February 28, 2007

Are You A California Real Estate Investor?

The Wall Street Journal recently ran an article regarding a tax controversy experienced by a California real estate investor living in Los Angeles represented by tax counsel in Westlake Village, Ventura County, discussing the investor’s ability to report his income and expenses as a full-time real estate investor. The IRS claims he is a passive investor and therefore is auditing past income tax returns to disallow certain items of expense, depreciation and other tax benefits related to real estate investing which might cost him hundreds of thousands of dollars in additional tax, penalties, and interest.

The Los Angeles real estate investor’s attorney currently has five U.S. Tax Court cases involving people who say they are full time real estate professionals whom the IRS is trying to reclassify as passive investors. Two years ago, that tax controversy attorney didn’t have any cases like this. Perhaps there is a trend toward trying to sweep real estate investors, many of whom are investing in areas including Los Angeles County, Santa Barbara County, Orange County where opportunities abound, in order to reclassify them passive investors.

The distinction between passive investors and full time active investors is crucial to the outcome of this kind of case. Generally, a full time real estate professional spends more than half of his working hours in real estate and more than 750 hours a year tending to real estate activities. Those professionals can fully deduct losses including depreciation, interest expense on loans and property taxes. Passive real estate investors are more limited in what losses and expenses they can deduct.

The IRS targets this group of investors because it is one of the areas where research shows there is a large tax gap, that is, taxpayers are underreporting income to the IRS which creates a tax gap of $13 billion from rents and royalties and $11 billion for capital gains. Approximately 3000 income tax returns of real estate professionals are currently under audit.

If you invest in real estate and have been selected for audit by the IRS or the California Franchise Tax Board for your business activities, contact Mitchell A. Port at 310.559.5259 to discuss your situation.

February 26, 2007

IRS Announces Military Personnel Can Receive Free Tax Help

Military-based Volunteer Income Tax Assistance Program sites provide free tax preparation, tax advice, return filing and other tax assistance to military members and their families. The volunteers are trained to address specific tax issues, such as combat zone tax benefits.

If you, or your spouse, are a member of the military, you may be eligible to receive free assistance with the preparation and filing of your federal tax return. The U.S. Armed Forces participate in VITA.

The Armed Forces Tax Council oversees the operation of the military tax programs worldwide, and serves as the main conduit for outreach by the IRS to military personnel and their families. The AFTC consists of tax program coordinators for the Marine Corps, Air Force, Army, Navy and Coast Guard.

Military commanders support the program by detailing members of the military to prepare returns and by providing space and equipment for tax centers. The IRS supports these efforts by providing tax software and training.

To receive this free assistance, you should bring the following records to your military VITA site:

Continue reading "IRS Announces Military Personnel Can Receive Free Tax Help" »

February 23, 2007

California LLC Fees

Whether your LLC was formed in California or is registered to do business in California, the California LLC fee was ruled unconstitutional in two separate decisions issued by the California Superior Court.

In the face of these two decisions, the California Franchise Tax Board has a steep uphill battle to avoid loss of fees that eventually could cause lost future revenues for California in the hundreds of millions of dollars and possibly force billions of dollars of refunds.

In Northwest Energetic Services, LLC v. California Franchise Tax Board, Cal. Super. Ct., No. CGC-05-437721, 4/13/06, the Court decided that the annual fee (starting at a minimum of $800), based on gross income worldwide violated the fair apportionment requirements of the Due Process and Commerce Clauses of the US Constitution. Northwest Energetic had NO business activity in California during the years in question.

If you are a member of an LLC, you should consider filing a protective claim for refund with the California FTB if the LLC does business outside of California and has paid the annual fee based on gross income earned both inside and outside California. The refund claim would be for the fee paid on gross income earned from outside California. Contact a California tax attorney to pursue your claim.

In a second California Superior Court case called Ventas Finance I, LLC v. California Franchise Tax Board, the Court again decided the annual LLC fee was unconstitutional. This case involved a real estate investment trust based outside California but registered to do business as an LLC in the state. The LLC apparently did less than ten percent of its business activity in California during the years in question. The Court held that this LLC tax was unconstitutional because it was not fairly apportioned and was based on worldwide gross receipts rather than its in-state activities.

