Michael Gray, CPA's Tax and Business Insight

May 4, 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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Steve, Minerva, and Dawn
Minerva Siemer cuts a cake that her Mom, Dawn Siemer, made and Minerva decorated at our family Easter picnic. Uncle Steve Gray and Dawn are in the background.

Happy Mothers' Day!

Mothers' Day will be celebrated on Sunday, May 8 this year. Remember to express your appreciation to your mother and other mothers who have contributed to your life.

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Happy Memorial Day!

Memorial Day will be celebrated on Monday, May 30 this year. Memorial Day is the unofficial beginning of summer. Please honor those who died defending our country.

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Family celebration.

My daughter Holly Baker and her husband Dan are celebrating their wedding anniversary during May. Happy anniversary!

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California personal property tax form is due May 9, 2021.

California personal property tax Form 571 for 2022 is due May 9, 2022. If the form is filed late, a 10% penalty is assessed.

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How income from sales of real estate are counted for the annual LLC gross receipts fee.

California LLCs with gross income exceeding $250,000 are required to file an annual gross receipts fee.

For dealers in real estate - developers and LLCs in the business of flipping houses - gross receipts include the entire selling price of the property, with no reduction for the cost of the property.

For investors in real estate, that typically are renting the property or holding the property long-term, gross receipts only include the net profit from selling the real estate, so the cost of the property and the selling expenses are subtracted from the gross sales proceeds when computing the gross receipts for the annual LLC gross receipts fee.

(Spidell's California Taxletter, May 2022, p. 4, "Sales of real estate and LLC gross receipts fees.")

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Critical payment date approaches for California passthrough entity tax.

For taxable years 2021 through 2025, a qualified S corporation, partnership, 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. The amount due is the greater of:

The remaining amount due must be paid by the entity's filing date deadline (March 15 for calendar-year taxpayers). If the June prepayment is underpaid, the taxpayer is ineligible to make the election for that taxable year.

The June 15 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 2022, and the taxpayer won't be able to get a refund until it files its 2022 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 payments due soon". May 1, 2022.)

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CalSavers registration deadline is June 30, 2022.

California employers that don't have a qualified retirement plan (such as a 401(k) plan) and have five or more employees are required to register for the CalSavers program. Penalties apply for failure to register.

Here's a URL for the CalSavers web page. https://www.calsavers.com/

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U.S. Supreme Court denies review of limit on state tax deduction.

The Supreme Court rejected an appeal by New York, Connecticut, Maryland and New Jersey to contest the $10,000 annual limitation on the itemized deduction for state and local taxes that was enacted as part of the Tax Cuts and Jobs Act of 2017.

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Company liable for taxes and penalties for misclassifying nurses as contractors.

The Tax Court ruled that a corporation engaged in the business of providing in-home nursing services to children with special needs misclassified the nurses hired to provide the services as independent contractors. The corporation was liable for employment taxes on the nurses' wages plus penalties for underpayment of taxes and late tax deposits. The Court found the corporation exercised significant control over the workers, including the ability to fire workers at will and requiring two weeks' notice before a worker could leave employment.

(Pediatric Impressions Home Health, Inc. v. Commissioner, T.C. Memo. 2022-35. April 12, 2022.)

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Airline tickets received from an employer and given to adult relatives are taxable.

A retired airline pilot received airline tickets for free from his former employer. They gave the tickets to the couple's adult relatives. The Tax Court ruled receiving the tickets was taxable income for the retired pilot. The tickets weren't excludable as no-additional cost services under Internal Revenue Code Section 132(a)(1). That exclusion only applies to employees and their dependent children. In addition, the tickets weren't excludable under Section 132(a)(4) as a "de minimis fringe" benefit because the value of the tickets was significant and accounting for them wasn't unreasonable or administratively impracticable.

(Mihalik v. Commissioner, T.C. Memo. 2022-36. April 13, 2022.)

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Married couple weren't real estate professionals.

Passive rental losses suspended. A husband and wife rented out two properties in Florida. Neither spent 750 hours working on the properties for the years at issue. The Tax Court ruled they weren't real estate professionals, so the properties were passive activities, regardless of whether they materially participated in those activities.

(Sezonov v. Commissioner, T.C. Momo. 2022-40. April 20, 2022.)

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U.S. Supreme Court rules residents of Puerto Rico aren't eligible for certain welfare benefits.

The U.S. Supreme Court has reversed a lower court's ruling that a 1972 law passed by Congress to exclude residents of Puerto Rico from eligibility for certain welfare benefits for low-income elderly, blind and disabled people was unconstitutional. The Supreme Court ruling confirms that about 300,000 residents of Puerto Rico are ineligible for an estimated $2 billion in benefits. The ruling creates a reason for Puerto Rico to seriously consider applying to become one of the United States, instead of remaining a territory of the United States.

(U.S. v. Madero, U.S. Supreme Court 20-303, April 21, 2022.)

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Florida strips Disney of its self-governing authority.

Florida Governor Ron DeSantis has approved legislation that strips The Walt Disney Co. of its self-governing authority that allows the company to operate Walt Disney World as its own city. The change shifts the responsibility for fire, police, road maintenance and utility services to the local cities and counties, including the responsibility for $10 billion in bonds. The legislation isn't effective until June 2023, giving the legislature ample time to change or repeal it after the 2022 elections. The legislation is clearly the governor's response to Disney's criticism of Florida's recently-enacted "Don't Say Gay" legislation.

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Employers may be eligible for penalty relief relating to a retroactive employee retention credit change.

The IRS has reminded taxpayers they may be eligible for reasonable cause relief from penalties when they owed additional income taxes relating to a retroactive change in being eligible to claim employee retention credits, resulting in filing an amended income tax return with a reduced wages deduction. See your tax advisor for details.

(IR 2022-89, April 18, 2022.)

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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.

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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.

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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

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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

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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.

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

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