Michael Gray, CPA's Tax and Business Insight
June 9, 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!
Route to _______ _______ _______ _______ _______
(If you find this information valuable, please pass it on to a friend!)
Table of Contents
- Happy Fathers' Day!
- School's out!
- Family celebrations.
- Second estimated tax payment due.
- Estimated fee payment due June 16 for some calendar year LLCs.
- Critical payment date approaches for California passthrough entity tax.
- 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.
- "Big Beautiful Bill" stalls in the U.S. Senate.
- "Pass through entity tax" would be limited by the "Big, Beautiful Bill."
- Proposed increase for SALT deduction.
- Tax Court allows $7 million deduction under "claim of right" doctrine.
- Payments to a decedent's stepchildren under a premarital agreement weren't deductible as claims from a taxable estate.
- California Secretary of State changes numbering system.
- Pool construction contractor subject to California use tax.
- 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: Unique Ability 2.0 Discovery
- Follow me on social media!
- Check out my blogs.
- Subscribe/Remove from Michael Gray, CPA's Tax & Business Insight
Janet and me with a mother (right) and daughter (left) who were geisha entertainers at Kanazawa, Japan on May 27, 2025. Janet and I experienced a two-week "The Cultural Highlights of Japan" Road Scholar tour, which we enjoyed and highly recommend. No customs or immigration issues at the airports in the USA or Japan. Happy Fathers' Day!
Fathers' Day will be celebrated on Sunday, June 15 this year. Remember to express your appreciation to your father and other fathers who have contributed to your life.
School's out!
Most schools will be out by early in June. Congratulations graduates! Watch out for kids out for summer vacation!
Family celebrations.
My granddaughter, Kara Siemer, is graduating from Prospect High School in Saratoga, California. (My wife, Janet, and I met as students a Prospect High and were 1970 graduates.)
My son, James Gray, is graduating from the Teacher's program at San Jose State University and has qualified for his California Teacher's Credential.
Second estimated tax payment due.
The second estimated tax payment for most individuals and calendar year corporations and fiduciaries is June 16.
For individuals, federal estimated tax payments (for estimated tax exceeding withholding) can be based on 110% of 2024 tax on your income tax return if your adjusted gross income exceeds $150,000. Alternatively, you can make payments based on your income and deductions for 2025.
The California payment is 40% of estimated tax for the year. Like federal estimated tax payments, California payments can be 110% of 2024 tax, unless your adjusted gross income is $1 million or more. In that case, your estimated tax payments should be based on your actual income and deductions for 2025.
If you need help, please see your tax consultant.
Estimated fee payment due June 16 for some calendar year LLCs.
California LLCs pay two items to the Franchise Tax Board: an annual tax of $800 and an annual fee based on the gross receipts of the LLC.
The estimated annual fee is paid with Form 3536 by June 16 for calendar year LLCs or online using WebPay at https://webapp.ftb.ca.gov/webpay/login/belogin?Submit=Use+Web+Pay+business. There is no fee when the gross receipts for the LLC are less than $250,000. The estimated fee can be based on last year's income tax return. Unlike the exception for corporate franchise taxes, there's no requirement that the prior year be a full 12 months. The prior-year exception applies to a new LLC, so no estimate is required for the first year.
For 2025, the estimated fee is not due until October 15, 2025 for LLCs located in Los Angeles County due to the wildfires.
Note that capital gains and losses and Section 1231 gains and losses aren't netted when computing gross receipts for the fee. Only capital gains and Section 1231 gains, not reduced by capital losses or Section 1231 losses, are counted.
According to the Franchise Tax Board, expense reimbursements, including expenses paid directly by a customer, must be included in gross income.
(Spidell's California Taxletter, March, 2025, p.6, "How to calculate the annual estimated gross receipts fee.")
Critical payment date approaches for California passthrough entity tax.
The tax benefit of the passthrough-entity tax might be eliminated by the "Big, Beautiful Bill." See the explanation below.
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 15, 2026 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.)
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.
"Big Beautiful Bill" stalls in the U.S. Senate.
The House of Representatives passed the Big, Beautiful Bill" that would extend most of the tax cuts enacted in the Tax Cuts and Jobs Act of 2017 that are scheduled to expire at the end of 2025, among other provisions, on May 22, 2025 by a vote of 215 - 214. Some conservatives in the Senate joined Democrats to refuse to pass the bill. The conservatives are concerned deficit funding in the bill will contribute to growing the National Debt.
The pause in enacting budget legislation provides a pause for constituents to contact their representatives in Congress about their concerns, including cutting Medicaid, Medicare, and relief funding for needy Americans as an offset to providing tax cuts to high-income taxpayers.
Tax and budget legislation will probably be enacted before the end of the year, and the details still are being negotiated.
(One Big, Beautiful Bill Act, H.R. 1.)
"Pass through entity tax" would be limited by the "Big, Beautiful Bill."
One of the provisions of the "Big, Beautiful Bill" would close the loophole allowing a tax deduction for state income taxes paid by a passthrough entity. The tax paid by the entity would be added to the owner's state income taxes subject to the limitation.