These two decisions indicate that the LLC fee is unconstitutional regardless of whether the LLC has all of its activities or a part of its activities outside of California. In the end, the LLC fee may be found to be unconstitutional even with respect to California-based LLCs that have no activities outside of California.

Since no California appellate court has reviewed either of the lower Court decisions, the propriety of collecting the fee remains up in the air. You can continue to pay the fee and at the same time file a protective claim for refund so that you do not incur penalties and interest for nonpayment and so you can avoid suspension by the California Secretary of State's office.

If you would like to consult on this topic or obtain other tax help, call Mitchell A. Port at 310.559.5259.

February 22, 2007

Kids In California Pay Taxes Too

Some or all of your child's investment income – including investment income earned in California - may be taxed at your higher rate rather than your child's lower rate. Investment income includes interest, dividends, capital gains, and other unearned income. This is not to be confused with wages and other earned income received by your child of any age that are taxed at your child's normal rate.

In California, the amount not taxed is $850. You compute the California State tax by using Form 3803 "Parents' Election to Report Child's Interest and Dividends".

If you make this election, your child will not have to file a California State income tax return. You may report your child’s income on your California income tax return even if you do not do so on your federal income tax return. You may make this election in California if your child meets all of the following conditions:

Was under age 14 at the end of 2006, Note: A child born on January 1, 1993, is considered to be age 14 at the end of 2006;

Is required to file a 2006 return;

Made no estimated tax payments for 2006;

Had gross income for 2006 that was less than $8,500;

Had income only from interest and dividends;

Did not have any overpayment of tax shown on his or her 2005 return
applied to the 2006 estimated taxes; and

Had no state income tax withheld from his or her income (backup

Computing the federal income tax applicable to your child only applies to children who are under the age of 18. For 2006, it applies if your child's total investment income for the year was more than $1,700.

Form 8615, “Tax for Children Under Age 18 With Investment Income of More Than $1,700”, is what you need to use to figure your child's tax. When you’re done, attach the Form to your child's federal income tax return.

Alternatively, as a parent you can choose to report your child's investment income on your own individual income tax return. Generally speaking, this option is available if your child's income consists entirely of interest and dividends (including capital gain distributions) and the amount received is less than $8,500. However, you ought to first speak with your accountant because choosing this option may reduce certain credits or deductions you may claim.

More information can be found in IRS Publication 929, "Tax Rules for Children and Dependents".

February 21, 2007

Victims of Tax Scams Live Throughout California

The Internal Revenue Service identifies some of the most common tax scams affecting us and warned people not to fall for these schemes presented by scam artists. We in California are not immune to the kinds of predatory tactics described here. As a Los Angeles tax attorney, I can be an excellent target of an unscrupulous promoter. Those of you living in Santa Barbara County, Ventura County, and Orange County can be particularly targeted because the scam artist believes the prize is bigger.

We should remember we are ultimately responsible for what is on our tax return even if some unscrupulous preparers have steered us in the wrong direction. If you use a tax professional, pick someone who is reputable. It isn’t all that comforting to us who fall prey to scamster to know that tax return preparers and promoters of tax schemes risk significant penalties, interest and possible criminal prosecution.

The IRS urges us to avoid these common schemes:

Continue reading "Victims of Tax Scams Live Throughout California " »

February 20, 2007

California Can Reward Tax Informants Just As The IRS Does

The California Franchise Tax Board (FTB) had an informant reward program to encourage and reward informants who provide insightful information to identify and curtail abusive tax shelters and other abuses of the California tax code. Evidently, that statute has not been used because the complexity and sophistication of abusive tax shelters and other abusive tax schemes requires a greater degree of FTB discretion and clarity of the amount to pay informants and the funding mechanism used to pay informants. Since the California FTB lacks the flexibility to encourage and reward informants, the reward program is dormant.

The Internal Revenue Service (IRS) pays rewards! It has the discretion to pay rewards to informers for information about tax law violations. Except for Treasury and certain other federal employees, any informant is eligible for a reward. The amount of the reward normally will not be more than 15% of the additional taxes, penalties, and fines collected as a result of the informant’s information. The IRS will pay claims for reward applied for on Form 211 related to the value of the information given voluntarily and upon the informant’s own initiative with respect to taxes, fines, and penalties (but not interest) AFTER the Service collects.

