Government Relations Unit, email notice, March 8, 2022, FTB Tax News, email notice "Entity ID Number to use for Electronic Payment Methods", March 4, 2022.)
Legal settlement from a malpractice claim was taxable.
Debra Jean Blum was injured after being directed by a hospital employee to sit in a broken wheelchair. She sued her law firm for mismanagement of her claim against the hospital for her physical injuries.
Debra didn't report a $175,000 settlement that she received from her lawyers on her income tax return. She said the settlement related to physical injuries, or, alternatively, was a return of capital.
The Ninth Circuit Court of Appeals affirmed the Tax Court in finding the income was taxable. Debra's settlement agreement stipulated that the settlement was for a legal malpractice claim and didn't compensate her for personal injuries.
(Blum, CA9, March 213, 2022, 129 AFTR 2d ¶2022-506.)
A marketing legend passes away.
Joe Sugarman, whose JS&A was a predecessor to The Sharper Image and whose BluBlocker sunglasses were a national phenomenon, has passed away. Joe wrote fantastic ads. He would test them in the Southwest Edition of The Wall Street Journal. His BluBlocker television infomercials were done as "man in the street" interviews of people describing the experience of looking through the sunglasses. He said they were inspired by the Candid Camera television show. He taught marketing and how to write great ads with entertaining and memorable stories. Some of his students created great direct response marketing companies, like Victoria's Secret, Omaha Steaks and Career Track. Despite his great success, he conducted himself with friendly humility. He will be greatly missed and his ads and books will continue to be studied by students of marketing in years to come.
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.
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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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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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