Michael Gray, CPA’s Option Alert #167
An irregular alert for issues relating to employee stock options
April 6, 2018
© 2018 by Michael Gray, CPA
ISSN 1931-2768
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Table of Contents
- Due date for individuals and calendar year corporations, estates and trusts tax returns will soon be here.
- What if you don’t have the money to pay the tax?
- Remember that an estimated tax payment is also due.
- Remember the second California real estate tax payment is due April 10.
- Please share your good experiences with Michael Gray, CPA
- Financial Insider Weekly past episodes
- Questions and Answers
- Follow me on social media!
- Check out my blog
- Interested in our other newsletters?
- Consult with a tax advisor
Due date for individuals and calendar year corporations, estates and trusts tax returns will soon be here.
The due date for calendar year 2017 income tax returns for most individuals and calendar year corporations, estates and trusts is April 17, 2018. If the information for preparing them isn’t complete, extension forms should be submitted with the estimated balance of tax by April 17. (The extension form is considered to be filed if an extension payment is made using Direct Pay at https://www.irs.gov/payments/direct-pay.) If you need help with your extension, call Ms. Thi Nguyen, CPA at 408-286-7400, extension 206.
What if you don’t have the money to pay the tax?
The IRS will allow you to file an extension without paying the tax. You are still required to include an estimate of the tax due on the form. (The extension will not be accepted without this amount being entered.) The late filing penalty will be waived provided your income tax returns are filed on the extended due date, which is October 15, 2018 for most individuals.
California automatically allows the extension without filing a form.
A late payment penalty of 1/2% per month will apply for any tax due not paid by April 17, 2018, unless at least 90% of the tax finally determined was paid by that date.
Interest will also be charged for the unpaid tax and can’t be waived. (The current rate is 5% for individuals.)
If a 2017 individual income tax return isn’t filed by April 17, 2018 and a valid extension isn’t filed by that date, the late filing penalty is 5% of the unpaid tax per month filed late, to a maximum of 25%. (In some cases, California will assess a penalty on the entire tax without reduction for payments received. See your tax advisor for details.)
Remember that an estimated tax payment is also due.
The first 2017 estimated tax payment for individuals and most other calendar year entities is also due on April 17, 2018. The penalties for late payment of estimated taxes are computed as simple interest. The federal estimate payment can be based on 25% of last year’s tax liability. California “front loads” the first estimated tax payment as 30% of last year’s tax liability.
Remember the second California real estate tax payment is due April 10.
There is a nasty penalty for paying real estate taxes late, and the date slips past us because we’re thinking about April 15. Why not make this payment now, so you don’t forget it?
Please share your good experiences with Michael Gray, CPA.
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Financial Insider Weekly past episodes
After eight years of production, I have discontinued producing new interviews for Financial Insider Weekly. Doing the show has been a rewarding experience and I consider back episodes to be my legacy of financial literacy education to our community. Past episodes are available at https://www.youtube.com/user/financialinsiderweek.
Questions and Answers
Question
We have a client that inherited stock options when her mother passed away 2 or 3 years ago. The options have now been exercised and were reported to my client on a 1099-MISC in box 7 as non-employee compensation. When reporting them on her 1040, is this income subject to self-employment income with FICA taxes due or just other ordinary income and not subject to self-employment tax?
Answer
Since the employee is deceased, the income is not subject to employment taxes or self-employment tax.
The income is income with respect of a decedent and may be eligible for an itemized deduction of related estate taxes, if there were any.
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 www.employeestockoptionsecrets.com or the Special Report, Nonqualified Stock Options – Executive Tax and Financial Planning Strategies at www.stockoptionadvisors.com/stock/nqso-faq/.
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Check out my blog.
I have also started a blog at www.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 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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(Michael Gray is the author of Secrets of Tax Planning For Employee Stock Options, Stock Grants and ESOPs.)