Michael Gray, CPA's Tax and Business Insight

October 11, 2013

© 2013 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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Clive Baker is excited that Halloween will soon be here!
Clive Baker is excited that Halloween will soon be here!

Boo! The year will soon be over.

For many Americans, Halloween is their favorite holiday. How about you? Be careful with those kamikaze kids out there.

One thing we all know is Halloween means the year will soon be over. I hope yours has been a good one.

It's time to prepare for the end of the year. My schedule will be tight with various obligations and the holidays. Make your year-end planning appointment now. Call Dawn Siemer on Mondays, Wednesdays and Fridays from 9 a.m. to 5 p.m. at 408-918-3162.

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My mother, Eleanor Gray (center), with her surviving children: Arlene Gray McLean, Michael Gray and Stephen Gray.
My mother, Eleanor Gray (center), with her surviving children: Arlene Gray McLean, Michael Gray and Stephen Gray.

My mother, Eleanor Gray, has passed away.

My mother, Eleanor Gray, passed away peacefully while asleep in her own bed in her own home on September 12. She was age 91.

Mom had a remarkable life. She grew up in Glendale, close to Los Angeles and Hollywood in their heyday. She spent summers with her sisters in the family beach home in Hermosa Beach.

She traveled alone to snowy Montreal by train to marry my father, Aubrey. Their adventure together lasted about 70 years. They had six children, grandchildren, great-grandchildren and great-great grandchildren.

My parents moved to Saratoga, California in 1958 and remained in that home the rest of their lives. In 1958, Santa Clara County was still primarily agricultural and Silicon Valley was many years away.

In her final years, Mom was able to travel to Hawaii, Branson, Vancouver in British Columbia, and to Southern California to visit family members, thanks to my brother Steve, who became her caregiver.

She was the last member of the Great Generation in our immediate family. She will be dearly missed.

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Janet Gray celebrates her birthday.
Janet Gray celebrates her birthday.

Family celebrations.

My wife, Janet, is celebrating her birthday during October. My best decision in my lifetime was to marry Janet. She is a prized grandmother for my grandchildren and a great wife and mother. Happy birthday Janet!

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Final individual deadline is October 15.

It's too late for us to be able to prepare 2012 individual income tax returns for people to bring their information to us now. You can stop additional penalties and interest by filing late income tax returns as soon as possible. If you would like us to prepare your late 2012 income tax returns, please call Dawn Siemer Mondays, Wednesdays or Fridays from 9 a.m. to 5 p.m. at (408) 918-3162. Be aware that our time for personal meetings will be very limited.

We can also prepare amended income tax returns to clean up tax returns that were previously filed.

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California restores a tax break for small business stock.

In the Cutler decision, the exclusion of gain under Internal Revenue Code Section 1202 was declared unconstitutional in California. As part of its fiscal year-end group of legislation, California's legislature restored the 50% exclusion for 2008 through 2012 in AB 1412. Governor Brown has approved the legislation.

The California exclusion for gain from the sale of qualified small business stock was found to violate the US constitution because California required 80% of the corporation's property and payroll to be in California to qualify for the exclusion. The new legislation eliminates those requirements.

The bill allows taxpayers 180 days from the date of enactment to file a claim for refund for 2008.

It's too late for tax software to be updated for the exclusion for 2012. Taxpayers will generally file amended California income tax returns to claim the exclusion.

Let us know if you think you may be eligible to claim the exclusion on an amended California income tax return for 2008 through 2012.

(Spidell's Flash E-mail, "Governor signs Cutler bills", October 4, 2013.)

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IRS has cut back operations.

Thanks to the U.S. government shut down cutting back funding, the IRS has cut back its operations. The IRS will continue to receive income tax returns. Almost all live services, including taxpayer assistance and tax audits are suspended. Automated services are still operational, and automated collection notices will continue to be mailed.

The IRS web site still works. (Thank goodness!)

(Spidell's Flash E-mail, "IRS announces cutback in operations", October 2, 2013.)

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IRS issues final "repair" regulations.

The IRS has issued its final regulations relating to whether repairs and other expenses may be expensed and deducted currently or must be capitalized and depreciated. The regulations have been modified in response to comments received for the temporary regulations that were issued during December 2011.

The taxpayers who will benefit most from the changes issue "applicable financial statements" (audited or regulatory financial statements). These taxpayers have a de minimus safe harbor of $5,000 "per invoice." Taxpayers that don't issue an "applicable financial statement" have a de minimus safe harbor of $500 "per invoice." In order to use the de minimus safe harbor, the taxpayer must have a written accounting policy in place as of January 1, 2014 adopting the standard for financial reporting purposes. Under these rules, low-cost materials and supplies or other expenses that otherwise would have to be capitalized can be currently deducted.

