Michael Gray, CPA's Real Estate Tax Letter

August 17, 2018

© 2018 by Michael C. Gray
ISSN 1930-0387

A monthly report focusing on tax issues for the homeowner and real estate investor.

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My schedules.

I (Michael Gray) will be away from my office after August 20, returning August 27. I will also be away from my office on August 28.

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It's time for cleanup and extensions.

Maybe you have an issue for which you would like a second look on the income tax returns you just filed. Maybe you have extended income tax returns that you need to have prepared. Or maybe you have some planning issues for which need advice. To make an appointment, call Thi Nguyen, CPA at 408-286-7400, extension 206. (Thi is also on vacation and will return by September 1.)

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Special offer for update of The Real Estate Tax Handbook, 2018 Edition.

We have been hard at work getting our books updated for the Tax Cuts and Jobs Act of 2017, enacted last December and mostly effective at the beginning of 2018. The Real Estate Tax Handbook, 2018 is now available to our subscribers for half price through August 31, 2018.

The half-price investment for the book is $29.99 plust $5.00 shipping and handling and $3.24 California sales tax for California residents. Follow this link https://www.siliconvalleypublishingcompany.com/products/real-estate-tax-handbook-2014-edition to buy online using the coupon code RETH2018 or call in your order to Dawn Siemer weekdays at 408-918-3162.

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Do you love travel?

I have created a Facebook travel group, called Travel Adventures, for members to share travel photos, experiences and tips. If you are on Facebook, you can use this URL to join: https://www.facebook.com/groups/207423476536726/, or search "Groups" on Facebook. You have to use the "join" button to join the group. This is a closed group, and I will approve your membership.

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Do you love Disney?

I have created a Facebook group, called Disney Magic, for members to share Disney photos, experiences and tips. I am also posting developments for Disney films, television shows, and amusement parks there. If you are on Facebook, you can use this URL to join: https://www.facebook.com/groups/2006739209578437/, or search "Groups" on Facebook. You have to use the "join" button to join the group. This is a closed group, and I will approve your membership.

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September 15 due dates.

The due date for extended income tax returns for calendar-year partnerships and S corporations is September 15.

Federal estimated tax payments for individuals are also due September 15. There is no California estimated tax payment due September 15 because estimate payments for April and June are "front loaded."

The federal estimated tax payment can be based on the income tax reported on the 2017 federal income tax return. If the 2017 federal adjusted gross income was more than $150,000 (or $75,000 if married filing separately), the payment can be based on 110% of the income tax on the 2017 federal income tax return. Alternatively, the payment can be based on 90% of the actual tax for 2018. Although the tax payment is 25% of the annual tax liability, the computations can be made using income and deductions through August 31.

With the tax law changes for 2018, you might want to get professional help with your estimated tax payments this year.

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IRS issues proposed regulations for 20% deduction for business income.

The 20% deduction for qualified domestic business income of noncorporate and S corporation businesses is one of the most complex provisions of the Tax Cuts and Jobs Act that was enacted last December. The IRS has finally issued proposed regulations as initial guidance. I have summarized the proposed regulations in a special report. Click this link for a blog post with the report. http://www.michaelgraycpa.com/posts/irs-issues-proposed-regulations-for-the-20-of-domestic-trade-or-business-income-deduction/

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More tax cuts?

There is talk in Congress of extending the tax cuts for individuals set to expire after 2025. This would increase the deficit cost of the legislation signficantly. I think it's highly unlikely Congress will be able to pass this proposal before the elections in November.

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Unilateral capital gains tax cut?

The Trump administration is investigating whether it can reduce federal income taxes on capital gains by indexing the tax basis (cost for computing gain or loss) of capital assets for inflation. I don't think that the Executive Branch should be able to do this by executive order without the consent of Congress.

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Update your internet browser.

For security reasons, the California Franchise Tax Board will no longer allowing access to its online services for older browsers. Effective July 1, 2018, the restriction will apply to online services like Check Your Refund, Web Pay, MyFTB, etc. Effective November 1, the restriction will apply to the rest of its web site. The solution is simple. Update your Web Browser.

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California employers won't pay FUTA "credit reduction" for 2018.

The U.S. Department of Labor has announced the only place subject to the FUTA "credit reduction" make up payment for 2018 is the Virgin Islands. Virgin Islands employers will pay FUTA tax at a rate 2.4% higher than other employers. California employers won't be subject to the additional tax for 2018.

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IRS program manager says employer make up of missed withholding isn't additional wages.

The IRS issued a Program Manager Technical Advice stating that an employer's payment of taxes that should have been withheld from an employee in a prior year relating to taxable fringe benefit income provided to the employee but not timely reported to the IRS does not create additional wages to the employee for that taxable year. (Generally taxes paid by an employer on behalf of an employee are taxable wages, requiring a "gross up" computation. This was evidently an exception to that rule. The employee won't get credit for the withholding paid late by the employer on his or her behalf.)

(Program Manager Technical Advice 2018-015.)

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LLCs don't qualify for privacy protection.

The Sixth Circuit Court of Appeals affirmed a federal district court in finding that two limited liability companies did not have standing to sue the IRS under the Rict to Financial Privacy Act. LLCs are not "customers" under the Act's definition because they are not (1) individuals or (2) a partnership of five or fewer individuals. The IRS was protected by sovereign immunity.

(Hohman v. Eadie, No. 17-1869, 6th Circuit, July 5, 2018.)

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Home office deduction denied for storing records in a garage.

The Tax Court ruled that a business owner couldn't claim a home office expense for storing business records in his garage. The taxpayer wasn't in the trade or business of selling products at retail and his business records and invoices weren't inventory.

(Najafpir v. Commissioner, T.C. Memo. 2018-103, July 3, 2018.)

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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 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. Back episodes available at https://www.youtube.com/user/financialinsiderweek.

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Questions and Answers

Michael Gray regrets he can no longer personally answer email questions. He will answer selected questions in this newsletter.

Dear readers:

Many of your questions relate to the sale of a principal residence. We have an article at our web site, "Could your residence be the ultimate tax shelter?" (www.realestateinvestingtax.com/residence.shtml) where you should be able to find the answers to most of these questions.

Many other questions relate to short sales and foreclosures. See our article on that subject at www.realestateinvestingtax.com/shortsale.shtml.

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Follow me on Twitter, Facebook, LinkedIn and Google+!

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.

you can also follow me on other social media sites, Facebook, LinkedIn, and Google+.

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If you have employee stock options, have you subscribed to Michael Gray, CPA's Option Alert at no charge or obligation?

To learn more, visit stockoptionadvisors.com/subscribe.shtml

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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 at taxtrimmers.com/subscribe2.shtml.

Have employee stock options? Subscribe to our free newsletter, Michael Gray, CPA's Option Alert! To learn more, visit stockoptionadvisors.com/subscribe.shtml.

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Michael Gray, CPA
2482 Wooding Ct.
San Jose, CA 95128
(408) 918-3162
FAX: (408) 938-0610
Hours: 8am - 5pm PDT Monday - Friday

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