Michael Gray, CPA’s Option Alert #105

An irregular alert for issues relating to employee stock options

October 2, 2012
© 2012 by Michael Gray, CPA
ISSN 1931-2768

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

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Tax planning thoughts.

There are some tax plans that take time to implement, such as setting up a family limited partnership to hold private company stock or making a gift of stock to a charitable remainder trust. Doing both of these may require having an appraisal done, which is time consuming. Now is the time to discuss what actions might be appropriate before the end of 2012.

This is the most difficult year for tax planning that I can remember. I have never seen so many changes that will happen if Congress doesn’t take action, and I can’t imagine that not happening. Nobody knows what the final answers will be, most of which may not be enacted until late next year.

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October 15 is the end of the 2011 tax return filing season.

Hopefully your 2011 income tax returns were filed long ago. Hooray! Mine is done! There are only two weeks left to file individual income tax returns. If you still haven’t submitted your information to your tax return preparer, better do it immediately. There may not be enough time to get it done on time. Also, remember 2011 retirement plan contributions for sole proprietorships, including SEPs (simplified employee pensions) must be made by October 15, 2012 in order to deduct them for 2011.

If you would like our help, call Dawn Siemer on Mondays, Wednesdays and Fridays from 9 a.m. to 5 p.m. Pacific Time to make an appointment. Dawn’s telephone number is 408-918-3162.

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Dawn Siemer returns after maternity leave.

Dawn’s daughter, Minerva, was born two months ago and Dawn is returning to work part time as our web master and office manager. Grandma Janet will be watching Minerva in the mornings and Kara in the afternoons. Say a prayer this all works out smoothly.

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Introductory offer for How to use Roth & IRA accouts to provide a secure retirement expires October 15.

Our half-price offer for How to use Roth & IRA accounts to provide a secure retirement, – 2012 Edition expires October 15, 2012. For more information, go online to www.siliconvalleypublishingcompany.com/products/how-to-use-roth-and-ira-accounts-to-provide-a-secure-retirement. You can also call your order to Dawn Siemer at 408-918-3162.

The book is 76 pages, and is packed with insights, including Roth Conversions, a comparison of Roth to regular IRA accounts, self-directed accounts, alternative investments, prohibited transactions, when Roth and IRAs pay income taxes and much more.

After you read the book, please post a book review at Amazon.com and bn.com.

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Electronic formats offered for our new books.

You can get a Kindle version of or new books about Employee Stock Options and Roths and IRAs at Amazon.com. You can also get a Nook compatible version at bn.com. Search “Michael Gray CPA”.

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New IRS guidelines allow more taxpayers to reduce their tax debts.

The IRS has relaxed its requirements to qualify for an offer in compromise.

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California Appeals Court allows small business stock exclusion.

California has its own exclusion for gains from the sale of certain small business stock. Many of the provisions are tied into the federal rules. In order to qualify for the exclusion, California requires that (1) at least 80% of the corporation’s assets be used in California and (2) at least 80% of the corporation’s payroll must be attributable to payroll earned in California.

Some taxpayers have been challenging those percentage requirements as violating the Commerce Clause and the Equal Protection and Due Process Clauses of the 14th Amendment to the U.S. Constitution.

A California Court of Appeal recently upheld one of these challenges.

It’s likely the Franchise Tax Board will appeal the decision to the California Supreme Court.

Meanwhile, taxpayers should consider filing protective claims for refund to avoid having the statute of limitations run on their potential refunds.

(Cutler v. Franchise Tax Board (August 28, 2012) California Court of Appeal, Second Circuit, Case No. B233773.)

(Spidell’s California Taxletter®, October 1, 2012, page 14, “Taxpayer wins small business stock case: Consititutional issue”. )

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Community public access television needs our help.

Public access television is a vital part of our educational outreach to various communities. These are usually nonprofit, charitable organizations, like public television stations. Unlike those stations, most of the programming for the public access stations comes from local producers.

This programming includes the local arts, productions by students at local schools, community outreach by churches, independent local producers discussing current social issues, educational programming by local providers like ourselves and much more. In other words, public access television makes a unique, important contribution to the communities it serves.

With the difficult times we are experiencing, many public access stations are facing severe financial challenges, and might not survive without more community financial support. I urge you to consider making a donation to your local public access television station. Here is a link for a list of public access television stations in California: http://www.communitymedia.se/cat/linksca.htm.

