Michael Gray, CPA's Tax and Business Insight
May 5, 2026
© 2026 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 2026 Edition of Employee Stock Options - Executive Tax Planning.
- California personal property tax form is due May 7, 2026.
- Due date for calendar-year tax-exempt organizations.
- Payment date approaches for California passthrough entity tax.
- IRS issues proposed regulations for remittance transfer tax.
- IRS issues final regulations listing occupations qualifying for federal tips deduction.
- New IRS online tool for resolving tax debt.
- International Emergency Economic Powers Act (IEEPA) Duty Refunds.
- Grandparents probably won't qualify to OPEN Trump accounts for grandchildren.
- Medical marijuana expenses can now qualify as medical expenses.
- Are you a passive investor in a California LLC?
- 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: Neurocopy
- Follow me on social media!
- Check out my blogs.
- Subscribe/Remove from Michael Gray, CPA's Tax & Business Insight
The San Jose Municipal Rose Garden May 3, 2026. A few months ago, the rose plants were severely pruned. Now they're loaded with blooms. Happy Mothers' Day!
Mothers' Day will be celebrated on Sunday, May 10 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 25 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 2026 Edition of Employee Stock Options - Executive Tax Planning.
For more information and a 25% discount go to https://www.siliconvalleypublishingcompany.com/products/employee-stock-options-executive-tax-planning-2026-edition. Also available at www.amazon.com.
California personal property tax form is due May 7, 2026.
California personal property tax Form 571 for 2026 is due May 7, 2026. If the form is filed late, a 10% penalty is assessed. Remember to delete scrapped assets from your list. Remember items expensed on your income tax returns as "materials and supplies" might be reportable equipment items.
Due date for calendar-year tax-exempt organizations.
The due date for IRS forms for 2025 calendar-year tax-exempt organizations is May 15, 2026. A six-month extension of time to file can be applied for using Form 8868.
Payment date approaches for California passthrough entity tax.
Since the federal government has extended the limitation for itemized deductions of state and local taxes, California has extended the passthrough entity tax.
The election is made with a timely-filed income tax return for the tax year that it applies to.
Passthrough entities that elect the passthrough entity tax are required to make a prepayment of the tax by June 15 of the current year. The required prepayment is equal to the greater of $1,000 or 50% of the passthrough entity tax due for the prior tax year.
Before 2026, a passthrough entity that failed to make the payment was ineligible to elect the California passthrough entity tax. California has enacted SB 132 effective for tax years beginning in 2026, permitting taxpayers that miss the payment to elect the passthrough entity tax. In that case, the credit owners can claim on their California return is reduced by 12.5% of the amount underpaid by the June 15 prepayment date.
The remaining amount due must be paid by the entity's filing date deadline (March 15, 2027 for calendar-year taxpayers).
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.
Passthrough entities formed after June 15, 2026 aren't subject to the prepayment requirement for years beginning in 2026.
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, to avoid the 12.5% credit "haircut."
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's California Taxletter®, May 2026, p. 1. "Passthrough entity tax: new laws, new year, new considerations.")
IRS issues proposed regulations for remittance transfer tax.
The IRS has issued proposed regulations for the 1% remittance transfer tax that applies to transfers of cash or equivalents outside the United States. The tax applies to transfers on or after January 1, 2026 and the first semi-monthly deposit is due January 29, 2026. The IRS previously provided penalty relief for late payment of the tax for the first three quarters of 2026 in Notice 2025-55.
The tax is imposed on remittance transfer providers, like Western Union. Financial institutions subject to the Bank Secrecy Act and payments funded with a debit card or a credit card that is issued in the United States are excluded from the excise tax.
The tax is reported on Form 720, Quarterly Federal Excise Tax Return.
(IR-2026-48, April 10, 2026, REG-114499-25.)
IRS issues final regulations listing occupations qualifying for federal tips deduction.
The IRS has issued final regulations for the "no tax on tips" provision of the One Big Beautiful Bill Act.
The final regulations expand the list of qualifying occupations to include visual artists and floral designers in the personal services category and add gas pump attendants in the transportation and delivery category.
Remember tips must generally be reported on Form W-2 or a Form 1099-NEC, 1099-MISC, Form 1900-K or be reported by the worker on Form 4137 to qualify for the deduction.
Mandatory service charges, such a flat 20% service charge for a party of six at a restaurant, don't qualify. The customer must have the option of making no tip for an "option menu" to fully qualify.
Self-employed persons have special rules, including limiting the deduction to the net income on Schedule C. They should consult with their tax advisor for details.
Employers should be gathering information now to report on an employee or contractor's 2026 information return.
