Michael Gray, CPA's Tax and Business Insight
May 2, 2024
© 2025 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 Mothers' Day!
- Happy Memorial Day!
- Family celebrations.
- Loads of tax and financial planning ideas and information are included in the 2025 Edition of How to Use Roth & IRA Accounts to Provide a Secure Retirement.
- Will Christmas be cancelled this year?
- Are tariffs subject to California sales tax?
- California personal property tax form is due May 7, 2025.
- Due date for calendar-year tax-exempt organizations.
- Critical payment date approaches for California passthrough entity tax.
- Employee catch-up contributions for certain employer plans for employees ages 60-63 for tax years after 2024.
- Property tax advice for victims of the Los Angeles fires.
- Clean vehicle credit "cleanup" - required form now accepted late.
- New Employee Retention Credit guidance.
- How to defer tariffs.
- Electronic payments mandate.
- Do you sell products, services or software to CPAs?
- Attention CPAs-would you like help with marketing your services?
- Attention CPAs-do you need support for tax issues?
- Attention Accountants! Speed up processing your business closings!
- Please share your good experiences with Michael Gray, CPA.
- Financial Insider Weekly past episodes.
- Visit our new book review: Got Your Attention
- Follow me on social media!
- Check out my blogs.
- Subscribe/Remove from Michael Gray, CPA's Tax & Business Insight
Hakone Gardens, Saratoga, California on April 8, 2025. The cherry blossoms are gone, now. Happy Mothers' Day!
Mothers' Day will be celebrated on Sunday, May 11 this year. Remember to express your appreciation to your mother and other mothers who have contributed to your life.
Happy Memorial Day!
Memorial Day will be celebrated on Monday, May 26 this year. Memorial Day is the unofficial beginning of summer. Please honor those who died defending our country.
Family celebration.
My daughter Holly Baker and her husband Dan are celebrating their wedding anniversary during May. Happy anniversary!
Loads of tax and financial planning ideas and information are included in the 2025 Edition of How to Use Roth & IRA Accounts to Provide a Secure Retirement.
For more information and a 25% discount go to www.rothirainvestingbook.com. Also available at www.amazon.com.
Will Christmas be cancelled this year?
(What about back-to-school shopping?) Maybe you should take care of back-to-school and holiday shopping now, while retailers have merchandise to sell.
Toymakers, children's shops and specialty retailers have paused orders for the winter holidays in response to President Trump's 145% tariff on imports from China.
Almost 80% of all toys and 90% of Christmas decorations sold in the United States are made in China. 97% of clothing sold in the United States is imported, with about 27% imported from China.
Shipments from China have virtually stopped.
Retailers need to place their orders several months in advance in order for merchandise to arrive in time for the holiday season.
Unless President Trump relents on his tariff proposals, there might be very few items on the shelves of retailers for back-to-school and holiday shopping.
Since most retailers earn their profits during the holiday season, the retail outlook for 2025 seems bleak. Some retailers are consulting bankruptcy attorneys.
The United States Senate voted down a Democratic resolution to block the tariffs, 49 - 49, on April 30, 2025, so the decision is now solely President Trump's.
(San Jose Mercury News, May 1, 2025, Section A, p. 3, "Senate votes down resolution to block Trump's global tariffs", Section C, P. 9, "Retailers fear tariffs will affect Christmas toy sales.")
Are tariffs subject to California sales tax?
In most cases, individuals will buy merchandise from retailers for whom tariffs are included in the cost of the goods sold. Those retail sales are subject to California sales tax based on the stated selling price.
When a purchase is made directly from a seller located in a foreign country and a tariff is assessed, the buyer is the importer of record, or consignee. In that case, only the purchase price, including shipping, is subject to California sales and use tax. The tariff paid directly by the consignee is not subject to California sales and use tax.
(California Department of Tax and Fee Administration, Annotation 325.0232. https://www.cdtfa.ca.gov/lawguides/vol2/suta/325-0232.html)
California personal property tax form is due May 7, 2025.
California personal property tax Form 571 for 2025 is due May 7, 2025. If the form is filed late, a 10% penalty is assessed.
