Michael Gray, CPA’s Option Alert #112

An irregular alert for issues relating to employee stock options

May 17, 2013
© 2013 by Michael Gray, CPA
ISSN 1931-2768

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

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Extension season is here

The extended due date for 2012 individual income tax returns is October 15, 2013.

The extended due date for calendar year 2012 corporate, partnership and fiduciary income tax returns is September 16, 2013.

If you would like us to prepare your extended income tax return, please call Dawn Siemer at 408-918-3162 for an appointment.

We can also prepare amended income tax returns to clean up tax returns that were previously filed.

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Second estimated tax payment is due June 15

Remember the second 2013 estimated tax payment for most individuals, calendar year corporations, trusts, and estates is due June 17. California “front loads” 40% of the estimated tax in June for individuals and skips September.

If your estimated tax is not based on last year’s tax, you should be reviewing the amount to pay with your tax advisor for an “annualized” payment based on this year’s information. Remember that when your tax is based on this year’s information, you must include the new federal tax on net investment income.

Remember that individuals who have more than $1 million of income for 2013 aren’t eligible to base their California estimated tax on last year.

Also remember that many individuals must make their California estimated tax payments using Web Pay. You can access Web Pay at www.ftb.ca.gov. We recommend that you avoid using your credit card with this service, but have your bank account electronically charged instead. There is a substantial fee for credit card payments.

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Offshore account report is due June 30

An annual report is required for offshore bank and brokerage accounts with combined balances at any time during the previous year exceeding $10,000 on June 30. No extension of time to file is available. The report is made to the Department of the Treasury using form TD F 90-22.1. You can get the form at the IRS web site, www.irs.gov. It is a separate report, not included with your federal income tax return. You may be required to file a report even if you don’t own an account, such as if you have signature authority as a corporate officer, executor or trustee.

The penalties for not filing are severe, so if you have a question about whether you are required to report, consult with a tax advisor. The “secret” Swiss bank account is a relic of the past.

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Investment income tax and ISOs

Ordinary income from the disqualified disposition of shares acquired by exercising an incentive stock option or employee stock purchase plan are wages, which shouldn’t be subject to the 3.8% “Medicare” tax on net investment income. (There is a statutory exemption for this income from Social Security and Medicare employment taxes.) The long-term capital gain from a qualified disposition of the shares is investment income subject to the tax.

Be sure consider this when making your planning computations relating to incentive stock options for 2013.

Also watch the various income thresholds for the various tax rates. For example, the net investment income tax applies for married persons who file joint income tax returns with modified adjusted gross income exceeding $250,000. Taking additional income can subject you to the tax, but breaking down when you exercise options and sell stock can help you avoid the tax.

Employers planning to sell private companies can help employees defer income by structuring their sales as tax-free reorganizations, such as a stock-for-stock exchange.

Sometimes you won’t have a choice, such as when there is a cash buyout of a private company. In that case, you probably will just take the cash and pay your taxes.

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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, siliconvalley.citysearch.com, and Google+.

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Community public access television needs our help

As you can see below, 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: www.communitymedia.se/cat/linksca.htm.

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Financial Insider Weekly broadcast schedule for May and June

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 May and June:

May 17, 2013, attorney James V. Quillinan of Hopkins & Carley, “Tax planning for real estate change of ownership in California”
May 24, 2013, Don Pollard, CLU, ChFC of Advanced Professionals, “Health insurance for individuals”
May 31, 2013, Don Pollard, CLU, ChFC of Advanced Professionals, “Group health insurance plans for small businesses”
June 7, 2013, attorney David Howard of Hoge, Fenton, Jones & Appel, “Federal reporting requirements for foreign bank and brokerage accounts”
June 14, 2013, Dick Blakeley, The Blakeley Group, Inc., “Benefits of a virtual family office”
June 21, 2013, attorney Scott Haislet, “Passive real estate loss limitations and electing to be a real estate professional”
June 28, 2013, attorney Scott Haislet, “Tax considerations for selling a principal residence”

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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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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Follow me on social media!

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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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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