There is also some relief from the capitalization rules for "small taxpayers" that had annual gross receipts of $10 million or less during the three preceding tax years when the building had an unadjusted basis (cost) of no greater than $1 million.

The final regulations are effective January 1, 2014, but can optionally be applied for 2012 and 2013.

This is only a brief summary. Many taxpayers will have to adopt changes in accounting methods to comply with these new requirements. The IRS will issue procedures on how to automatically adopt changes. See your tax advisor after October 15.

(TD 9636.)

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IRS per diem rates increased.

The IRS has announced an increase in the daily per diem expense rates for travel in the continental United States, effective for expenses incurred after September 30, 2013. The rate for high-cost areas is $251 ($186 for lodging and $65 for meals and incidental expenses.) The rate for other areas is $170 ($118 for lodging and $52 for meals and incidental expenses.) The per diem rates provide a convenience because documentation of expenses with a receipt isn't required. (The travel itself must still be documented.)

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California to offer efiling for fiduciary income tax returns.

The IRS has offered and in some cases required efiling of fiduciary income tax returns for a while. Starting January 2, 2014, the California Franchise Tax Board will also offer efiling for 2013 fiduciary income tax returns. For the time being, efiling fiduciary income tax returns will be optional in California.

(Taxnews, October, 2013, page 2. "Fiduciary e-filing coming in January, 2014.)

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IRS provides guidance for same-sex spouses.

In response to the Supreme Court's Windsor decision, the IRS has issued Revenue Ruling 2013-17 with guidance for same-sex married couples and registered domestic partners.

The IRS has ruled that same sex couples who are legally married in foreign or domestic jurisdictions shall be considered married for federal income tax purposes, even if they live in a state that doesn't recognize such unions. This ruling follows a previous ruling in Revenue Ruling 58-66 that couples who had a common law marriage and moved to a state that didn't recognize such marriages are still considered married for federal income tax purposes.

The rule also applies for the eligibility for employee benefits under the federal tax laws, such as the exclusion for employer-provided employee medical insurance covering a spouse.

"Husband" and "wife" will be interpreted to include a same sex spouse.

Registered domestic partners, civil unions or other similar formal relationships recognized under state laws that are not denominated as a marriage under that state's law are not considered to be marriages under the federal tax laws. (Some states recognize these relationships as marriages. Consult with legal counsel for the applicable state.)

The ruling is effective September 16, 2013, but taxpayers have the option to apply it sooner, including filing amended income tax returns for years for which the statute of limitations hasn't expired. (Note - Since September 16 has passed, same sex married partners may no longer file tax returns as unmarried single persons.)

(Revenue Ruling 2013-17, August 29, 2013.)

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Financial Insider Weekly broadcast schedule for October and November.

Financial Insider Weekly is broadcast in San Jose and Campbell on Fridays at 9:30 p.m., Pacific Time. You can watch it on Comcast channel 15 for San Jose and Campbell. The show is broadcast as streaming video at the same time at www.creatvsj.org.

Here are the scheduled interviews for the rest of October and November:

October 11, 2013, attorney Robert E. Temmerman, Jr., Temmerman, Cilley & Kohlmann, LLP, "I'm a trustee! Now what?"
October 18, 2013, James Brown, ASA, CFP®, Perisho, Tombor, Brown CPAs, "The role of a business valuation specialist"
October 25, 2013, attorney Naomi Comfort, Silicon Valley Elder Law, PC, "Special needs trusts"
November 1, 2013, attorney William Mahan, of counsel to Gates Eisenhart Dawson, "Why you need a will"
November 8, 2013, attorney William Mahan, of counsel to Gates Eisenhart Dawson, "Tax considerations of title"
November 15, 2013, attorney Bettie Baker Marshall, "Legal considerations of caring for incapacitated persons"
November 22, 2013, Emmett Carson, PhD, CEO, Silicon Valley Community Foundation, "Promoting Community Giving as a Family Value"
November 29, 2013, Geraldine Barry, President, San Jose Real Estate Investors Association, "How I got started investing in real estate"

Financial Insider Weekly is also broadcast as follows:

Past episodes of Financial Insider Weekly are posted on YouTube. One way to watch them is to go to our web site, www.financialinsiderweekly.com, and click on "Past Episodes."

Let me know any ideas that you have for topics or guests. Guests will usually have to be located in or near the Silicon Valley in California.

Hope you can watch or record the show. Please tell your friends about it!

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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 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
2190 Stokes St. Ste. 102
San Jose, CA 95128
(408) 918-3162
FAX: (408) 998-2766
Hours: 8am - 5pm PDT Monday - Friday

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