Michael Gray, CPA’s Option Alert #81

An irregular alert for issues relating to employee stock options

June 4, 2010
© 2010 by Michael Gray, CPA
ISSN 1931-2768

(If you find this information valuable, please pass it on to a colleague!)

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No more classrooms, no more books…

Summer vacation will soon be here, or already is. Drive carefully, with those kamikaze kids out there! Congratulations and good luck graduates!

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Do you need help with finishing extended income tax returns, preparing amended income tax returns, or tax audits?

Now that April 15 has passed, it’s time to focus on finishing extended income tax returns. Some of our readers have found errors in or are uncomfortable with tax returns that they prepared using tax software or were prepared by other tax return preparation companies. We can provide a second opinion. Others have received notices for tax audits and sometimes can’t get the help they need from their tax return preparer. We can help with all of these. To make an appointment, call Dawn Siemer Mondays, Wednesdays or Fridays at 408-918-3162 from 9 a.m. to 5:30 p.m.

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Secrets of Tax Planning For Employee Stock Options Live Seminar.

Michael Gray, CPA will lead a LIVE hour and a half Secrets of Tax Planning For Employee Stock Options lunchtime seminar in Campbell, California on Friday, June 18.

To register, click here:

http://www.stockoptionadvisors.com/wp-content/uploads/2015/07/liveregistration.pdf

For details, click here:

http://www.stockoptionadvisors.com/wp-content/uploads/2015/07/seminar.pdf

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Secrets of Tax Planning For Employee Stock Options Telephone Seminar.

Michael Gray, CPA will lead an hour and a half Secrets of Tax Planning For Employee Stock Options telephone seminar on Friday, June 25 at 1 p.m. Pacific Daylight Time, 2 p.m. Mountain Daylight Time, 3 p.m. Central Daylight Time and 4 p.m. Eastern Daylight Time.

To register, click here:

http://www.stockoptionadvisors.com/wp-content/uploads/2015/07/teleregistration.pdf

For details, click here:

http://www.stockoptionadvisors.com/wp-content/uploads/2015/07/teleconference.pdf

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Silicon Valley Tax Professionals Save The Date!

Michael Gray, CPA will be giving a seminar, The Federal Tax Return Preparer Disclosure and Use Rules (IRC Section 7216) – A Threat To Your Practice and Our Profession?, for the Tax Interest Group of the San Jose Silicon Valley CPAs. The seminar will be a breakfast meeting at Lou’s Village in Los Gatos, California starting at 8 a.m. For details, visit the CalCPA web site at www.calcpa.org or call Stephanie Stewart at 408-983-1122.

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Second estimated tax payment due.

The second individual income tax estimated tax payment is due June 15. The second federal estimated tax payment is 25% of the 2010 total, but the second California estimated tax payment is 40% of the 2010 total. High-income California taxpayers should also remember that the “protected estimate” exception based on last year’s income tax return doesn’t apply for taxpayers who have $1 million of taxable income or more. Some taxpayers are required to make California estimated tax payments online. See your tax advisor for details or call Dawn Siemer for an appointment at 408-918-3162.

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Annual reports for foreign accounts and trusts and receipt of foreign gifts due.

Each year, a report must be filed for foreign bank and brokerage accounts owned by US residents and citizens for which US residents and citizens have signature authority. The form for accounts is TD F 90-22.1, Report of Foreign Bank and Financial Accounts. The forms for trusts are Forms 3520 and 3520- A, Annual Report of Transactions with Foreign Trusts and Receipt of Foreign Gifts, and Annual Information Return of a Foreign Trust With A U.S. Owner. You can get the forms at www.irs.gov.

These returns are due at the same time as the taxpayer’s income tax returns for the tax year, including extensions. The penalties for failure to file can be onerous, starting at $10,000. Congress and the IRS are giving a lot of attention to this area, including requiring reporting by foreign banks. Don’t think you can “skate by.”

If you have a question whether you are subject to these reporting requirements, see a tax consultant immediately.

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Tax extenders bill passes the House.

The House of Representatives has passed the “American Jobs and Closing Tax Loopholes Act.” It hasn’t passed the Senate yet. The bill includes a number of tax extenders, including the additional standard deduction for property taxes, state and local sales tax deduction, exclusion for up to $100,000 of IRA contributions to charities, and the research tax credit. Notably, there is no AMT “patch” in the bill. A key revenue raiser is subjecting income of certain professional service S corporations to self-employment tax. Another will recharacterize 50% of capital gains for “carried interests” in a partnership to ordinary income. (Carried interest means that income is being allocated to a partner in exchange for services without a capital contribution.)

If you are in the process of forming a professional services S corporation, be alert for this change. You might be better off with an LLC (not permitted in California and certain other states) or LLP.