The American Institute of Certified Public Accountants and other small business advocates oppose including this provision in the legislation that is enacted.
Proposed increase for SALT deduction.
Effective for 2025, the state and local tax (SALT) deduction limitation would be increased from $10,000 to $40,000 ($20,000 for married, filing a separate return), with a phasedown for taxpayers with a modified adjusted gross income (MAGI) of $500,000 ($250,500 for married filing a separate return), but not below $10,000 ($5,000 for married filing a separate return). The phasedown is 30% of the excess MAGI over the threshold.
Effective 2026, the SALT deduction limitation would be $40,000 ($20,000 for married, filing a separate return), with a phasedown for taxpayers with a modified adjusted gross income (MAGI) of $500,000 ($250,000 for married filing a separate return), but not below $10,000 ($5,000 for married filing a separate return). The phasedown is 30% of the excess MAGI over the threshold. For 2027 through 2033, the SALT cap amount and the phasedown threshold would increase one percent per year over the amount for the preceding year. After 2033, the cap and phasedown threshold would remain the amounts in effect for 2033.
Tax Court allows $7 million deduction under "claim of right" doctrine.
A mortgage loan originator overreported its income by more than $7 million on its tax returns for 2007-2013, and claimed a tax deduction for the excess income for 2014, the year the errors were discovered. The Tax Court allowed the deduction and said that, as an accrual basis taxpayer, the taxpayer was entitled to claim the deduction for 2014 because all events relating to the taxpayer's obligation to provide collateral as a substitute for the underreported mortgage receivables were met in that year.
If your business reports using the accrual method, has a similar situation, and the statute of limitations has closed for years when excess income was reported, consider claiming a deduction for the year of discovery as a "claim of right."
(Norwich Commercial Group, Inc. v. Commissioners, T.C. Memorandum decision 2025-43.)
Payments to a decedent's stepchildren under a premarital agreement weren't deductible as claims from a taxable estate.
Richard Spizzirri and his fourth wife, Holly Lueders, entered a prenuptial agreement that required his estate to transfer $6 million to his wife and $3 million to her children from a previous marriage upon his death.
The estate paid $3 million to the stepchildren and deducted it as a claim (debt) from the taxable estate.
The Eleventh Circuit Court of Appeals upheld the Tax Court and the IRS in disallowing the deduction.
Under Treasury Regulations Section 20.20253-1(b)(2)(i), a deduction isn't allowed for a claim "to the extent it is founded on a transfer that is essentially donative in character." (The transfer was essentially a gift.)
(Estate of Spizzari v. Commissioner, 11th Circuit Court of Claims No. 23-14039, 2025.)
California Secretary of State changes numbering system.
The California Secretary of State is now issuing 12-character identification numbers to new corporations, LLCs and limited partnerships. The numbers will start with the letter "B".
Existing entities will keep their numbers unchanged.
The Franchise Tax Board says they will accept the new and existing number formats.
The letter "B" should not be entered for Web Pay payments.
If an entity with a single owner (single-member LLC) has a classification change, that entity's EIN, not the owner's identity number, should be used.
(Spidell's California Taxletter, June 2025, p. 4, "Secretary of State revises entity numbering system.")
Pool construction contractor subject to California use tax.
A pool construction contractor purchased construction materials as resale purchases, and didn't pay California sales tax for them.
When the contractor used the material for construction jobs, the cost of the material was subject to California use tax.
The taxpayer argued the CDTFA charged use tax for materials that it had paid sales tax for, and didn't provide documentation about the sales taxes paid, so the California Office of Tax Appeals (OTA) upheld the additional tax due.
This case is a reminder that items purchased for resale are subject to California use tax when they are consumed personally or in the reseller's business. CDTFA auditors might look for these items in a sales and use tax audit.
(Appeal of Addison Pools, Inc., 2025-OTA-307.)
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
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. One of the sites where you can share your experiences is yelp.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.
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.
Visit our new article!
- Unique Ability 2.0 Discovery Book Review at www.profitadvisors.com/unique.shtml
Follow me on Social Media!
LinkedIn: If you enjoy LinkedIn, please follow me at www.linkedin.com/in/michaelgraycpa and www.linkedin.com/company/the-marketing-alchemist/
I'm also on Bluesky! You can also follow me on Bluesky at https://bsky.app/profile/michaelgraycpa.bsky.social.
I'm also on Instagram. You can also follow me on Instagram at www.instagram.com/michaelgray690/
I'm also on Threads.net. My user name is michaelgray690
Facebook: I've been suspended on Facebook and I'm working on getting my account restored.
Check out my blog.
I have also started a blog at www.michaelgraycpa.com. Check it out!
Home Newsletter Archive Introducing Michael Gray, CPA Articles Tax FAQ Need Help? Other Links
Michael Gray, CPA2482 Wooding Ct.San Jose, CA 95128(408) 918-3162FAX: (408) 938-0610email: mgray@taxtrimmers.comHours: 8am - 5pm PDT Monday - Friday
© 2025
Connect on LinkedIn
Connect on BlueSky
Connect on Instagram
Our Blog