Here is a URL for an IRS web page listing occupations that customarily received tips on or before December 31, 2024. https://www.irs.gov/forms-pubs/occupations-that-customarily-and-regularly-received-tips-on-or-before-december-31-2024
(IR-2026-49, April 10, 2026, TD 10044.)
New IRS online tool for resolving tax debt.
The IRS has launched a new online tool to help taxpayers resolve their tax debts. https://www.irs.gov/payments/get-help-with-tax-debt
(IR-2026-53, April 16, 2026.)
International Emergency Economic Powers Act (IEEPA) Duty Refunds.
U.S. Customs and Border Protection (CBP) has initiated a refund system for businesses that paid tariffs (taxes on imports) under the International Emergency Economic Powers Act. On February 20, 2026, the U.S. Supreme Court ruled the tariffs were unconstitutional.
Businesses apply for the refunds that might have been passed through to consumers with higher prices for their products. Those businesses could rebate the passed through credits to their customers, but they aren't required to.
Here's a URL for the U.S. Customs and Border Protection web page about the procedure to apply for refunds. https://www.cbp.gov/trade/programs-administration/trade-remedies/ieepa-duty-refunds
Importers should list their document numbers for forms that went to CBP to describe imported goods and their value.
(San Jose Mercury News, The Associated Press, "Firms can start claiming tariff refunds" by Mae Anderson. April 20, 2026.)
Grandparents probably won't qualify to OPEN Trump accounts for grandchildren.
Although contributions for new tax-deferred Trump savings accounts can't be made until July 4, 2026, some families are already applying for the accounts.
Although Trump accounts can eventually be converted to IRAs, there are some important differences. For example, a child can only have ONE Trump account, while taxpayers who qualify may have multiple IRA accounts.
Under IRS proposed regulations, there are two additional rules that relate to grandparents for the accounts.
- If the child was born after December 31, 2024, a grandparent can only make an election to claim the $1,000 federal government contribution if the grandchild was the grandparent's dependent. If that test is met, the grandparent may elect to open a Trump account and claim the $1,000 contribution.
- If the child was born before January 1, 2025, there is a hierarchy as to who can legally open a Trump account. The grandparent may qualify after a legal guardian, parent, or an adult sibling. The grandparent may only qualify if there is no legal guardian, parent or adult sibling available to open an account.
The election to open a Trump account is made using Form 4547. According to the IRS regulations, a grandparent using the form must represent under penalty of perjury that he or she is authorized to open the Trump account and "there is no other person with a higher priority available to make the election." Note this language is omitted on Form 4547.
Grandparents who submit Form 4547 should be very careful to assure they qualify before going ahead.
(Ed Slott and Company, LLC, "Grandparents Should Be Very Careful Before Opening Trump Accounts", by Ian Berger, J.D., April 29, 2026.)
Medical marijuana expenses can now qualify as medical expenses.
The Department of Justice issued an order on April 22, 2026 rescheduling FDA-approved marijuana products and state-licensed medical marijuana from Schedule I to Schedule III, so the IRC § 280E limitation on cannabis businesses no longer apply and taxpayers can now claim a medical expense deduction for marijuana. (Expenses for medical marijuana incurred before April 22, 2026 still might not qualify. The IRS should eventually offer more guidance.)
1Here's a URL for the order. https://www.justice.gov/opa/media/1437441/dl
Note that recreational use of marijuana has NOT been legalized at the federal level. Recreational cannabis is still a Schedule III drug and §280E limitations still apply for recreational cannabis. State laws or other restrictions may also still apply.
The Department of Justice will hold an administrative hearing to reschedule recreational cannabis to Schedule III beginning on June 29, 2026.
(Spidell's Flash E-mail, "Deductions can now be claimed for medical marijuana expenses", April 23, 2026.)
Are you a passive investor in a California LLC?
The California Franchise Tax Board has agreed to refund $800 minimum tax payments, penalties and interest paid by out-of-state passive investors in LLCs doing business in California. (Bahl Media LLC v. FTB, San Francisco Superior Court, Case No. CGC-16-554150)
Taxpayers eligible for refunds include taxpayers that:
- Paid the minimum tax and related penalties and interest, if any to the FTB;
- Timely filed a refund claim for the amounts paid;
- Either had their refund claim denied after June 10, 2016 and before July 21, 2023 (the date of class certification), or did not have their claim approved or denied at least six months before July 21, 2023;
- Are not doing business in California because their only connection to California is holding a passive interest in an LLC doing business in California; and
- Only held a 50% or less interest in an LLC doing business in California.
Here is a URL for terms of the settlement agreement for instructions to file a claim. https://www.ftb.ca.gov/tax-pros/law/preliminarily-approved-bahl-settlement-agreement-w-addendum.pdf
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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