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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 8:00 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 October and November:

October 5, 2012, Peter Moss, Wymac Capital, Inc., “Big picture strategies for the home mortgage marketplace”
October 12, 2012, Lori Greymont, CEO, Summit Assets Group, “Real estate investment opportunities in Atlanta”
October 19, 2012, Lori Greymont, CEO, Summit Assets Group, “Different ways to invest in real estate”
October 26, 2012, Naomi Comfort, attorney, Silicon Valley Elder Law P.C., “The role of financial capacity in elder law”
November 2, 2012, Naomi Comfort, attorney, Silicon Valley Elder Law P.C., “Using Powers of Appointment to provide asset protection and flexibility”
November 9, 2012, Kathleen Wright, attorney, American Red Cross, “Financial preparation for a disaster”
November 16, 2012, Emmett Carson, PhD, CEO, Silicon Valley Community Foundation, “How to promote community giving as a family value”
November 23, 2012, Phil Price, EA, The Price Company, “Qualified Retirement Plans for closely-held business”
November 30, 2012, William Mahan, attorney, of counsel to Gates Eisenhart Dawson, “Tax and financial considerations of title”

Financial Insider Weekly is also broadcast as follows:

  • Sunday at 5:30 a.m. on Comcast Channel 27 in Santa Cruz County and on Charter Communications Channel 73 in Watsonville and Capitola
  • Monday at 1:30 p.m. in San Mateo County on PenTV, Comcast Channel 26 and Astound Channel 27
  • Monday at 3:30 p.m.on Comcast Channel 27 in Santa Cruz County and on Charter Communications Channel 73 in Watsonville and Capitola
  • Monday at 4 p.m. and 7 p.m. Pacific Time on cable channel 19 in Morgan Hill and broadcast on the internet at the same time as streaming video at www.mhat.tv
  • Monday at 6:30 p.m. on Midpeninsula Media Center, Comcast Channel 28 in Palo Alto, East Palo Alto, Stanford, Menlo Park & Atherton
  • Monday at 7:30 p.m. on Comcast channel 15 in Saratoga
  • Tuesday at 4 p.m. and 7 p.m. Pacific Time on cable channel 19 in Morgan Hill, Broadcast on the internet at the same time as streaming video at www.mhat.tv
  • Tuesday at 9 p.m. on Comcast channel 26 and AT&T U-verse channel 99 in Marin County.
  • Wednesday at 3 p.m.on Comcast channel 27 in Santa Cruz County and on Charter Communications Channel 73 in Watsonville and Capitola
  • Wednesday at 8 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
  • Thursday at 5:30 p.m. on Comcast channel 27 in Santa Cruz County and Charter Communications channel 73 in Capitola and Watsonville
  • Friday at 11:30 a.m. on Comcast channel 27 in Santa Cruz County and Charter Communications channel 73 in Watsonville and Capitola
  • Friday at 1:30 p.m. in San Mateo County on PenTV, Comcast Channel 26 and Astound Channel 27
  • Friday at 3:30 p.m. on KCAT, Comcast channel 15 in Los Gatos
  • Friday at 4 p.m. on cable channel 15 in Cupertino, Los Altos and Mountain View.
  • Friday at 6 p.m. on Comcast and Astound channel 29 in San Francisco, online streaming video at www.bavc.org, “public access TV”
  • Friday at 8 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
  • Saturday at 9 a.m. and 6 p.m. on Midpeninsula Media Center, Comcast Channel 28 in Palo Alto, East Palo Alto, Stanford, Menlo Park & Atherton
  • Saturday at 1:30 p.m. on Comcast channel 26 and AT&T U-verse channel 99 in Marin County.

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. Email your questions to mgray@stockoptionadvisors.com.

Question

Are you aware of any exceptions to the required tax withholdings (especially social security and Medicare) for the exercise of nonqualified stock options for a FORMER employee?

Answer

No. The nonqualified stock options are considered to be a form of deferred compensation for which withholding is required.


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See our free report, “Nonqualifed Stock Options – Executive Tax and Financial Planning Strategies” at http://www.stockoptionadvisors.com/isofaq/non-q_stock/

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Follow me on Twitter, Facebook or LinkedIn!

If you enjoy Twitter, please follow me at 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, www.facebook.com, www.linkedin.com/in/michaelgraycpa, and Google+.

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Check out my blog.

I have also started a blog at 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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