Michael Gray, CPA’s Option Alert #126

An irregular alert for issues relating to employee stock options

August 20, 2014
© 2014 by Michael Gray, CPA
ISSN 1931-2768

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

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Michael Gray will be out of the office part of September

Michael Gray will be out of town the week of September 8, returning September 15. He will not be checking messages or emails until he returns. Get the information for your projects due September 15 to us right away!

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Extended 2013 calendar year corporations, S corporations, partnerships, estates and trust tax returns are due September 15

To avoid significant late filing penalties, be sure to submit your income tax returns for these entities on time. This is also the due date for making most business retirement plan contributions for these entities for 2013.

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Third quarter estimated federal income tax payments are due September 15

The third quarter federal estimated tax payment for individuals and calendar year corporations, S corporations, partnerships and trusts is due September 15. California doesn’t have a third quarter payment because the first two payments are “front loaded.” Most taxpayers who make estimated tax payments will base them on their 2013 tax liabilities. Those who have uneven income or whose income will be less than last year’s should consult with their tax advisor to have tax projections done. Our clients should have them done by September 5, after which I’ll be out of town for a week.

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Extended 2013 calendar year individual income tax returns are due October 15

Remember the extended due date for 2013 income tax returns is October 15, less than two months away. If you haven’t done so already, get the information to prepare your tax returns to your tax return preparer now. This is the extended tax season for tax return preparers, so plan on preparers being under stress and grumpy. Bring food.

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Keep documents (or have them available) for history of compensatory shares

An employee who receives employer shares through a restricted stock grant or by exercising a stock option might sell them years later. It will be important for tax reporting to have the documentation for how those shares were received.

For example, an employee receives RSU shares that vest over a period of years. Income taxes are paid by selling a portion of the shares as they vest. The employee should save the statement received from the employer that shows the net shares received and the value on the vesting date to determine the cost of the shares when they are sold.

For another example, an employee exercises a non-qualified option and makes a Section 83(b) election, including giving a copy of the election to the employer. The employee should keep the confirmation of exercise statement and the Section 83(b) election to show the fair market value on the date of exercise for the net shares received, which will be the cost reported when the shares are sold.

For a third example, an employee exercises a fully-vested incentive stock option. The employee should keep the confirmation of exercise and Form 3921 received from the employer. If the employee keeps the shares, the excess of the fair market value of the shares over the option price is reported as income on the alternative minimum tax form for the year of exercise. Assuming the holding period requirements are met when the shares are sold, the cost reported on the regular income tax Schedule D will be the option price of the stock. The cost reported on Schedule D for alternative minimum tax reporting will be the fair market value of the stock on the date of exercise. The reduced gain on the alternative minimum tax form enables the employee to recoup some of the alternative minimum tax paid for the year of exercise via the minimum tax credit.

For a fourth example, an employee purchases shares through an employee stock purchase plan. The employee should keep the document disclosing the details of the purchase of the stock on Form 3922 received from the employer. Ordinary income will have to be computed relating to the sale of the stock even if the holding period requirements are met, unless the stock is sold at a loss. If the holding period requirements aren’t met, ordinary income will have to be computed even if the stock is sold at a loss. If ESPP shares are held at death, ordinary income might have to be reported on the employee’s final income tax return.

You can see that keeping or having access to this documentation is important for future income tax reporting. You can also see the rules for reporting these transactions are complex and a professional tax return preparer can serve a useful role by assuring they are reported properly.

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Do you need help with your extended 2013 income tax returns?

The extended due date for calendar year business income tax returns is September 15 and the extended due date for calendar year individual income tax returns is October 15. We are already hard at work for these tax returns for many of our clients and we would welcome more. May we be of service with your extended returns? Call Dawn Siemer at 408-918-3162 on Mondays, Wednesdays or Fridays to make an appointment.

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Do you need help with amended income tax returns?

We have already been meeting with folks who want a second look at their 2013 income tax returns for possible corrections. Call Dawn Siemer at 408-918-3162 on Mondays, Wednesdays or Fridays to make an appointment.

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Does your group need a speaker?

We are seeking opportunities to speak before groups. Topics include recent tax developments, tax issues relating to real estate, how estate planning has changed recently, tax issues relating to alternative investments using retirement accounts, and marketing topics such as “How I created a public access television show broadcast on eleven Bay Area stations.” To make arrangements, call Michael Gray at 408-918-3161.

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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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Financial Insider Weekly broadcast schedule for August and September.

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 August and September:

August 22, 2014, Janis Carney, attorney at law, Carney, Sugai & Sudweeks LLP, “Veterans’ Administration benefits for long-term care”
August 29, 2014, Naomi Comfort, attorney at law, Silicon Valley Elder Law, “Estate planning documents in action – Donald Sterling’s story”
September 5, 2014, Naomi Comfort, attorney at law, Silicon Valley Elder Law, “Financial scams with elderly victims”
September 12, 2014, Dick Blakeley, CEO, The Blakeley Group, Inc., “Family Wealth Literacy”
September 19, 2014, Dick Blakeley, CEO, The Blakeley Group, Inc., “Family Wealth Literacy” (repeat broadcast)
September 26, 2014, Scott Haislet, attorney at law, “New repair and capitalization income tax rules for business and rental real estate owners”

Financial Insider Weekly is also broadcast as follows:

  • Sunday at 1 p.m. on Comcast channel 26 in Santa Cruz County and on Charter Communications Channel 72 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 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
  • Tuesday at 10:30 a.m. on Comcast channel 26 in Santa Cruz County and on Charter Communications Channel 72 in Watsonville and Capitola
  • Tuesday 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

  • 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
  • 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
  • Saturday 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
  • Saturday at 1:00 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 answer emails personally. He will answer selected questions in this newsletter. Email your questions to mgray@stockoptionadvisors.com.

See the books mentioned at http://http://www.siliconvalleypublishingcompany.com/products/secrets-of-tax-planning-for-employee-stock-options-2014-edition or the Special Report, Nonqualified Stock Options – Executive Tax and Financial Planning Strategies at http://www.stockoptionadvisors.com/non-q_stock.

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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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