Due date for calendar-year tax-exempt organizations.
The due date for IRS forms for 2024 calendar-year tax-exempt organizations is May 15, 2025. A six-month extension of time to file can be applied for using Form 8868.
Critical payment date approaches for California passthrough entity tax.
For taxable years 2021 through 2025, a qualified S corporation, partnership, or LLC taxed as a partnership or S corporation, or certain single-member LLCs can elect to pay a California passthrough entity tax equal to 9.3% of its qualified net income. The purpose of the passthrough entity tax is to avoid the $10,000 annual limit for itemized state tax deductions on the Federal income tax returns for individuals, estates and trusts.
The election is made with a timely-filed income tax return for the tax year that it applies.
In addition, in order to qualify for the 2022 through 2025 taxable years, the entity is required to make two payments. The first payment is due by June 15 of the taxable year. Since June 15 falls on Sunday this year, the due date is June 16. The amount due is the greater of:
- 50% of the elective tax paid for the prior year; or
- $1,000.
The remaining amount due must be paid by the entity's filing date deadline (March 16, 2025 for calendar-year taxpayers). If the June prepayment is underpaid, the taxpayer is ineligible to make the election for that taxable year.
The June 16 payment deadline applies to both calendar-year and fiscal-year taxpayers. Remember, taxpayers that didn't pay the tax in the prior year are only required to pay $1,000.
When the prior-year income tax return is on extension and hasn't been filed, the prior year tax must be estimated. To be safe, estimate high, because underpayments will result in the election being disallowed for 2025, and the taxpayer won't be able to get a refund until it files its 2025 income tax return.
Payments made by check are sent to the Franchise Tax Board with Form FTB 3893, Pass-Through Entity Elective Tax Payment Voucher. Alternatively, tax payments can be made using Web Pay and no Form 3893 is required.
See your tax advisor to get assistance with the passthrough entity tax.
Here is the URL for the Franchise Tax Board web page about the passthrough entity tax. https://www.ftb.ca.gov/file/business/credits/pass-through-entity-elective-tax/index.html
(Spidell Publishing Company Podcast, "Passthrough entity tax prepayment deadline approaching". April 27. 2025.)
Employee catch-up contributions for certain employer plans for employees ages 60-63 for tax years after 2024.
For tax years beginning after December 31, 2024, employees ages 60 through 63 during the taxable year and who are participants in employer-sponsored plans may increase their catch-up contributions to the greater of:
- 150% of the regular catch-up contribution limit for employees age 50 and older; or
- $10,000 (indexed for inflation beginning in 2026).
For 2025, the maximum contribution for a 401(k) plan would be:
Regular contribution limit $23,500 $7,500 X 150% $11,250 $10,000 $10,000 Greater of the two 11,250 Total $34,750 (Internal Revenue Code Section 414(v)(2)(B)(i).)
(Note: California doesn't currently conform to the federal tax deduction for this increased catch-up contribution. The additional amount would be a basis adjustment when the retirement account is distributed. Hopefully California will eventually conform to this change.)
Property tax advice for victims of the Los Angeles fires.
Here are some steps that victims whose homes were damaged or destroyed by the Los Angeles fires should take:
Update addresses. File Form ASSR-451, Change of Mailing Address, with the County Assessor. (Also update your mailing address with the other tax authorities.)
Plan for property tax deferrals. Governor Newsom has provided interest and penalty relief to certain taxpayers located in specified Los Angeles County zip codes who defer paying their property taxes due in 2025 until April 10, 2026. Taxpayers should plan to have the funds available at that time.
Apply for reassessment. Taxpayers whose homes or other property were damaged or destroyed should file Form ADS-820, Application for Reassessment of Property Damaged or Destroyed by Misfortune or Calamity, with the Los Angeles County Assessor's office now to ensure the amount that is due April 10, 2026 is reduced to reflect the decline in value from the fire. Although taxpayers have up to 12 months from the date of loss to file, it's probably better to file sooner than later. To qualify, the estimated property damage must be at least $10,000.
The reduction in value lasts until the property is rebuilt or repaired.
Clean vehicle credit "cleanup" - required form now accepted late.