The IRS may pay rewards it deems necessary for information that leads to detection or bringing to trial and punishment tax law violators and the actual underpayment of tax. The IRS may pay rewards whether the information relates to civil or criminal violations.

The Service will not pay any reward if it is less than $100.

Some of the grounds for rejecting claims include:

Continue reading "California Can Reward Tax Informants Just As The IRS Does" »

February 16, 2007

IRS Tax Controversy Settled for Huge Amount

The IRS claims the pharmaceutical giant Merck & Co. owed $3.8 billion in back taxes. Merck settled with the IRS yesterday for $3.4 billion. California taxes will likely be paid too because Merck had sales in California.

The details of the tax problem have not been disclosed. But apparently it revolved around a 1993 transaction in which Merck created a partnership in Bermuda, a tax haven, to finance its purchase of another company.

The company Merck purchased sold two cholesterol drugs and Merck paid the partnership that it set up royalties from those drug sales. Merck deducted the royalty payments as business expenses when it filed its U.S. corporate income tax return.

By setting up the partnership, Merck deducted money it essentially paid itself.

Both Merck and the IRS see the settlement in its own best interests. In view of the time and uncertainty of taking complex tax issues to court when so much is at stake, each side won’t have to spend years litigating and millions of dollars.

Having a tax attorney who is accustomed to dealing with complicated fact patterns analyze your situation so as to bring about the best possible result is invaluable.

February 16, 2007

The 100% Penalty and Your California Tax Attorney’s Help

To influence prompt payment by California employers for workers in Los Angeles County, Ventura County, Santa Barbara County and Orange County of withheld income and employment taxes including social security taxes, Congress passed a law that provides for the trust fund recovery penalty (“TFRP”).

The TFRP is the same as the so-called 100% penalty. These taxes are called trust fund taxes because as a California employer you actually hold the employee's money in trust until you make a federal tax deposit in that amount. As an employer in California, you are fully liable for 100% of the amount you collected from your employees that ought to be paid to the IRS. The TFRP may apply to you if these unpaid trust fund taxes cannot be collected right away by the IRS from your business. In order for the TFRP to be assessed, your business does not have to have stopped operating.

Who Can Be Responsible for the 100% Penalty

The TFRP may be assessed against you if you willfully fail to collect or pay the trust fund taxes and if you are responsible for collecting or paying withheld income and employment taxes, or for paying collected excise taxes.

For willfulness to exist, you as the responsible person:

(i) Must have been, or should have been, aware of the outstanding taxes and

(ii) Either intentionally disregarded your legal obligations or were plainly indifferent to its requirements (no evil intent or bad motive is required).

Using available funds to pay other creditors when your business is unable to pay the employment taxes is an indication of willfulness.

You may be considered a responsible person or part of a group of people who has the duty to perform and the power to direct the collection, accounting, and payment of trust fund taxes. As a responsible person you may be:

Continue reading "The 100% Penalty and Your California Tax Attorney’s Help" »

February 15, 2007

Paying Your Taxes In Full – California and Federal Tax Law

Whether paying with a timely filed income tax return, or filing late and paying late after receiving a tax bill from the IRS, we in California and all other taxpayers ought to pay the taxes we owe in full. This type of tax problem is often easily resolved. If you don’t pay your taxes and you don’t make any effort to pay them, the IRS can forcefully ask you to take action to pay the taxes, such as getting a loan or selling or mortgaging any assets you own. Mortgaging your home in Southern California, including areas like Los Angeles County, Ventura County, Orange County or Santa Barbara County, can be quite expensive but probably cheaper than IRS rates.

If you still make no effort to pay your tax bill after being asked by the IRS, or make some type of payment arrangement, the IRS will probably take more serious enforced collection action, such as levying your wages or other income, your bank accounts, or taking other assets by seizing them. The IRS could also file a Notice of Federal Tax Lien that will likely harm your credit standing.

Ways to Pay Taxes:

Payments can be made by check, money order, credit card, electronic funds transfer, cashier’s check, or cash.

