Michael Gray, CPA’s Option Alert #118
An irregular alert for issues relating to employee stock options
November 8, 2013
© 2013 by Michael Gray, CPA
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Table of Contents
- Have you made your year-end planning appointment?
- We have upgraded security when sending your documents
- Do you have unrealized capital losses?
- Considering a major donation?
- Tax shelter fails to offset income from stock options
- IRS processing delayed by federal shutdown
- Community access television needs our help
- Financial Insider Weekly broadcast schedule
- Follow me on social media!
- Check out my blog
- Do you know about our other newsletters?
- Consult with a tax advisor
- Subscribe to Michael Gray, CPA’s Option Alert
Have you made your year-end planning appointment?
2013 will soon be over. Will you be ready? Our year-end tax planning calendar is filling up fast, and we won’t be here for certain holidays. Reserve your appointment now by calling Dawn Siemer on Mondays, Wednesdays and Fridays from 9 a.m. to 5 p.m. at 408-918-3162.
We have upgraded security when sending your sensitive documents.
You should notice that our procedure has changed for when we send documents with identification numbers or otherwise sensitive documents. The service is called Share File. The good news it’s easy for clients to use because no password is required and there is no involved procedure for uploading documents to a portal.
Clients can also use the service to send documents to us via a link at our web site, http://www.taxtrimmers.com , or via a link that will eventually be nested in our emails.
This is a much simpler process than the portal that we have been using, so we hope you like it better and use it.
Do you have unrealized capital losses in your investment portfolio?
With the increase in federal tax rates from 15% to 20% for long-term capital gains for high-income taxpayers and the net investment income tax of 3.8%, it’s now even more important to review your tax position for the end of the year.
If you have realized substantial capital gains during 2013, look at your unsold investments. By selling investments that have declined in value, you can generate capital losses to reduce your taxable capital gains.
Remember the wash sale rule. If you have a capital loss from the sale of an investment and repurchase the investment during the period 30 days before through 30 days after the date of the loss, it will be disallowed and become a basis adjustment for the replacement stock.
Considering a major donation?
Donations of highly appreciated publicly-traded stock that has been held long-term are highly tax-favored. You get a tax deduction, subject to a 30% of AGI limit, for the fair market value of the stock, and the appreciation for the stock escapes taxation.
Remember the tax deductions for high income taxpayers are phased out for 2013.
An alternative to an outright donation of the stock is a gift to a charitable remainder trust. The investment can then be diversified without a tax consequence and the income can be retained for the lifetime of the donor or donor and spouse. The charitable contribution deduction is reduced for the retained lifetime interest. See your tax advisor for details.
Tax shelter fails to offset income from stock options.
James Cochran and Richard Perlman had substantial income from severance packages and the sale of employer shares and stock options when PracticeWorks was bought out by Eastman Kodak in 2003.
Cochran and Perlman paid BDO Seidman LLP, a large CPA firm, substantial fees for creating a tax shelter arrangement using partnerships to generate tax losses using accounts receivable of a Russian utility.
The Tax Court upheld the IRS in finding the arrangement to be a sham and disallowing the deductions. In essence, the Court collapsed the transactions and characterized them as a sale of the accounts receivable for their real fair market value at the time of the transfer. The built-in “loss” that was supposedly transferred to the partnership was disallowed because it was actually realized by the Russian utility.
In addition to disallowing the deductions, the Tax Court imposed a 40% accuracy-related penalty because the underpayment was attributable to a gross valuation misstatement (400% or more of the amount determined to be correct).
The reason I’m including this case in this newsletter is taxpayers who have substantial income seek ways to avoid the tax on the income. This is understandable. Be aware there can be substantial risks of some strategies that are “sold” to shelter taxable income, even when you get a legal opinion that the strategy is legitimate.
(Buyuk LLC, TC Memo. 2013-253, November 7, 2013.)
IRS processing delayed by federal shutdown.
The IRS has announced that they won’t be able to start processing 2013 income tax returns on time, because they were shut down for 16 days during October. They need more time to prepare for processing the tax returns. The expected date for the IRS to start processing 2013 income tax returns is about January 28, 2014, but no later than February 4.
The April 15 filing deadline won’t be changed.
Despite the delay in being able to submit income tax returns, we urge our readers and our clients to go ahead as you normally would and get your information to your tax return preparer early to avoid a bottleneck and applying for an extension of time to file your income tax returns.
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: http://www.communitymedia.se/cat/linksca.htm.
Financial Insider Weekly broadcast schedule for November and December.
Financial Insider Weekly is broadcast in San Jose and Campbell on Fridays at 9:30 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 November and December:
- November 8, 2013, attorney William Mahan, of counsel to Gates Eisenhart Dawson, “Tax considerations of title”
- November 15, 2013, attorney Bettie Baker Marshall, “Legal considerations of caring for incapacitated persons”
- November 22, 2013, Emmett Carson, PhD, CEO, Silicon Valley Community Foundation, “Promoting Community Giving as a Family Value”
- November 29, 2013, Geraldine Barry, President, San Jose Real Estate Investors Association, “How I got started investing in real estate”
- December 6, 2013, Greg Carpenter, BTI Group Mergers & Acquisitiions, “Preparing to sell a business”
- December 13, 2013, Greg Carpenter, BTI Group Mergers & Acquisitions, “Buying a business”
- December 20, 2013, attorney James V. Quillinan, Hopkins & Carley, “Should a family trust be terminated considering recent tax law changes?”
- December 27, 2013, Peter Moss, Wymac Capital, Inc., “Mortgage market developments”
Financial Insider Weekly is also broadcast as follows:
- Monday at 1:30 p.m. in San Mateo County on PenTV, Comcast Channel 26 and Astound Channel 27
- Monday at 4:00 p.m. and 7:00 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
- Mondays 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
- Tuesdays at 2:30 a.m. and 12:30 p.m. on Midpeninsula Media Center, Comcast Channel 28 in Palo Alto, East Palo Alto, Stanford, Menlo Park & Atherton
- Tuesday at 4:00 p.m. and 7:00 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
- Wednesdays at 6:00 p.m. on Comcast channel 26 in Santa Cruz County and on Charter Communications Channel 72 in Watsonville and Capitola
- Wednesday at 8:00 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
- Fridays at 2 p.m. on Comcast channel 26 in Santa Cruz County and on Charter Communications Channel 72 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 4:00 p.m. on KMTV cable channel 15 in Cupertino, Los Altos and Mountain View
- 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”
- Friday at 8:00 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
- Saturdays at 9:00 a.m. and 6:00 p.m. on Midpeninsula Media Center, Comcast Channel 28 in Palo Alto, East Palo Alto, Stanford, Menlo Park & Atherton
- Saturdays at 1 p.m. on Comcast channel 26 and AT&T U-verse channel 99 in Marin County
Past episodes are available at https://www.youtube.com/user/financialinsiderweek.
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!
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.
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.
Check out my blog.
I have also started a blog at michaelgraycpa.com. Check it out!
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.
Consult with a tax advisor
For our readers who arenâ€™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.
Subscribe to Michael Gray, CPA’s Option Alert!
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(Michael Gray is the author of Secrets of Tax Planning For Employee Stock Options, Stock Grants and ESOPs.)