Taxpayers have had their tax returns rejected for efiling because auto dealers failed to timely file IRS Form 15400, Clean Vehicle Seller's Report to the IRS on its Energy Credits Online portal within 72 hours of selling a qualifying vehicle.
Timely filing the report is required to qualify for the credit.
In response to a complaint by the National Auto Dealers Association (NADA), the IRS has reopened the portal for auto dealers to submit 2024 Form 15400 and is waiving the 72-hour deadline. https://www.nada.org/regulatory-compliance/irs-reopen-time-sale-reporting-2024-transactions
If you bought a "clean vehicle" (usually an electric vehicle) that should qualify for the credit during 2024 and didn't receive a copy of Form 15400 from the dealer or the IRS didn't accept your efile because of the clean vehicle credit, contact the dealer immediately to alert them to submit the form. We don't know how long the IRS will continue accepting late-submitted forms.
(Note - The Clean Vehicle Credit is claimed on Form 1040 using Form 8936, Clean Vehicle Credits.)
(NADA Compliance Alert, March 25, 2025, "IRS to Reopen Time of Sale Reporting for 2024 Transactions.")
New Employee Retention Credit guidance.
According to the tax law, related wages for the year incurred should be reduced for an employee retention credit. Many taxpayers didn't make this adjustment on their income tax returns because they didn't know if the credit would be allowed or they didn't have the cash to pay the income taxes.
Now refunds are being received for years for which amended returns are no longer being accepted, called "closed years." How should taxpayers report those refunds? The IRS has issued guidance as "frequently asked questions" on its website.
According to the guidance, the refund for a "closed year" should be reported as income for the year when it was received. If a refund is received for an "open" year where an amended return can be filed, the taxpayer may report the refund as income for the year when it's received or an amended return can be filed to reduce the related wages.
It's rather embarrassing that the IRS gave this advice when I told people they had to follow the Internal Revenue Code.
What if a taxpayer reduced wages for an employee retention credit that was later disallowed? Those taxpayers may increase their wages expense on their income tax return by the same amount of the reduction for the year the employee retention credit disallowance is final.
https://www.irs.gov/coronavirus/frequently-asked-questions-about-the-employee-retention-credit
How to defer tariffs.
Strategies for dealing with new tariffs imposed by the Trump Administration were discussed on a recent AICPA Town Hall. Apparently, tariffs don't apply to goods stored at a bonded warehouse in free-trade zone until the goods are removed to a U.S. importer.
The World Trade Centers Association (https://www.wtca.org/) might be able to provide tips for minimizing tariffs.
Electronic payments mandate.
On March 25, 2025, President Trump issued an Executive Order, "Modernizing Payments To and From America's Bank Account."
The order mandates the transition to electronic payments for all Federal disbursements and receipts, with some exceptions.
The mandate is effective September 30, 2025 for federal disbursements.
Payments to the federal government will have to be made electronically "as soon as practicable."
The requirement will not apply for these exceptions:
- Individuals who do not have access to banking services or electronic payment systems;
- Certain emergency payments where electronic disbursement would cause undue hardship;
- Certain national security or law enforcement-related activities;
- Other circumstances as determined by the Secretary of the Treasury, as reflected in regulations or other guidance.
More details will eventually be released.
Note receiving refunds electronically will require providing bank account information with your income tax returns. Taxpayers might be concerned about privacy, but I believe the IRS already receives information for bank accounts, including on annual information returns.
Do you sell products, 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.
Attention CPAs-would you like help with marketing your services?
Maybe I can help with writing promotional material and marketing ideas, including encouraging referrals from your current clients. Call me, Michael Gray, at 408-918-3161 or email mgray@profitadvisors.com.
Attention CPAs-do you need support for tax issues?
Michael Gray, CPA can help you with research and guidance on complex tax planning and tax return reporting issues. mgray@taxtrimmers.com.
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. http://www.eztrialbalance.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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Michael Gray, CPA2482 Wooding Ct.San Jose, CA 95128(408) 918-3162FAX: (408) 938-0610email: mgray@taxtrimmers.comHours: 8am - 5pm PDT Monday - Friday
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