Michael Gray, CPA’s Option Alert #163

An irregular alert for issues relating to employee stock options

December 11, 2017

© 2017 by Michael Gray, CPA

ISSN 1931-2768

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‘Tis the season for year-end planning

There are only a few weeks remaining for 2017. Make your year-end planning appointment now. Michael Gray will have limited availability. Call Dawn Siemer weekday mornings at 408-918-3162.

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Status of Tax Reform legislation

The House of Representatives has passed its version of the Tax Cuts and Jobs Act. The Senate passed its version on Saturday, December 2. Now that both houses of Congress have passed their versions, Tax Reform legislation is virtually certain to eventually pass. Congress is reconciling the differences in the legislation.

One of the surprises in the Senate bill that relates to stock options is to keep the individual alternative minimum tax with a higher exemption and higher exemption phaseouts. This was a budget-oriented change adopted after the Senate Finance Committee passed its proposal that would have repealed the alternative minimum tax.

When the legislation passes, I’ll issue a summary of the major provisions. Some of the provisions could still change.

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Fourth quarter estimated tax payment for non-corporate taxpayers is due January 16

The final estimated tax payment for individuals and calendar-year estates and trusts is due January 16, 2018. (Martin Luther King Day will be observed on January 15.) Remember California taxpayers with taxable income of $1 million or more must pay their estimated taxes using the current year’s facts.

Consider making the state tax payment by December 31, 2017 for a 2017 tax deduction. Watch the alternative minimum tax. If tax reform passes, paying by the year end will be even more important, because the deduction would be repealed for 2018.

See your tax advisor.

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Should you make additional tax payments before December 31?

State estimated tax payments and early property tax payments made by December 31 are generally tax deductible for the regular tax. However, many people are finding they are subject to the alternative minimum tax. Deductions for taxes (and miscellaneous itemized deductions) aren’t allowed for the alternative minimum tax, so there could be no benefit for a tax prepayment. A tax advisor can project your tax picture to determine if the AMT will apply. Turbo Tax and other tax preparation software can also be used to make the computations.

This situation has changed somewhat because of the 3.8% net investment income (NII) tax. Part of the state tax payment may be a “good” deduction for the NII tax even though there is no AMT benefit. See your tax advisor.

Under tax reform, the deduction for state income tax would be repealed and the deduction for real estate taxes would be reduced or repealed.

See your tax advisor.

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Should you donate appreciated publicly traded stock?

It’s the season for giving. Many of us make extra donations during December to share our bounty with others. Appreciated publicly-traded stock that has been held for more than a year is an ideal asset for a donation. Under the Internal Revenue Code, the long-term capital gain is excluded from taxable income and the charitable contribution deduction is the fair market value of the stock, so there is a double tax benefit. Also, publicly traded stock isn’t subject to the appraisal requirements that apply to other property. It’s a win-win-win! Remember to get a good acknowledgement letter to document the donation, including a statement that “no goods or services were received in exchange for the donation.”

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Donating a car to charity?

Remember that an appraisal is required for noncash contributions with a value exceeding $5,000. See Form 8283 and instructions as the IRS web site, www.irs.gov. (There is a Declaration of Appraiser on the form.) There is an exception to the rule for vehicles donated to a charity. If the charity sells the car, the taxpayer may rely on the sales price disclosed on Form 1098-C. The original Form 1098-C is submitted to the IRS with your income tax return (or otherwise sent to the IRS with Form 8453 if you efile).

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Should you accelerate tax deductions?

With a proposed increase in the standard deduction and proposed repeal of many tax deductions, including tax return preparation fees, it might be advantageous to accelerate tax deductions, such as medical expenses, mortgage interest, tax return preparation fees, asset management fees, and certain legal fees into 2017. The tax rate for the reduced income might also be lower next year under tax reform than the current tax rate for 2017.

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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 and siliconvalley.citysearch.com.

We use Angie’s List to assess whether we’re doing a good job keeping valued customers like you happy. Please visit AngiesList.com/Review/4258970 in order to grade our quality of work and customer service.

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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.

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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 www.employeestockoptionsecrets.com or the Special Report, Nonqualified Stock Options – Executive Tax and Financial Planning Strategies at www.stockoptionadvisors.com/non-q_stock.shtml.


Follow me on Twitter, Facebook or LinkedIn!

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

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Check out my blog.

I have also started a blog at www.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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