Michael Gray, CPA's Tax and Business Insight

March 1, 2024

© 2024 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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Camelia flower
Our camelia blossoms are opening up, a sign that Spring will soon be here.

Happy St. Patrick's Day!

St. Patrick's Day is the occasion when all Americans celebrate being Irish! This year it falls on Sunday, March 17. It's time for the wearin' of the green! The luck of the Irish be with ye!

Will you be droppin' by the pub for a pint of green beer? Or maybe a Guinness?

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Family celebrations.

My sister Arlene Gray McLean and my brothers-in-law Wade Allison and Lane Johnston, are celebrating birthdays this month. Happy Birthdays!

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Trust distribution deadline is March 5, 2024.

Estates and irrevocable trusts for which the trustee has discretion for making distributions can elect to treat distributions made within 65 days after the year-end as made during the previous year. Distributions generally reduce taxable income for the estate or trust and carry taxable income to the beneficiaries of the estate or trust, who might have a lower marginal tax bracket. For 2023 calendar year trusts and estates, the deadline for making a distribution to make the election is March 5, 2024. Trustees and executors should consult with their tax advisor about whether their trust or estate and its beneficiaries would benefit from making such an election.

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Have you received your tax preparation materials?

If you haven't received a tax data organizer or instructions to submit information online and want tax return preparation service by my successor, Ms. Thi Nguyen, CPA, please contact her at thi@atl-cpa.com.

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Tax return filing deadlines have been extended for some taxpayers.

Here's a link to the IRS web site to find the affected areas. https://www.irs.gov/newsroom/tax-relief-in-disaster-situations

At this time, San Diego County is the only California county eligible for relief. The automatic extended due date is June 17, 2024. The California Franchise Tax Board has announced it will conform to the federal extension for San Diego County.


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Remember federal income tax returns for calendar-year S corporations and partnerships are due March 15.

(Federal income tax returns for calendar-year C corporations are due April 15, exception for Maine and Massachusetts, April 17.)

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The election to be an S corporation for calendar-year corporations is also due March 15.

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Due date for 2024 individual, calendar year estates and trusts, and calendar year corporation income tax returns is April 15, 2024, exception for Maine and Massachusetts, April 17.

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Should calendar tax returns for businesses be extended?

Remember Congress has a stalemate for tax legislation, The American Families Workers Act of 2024 that would restore the current tax deduction for research and experimental costs and would restore 100% bonus depreciation. The legislation would also cut off employee retention credit claims after January 31, 2024. The legislation passed the House of Representatives on January 31, 2024 and is currently stuck in the Senate. To avoid potentially filing an amended return, consider filing for an extension of time to file.

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Remember that an estimated tax payment is also due on April 15.

The first 2024 estimated tax payment for individuals and most other calendar year entities is also due on April 15, 2024. 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.

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Remember the second California real estate tax payment is due April 10.

There is a nasty penalty for paying real estate taxes late, and the date slips past us because we're thinking about April 15. Why not make this payment now, so you don't forget it?

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Cutoff for preparing tax returns will soon be here!

If you provide complete information for preparing your 2023 income tax returns by March 15, your tax returns should be finished in time to file them by April 15. Otherwise, an extension form should be submitted with a payment of any estimated balance of tax by April 15.

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Do you have a tax identifying number (ITIN)?

Individual tax identifying numbers are issued to individuals who don't have social security numbers because they aren't authorized to work in the United States. The IRS will issue them an ITIN so that they can file returns and pay taxes. ITINs not used on 2020, 2021 or 2022 returns have expired, unless they were renewed. ITINs that were issued by the IRS before 2013 have also expired.

Individuals who need to apply for or renew an ITIN can (1) mail form W07 with original identifying numbers or certified copies; (2) make an appointment at an IRS Taxpayer Assistance Center; or (3) work with a certifying acceptance agent.

(The Kiplinger Tax Letter, February 15, 2024, page 4.)

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Losses probably aren't deductible for worthless cryptocurrency.

With cryptocurrency companies going bankrupt, the owners of their cryptocurrency are being left "holding the bag." Since federal tax law hasn't determined that cryptocurrency is a security, the deduction for worthless stock doesn't apply. Bankruptcy doesn't automatically mean debt is totally worthless, so any bad debt deduction would have to wait until the loss is certain. If the investor can sell the cryptocurrency, the investor can claim a capital loss to offset capital gains and take an additional deduction of $3,000 per year on an individual income tax return.

(Spidell Tax Season Tribune, February 25, 2024, "I'm not a CEO, I just play one on TV.")

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No statute of limitations for filing a tax return that was fraudulently prepared.

The Tax Court held the normal three-year statute of limitations for income tax returns didn't apply to fraudulent income tax returns prepared by a paid preparer, even though the taxpayers didn't have fraudulent intent. Lesson: Be careful who you hire to prepare your income tax returns.

(Murrin v. Commissioner, T. C. Memorandum Decision 2024-10.)

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Option agreement to purchase family business shares was a taxable gift.

An adult child exercised an option granted by his parents to purchase stock in a family business. The option price was $5 million and the IRS determined the value of the stock to be $31 million, and claimed there was a taxable gift. The valuation of the shares provided for the buy-sell agreement was disregarded because the parties failed to establish that the terms of the buy-sell agreements were comparable to similar arrangements entered into by persons in an arm's length transaction and the agreement was between family members.

The Tax Court ruled in favor of the IRS.

(Huffman, et al. v. Commissioner, Tax Court Memorandum Decision 2024-12.)

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Beneficiary consent to a trust change could be a taxable gift.

The IRS ruled that a beneficiary's consent to an amendment for a "defective" grantor trust was a taxable gift by the beneficiary to the grantor (trust creator). The amendment permitted discretionary distributions by the trustee to the grantor of the trust to provide funds to pay income taxes on trust income taxed to the grantor. If that provision was included in the trust when it was created, there wouldn't have been a gift tax issue.

The IRS previously had ruled (PLR 201647001) that such an amendment was administrative in nature and didn't change the beneficial interests in a trust, so it wouldn't be taxable. The Chief Counsel said this is no longer the IRS's policy.

(Chief Counsel Advice 202352018.)

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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.

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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.

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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.

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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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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.

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.

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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.

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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, and LinkedIn.

you can also follow me on other social media sites, Facebook and LinkedIn.

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Check out my blog.

I have also started a blog at www.michaelgraycpa.com. Check it out!

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Michael Gray, CPA
2482 Wooding Ct.
San Jose, CA 95128
(408) 918-3162
FAX: (408) 938-0610
Hours: 8am - 5pm PDT Monday - Friday

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