I’ll give more details when and if the legislation passes and President Obama says he’ll approve it.

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Financial Insider Weekly broadcast schedule for June and July.

Financial Insider Weekly is broadcast in San Jose and Campbell on Wednesdays at 4:30 p.m., Pacific Time. You can watch it on Comcast channel 15 for those cities. The show is broadcast as streaming video at the same time at www.creatvsj.org.

Here are the scheduled interviews for June and July:

June 9, Hilary Martin of The Family Wealth Consulting Group, TBA
June 16, Craig Martin of The Family Wealth Consulting Group, “Alternative investments”
June 23, Attorney Michael Desmarais, “Estate planning for the second marriage”
June 30, Attorney Michael Malter of Binder & Malter, LLP, “What you should know about bankruptcy for individuals”
July 7, Attorney Scott Haislett, “1031 exchanges of real estate”
July 14, Attorney Scott Haislett, “Sale of a principal residence”
July 21, Attorney Naomi Comfort of Hawks & Comfort, LLP, “Special needs trusts”
July 28, Peggy Martin, ChFC of The Family Wealth Consulting Group, “The role of life insurance in your estate and financial planning”

Financial Insider Weekly is also broadcast as follows:

  • Sunday at 5 p.m. on Comcast channel 28 in Hayward, Alameda and Fremont and on AT&T U-Verse Channel 99, Hayward public access TV 28 in California
  • Monday at 7:30 p.m. on Comcast channel 15 in Saratoga
  • Thursday at 5:30 p.m. on Comcast channel 27 in Santa Cruz County and Charter Communications channel 73 in Capitola and Watsonville
  • Thursday at 7 p.m. on Comcast channel 26 and AT&T U-verse channel 99 in Marin County
  • Thursday at 10 p.m. on Comcast channel 28 in Hayward, Alameda and Fremont and on AT&T U-Verse Channel 99, Hayward public access TV 28 in California
  • Friday at 4 p.m. on cable channel 15 in Cupertino, Los Altos and Mountain View.
  • Friday at 4:30 p.m. on Comcast channel 15 in Los Gatos
  • Friday at 6:00 p.m. on Comcast and Astound channel 29 in San Francisco. Online streaming video at www.bavc.org, “public access TV”.

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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Questions and Answers

Michael Gray regrets he can no longer answer emails personally. He will answer selected questions in this newsletter.

Question

I exercised an ISO years ago and paid AMT to the IRS and California. I recovered the federal credit on my 2008 and 2009 income tax returns. I wasn’t able to do the same on my California income tax return.

Is that right?

My AGI is only $60,000. I was only able to recover a small amount of the credit on my California income tax returns.

Answer

That appears to be right.

California has not conformed to the federal refundable minimum tax credit rules. (Here is an article about the federal refundable minimum tax credit – not changed since 2008. (http://www.stockoptionadvisors.com/refund)

It sounds like you haven’t sold the stock yet. You will usually recover the California credit when you sell the stock unless the price has fallen after exercising the ISO. When the company’s stock isn’t publicly traded, you can be “stuck” with a dribbling recovery for the California minimum tax credit over many years.


Michael Gray regrets he can no longer answer emails personally. He will answer selected questions in this newsletter.

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Follow me on Twitter, Facebook or LinkedIn!

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 Linked In. You can also follow me on other social media sites, bit.ly/cVALrY and www.linkedin.com/in/michaelgraycpa.

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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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Do you know about our other newsletters?

For general tax developments, tax planning ideas, business development ideas and book reviews, subscribe to Michael Gray, CPA’s Tax & Business Insight.

We are now offering our real estate tax newsletter, Michael Gray, CPA’s Real Estate Tax Letter, free of charge. Like this newsletter, we will talk about new developments, have reports on special tax concerns, and answer questions and answers. To subscribe and read a sample issue, visit realestatetaxletter.com.

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IRS Circular 230 Disclosure:

As required by U.S. Treasury Regulations, you are hereby advised that any written tax advice contained in this communication was not written or intended to be used (and cannot be used) by any taxpayer for the purpose of avoiding penalties that may be imposed under the U.S. Internal Revenue Code.

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Consult with a tax advisor

For our readers who aren’t tax advisors, this newsletter is intended to alert you about tax issues that could affect you. It is not a substitute for advice from a professional tax advisor. You will find that getting advice from a qualified advisor is a worthwhile investment.

Tax advisors should view the newsletter as an alert to become aware of issues relating to employee stock options for further research and study.

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Subscribe to Michael Gray, CPA’s Option Alert!

To receive the next issue of Michael Gray, CPA’s Option Alert with more employee stock option tax developments and answers to questions from our readers automatically via email, subscribe by filling out the form below.

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(Michael Gray is the author of Secrets of Tax Planning For Employee Stock Options, Stock Grants and ESOPs.)

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