If you choose to make an easy, safe and secure electronic payment, you can authorize an electronic funds withdrawal, use a credit card, or enroll in the U.S. Treasury’s Electronic Federal Tax Payment System (EFTPS).

Electronic payment options give you an alternative to paying taxes by check or money order. Payments can be made any time 24/7. Best of all, the electronic funds withdrawal and EFTPS options are free.

Payments by credit card can be made through one of two official vendors:

Continue reading "Paying Your Taxes In Full – California and Federal Tax Law" »

February 14, 2007

California Taxpayers: Innocent Spouse Relief

If you qualify for innocent spouse relief, you can be relieved of responsibility for paying tax, interest, and penalties if your spouse or former spouse improperly reported items or left off items in your income tax return. This is true for California and for the federal government. California has an “Innocent Souse Relief Application”. Generally, the IRS says that if you qualify for innocent spouse relief, then the tax, interest, and penalties can only be collected from your spouse or former spouse and will not be collected from you. However, if you don’t qualify for innocent spouse relief, you are jointly and individually responsible for any tax, interest, and penalties and the IRS can collect these amounts from either one of you.

A consultation with a California tax lawyer might be prudent to determine if you qualify for relief.

To qualify for innocent spouse relief, you must meet all of these 4 conditions:

You filed a joint return which has an understatement of tax due to erroneous items (defined below) of your spouse or former spouse.

You request relief within 2 years after the date the IRS first attempted to collect the tax from you.

You establish that at the time you signed the joint return you did not know, and had no reason to know, that there was an understatement of tax (See Actual Knowledge or Reason To Know, defined below).

Taking into account all the facts and circumstances, it would be unfair to hold you liable for the understatement of tax. (See Indications of Unfairness for Innocent Spouse Relief, discussed more fully below in this blog).

To apply for this relief, complete the IRS Form 8857 "Request For Innocent Spouse Relief".

Continue reading "California Taxpayers: Innocent Spouse Relief" »

February 13, 2007

Unexpected Tax Due: California IRA Owners Beware

The IRS will not bail you out of adverse tax consequences resulting from your mistake when it comes to IRA withdrawals no matter how unintentional. Although the taxpayer did not live in California, the ruling impacts those who do live throughout the State of California. The IRS, in a Private Letter Ruling (defined as taxpayer-specific written decisions by the Internal Revenue Service in response to a taxpayer's request which sometimes applies to unpaid taxes), denied a taxpayer's request for permission to do a late rollover of an IRA distribution. Here was the situation:

The taxpayer’s daughter had a durable power of attorney to act on her father’s behalf because he suffered from a mental impairment disease.

In order to provide for her father’s future nursing home care, the daughter used that power and withdrew an amount from her father's IRA.

It was only later, after the expiration of the 60 day rollover period, that the daughter realized the tax consequences of the IRA withdrawal.

The private letter ruling was requested based upon the daughter not realizing the tax consequence of the withdrawal.

The IRS denied the request to do a late rollover because there was never any intention to do a rollover at the time of the IRA withdrawal.

The applicable rule, generally speaking, is that the amount withdrawn is not subject to income tax if the amount withdrawn from an IRA is re-deposited within 60 days of the withdrawal. If you fail to re-deposit the amount withdrawn within 60 days you may request a waiver from the IRS that would permit you to do a late rollover and avoid taxation.

In Revenue Procedure 2003-16 the IRS listed certain circumstances that they would consider in determining whether or not to grant permission for a late rollover. These include:

errors committed by a financial institution;

inability to complete a rollover due to death, disability, hospitalization, incarceration, restrictions imposed by a foreign country or postal error;

the use of the amount distributed (for example, in the case of payment by check, whether the check was cashed); and

the time elapsed since the distribution occurred.

In this private letter ruling, the IRS stated that none of the factors described in Revenue Procedure 2003-16 were met since the daughter, using her power of attorney, withdrew the money from the IRA to provide future nursing home care for her father. Apparently, she did not consult with any professional as to whether this course of action was tax-wise.

Consult with a tax lawyer when you are about to take action with tax consequences.

February 12, 2007

Receipts Required For All Contributions - Even To Your Own California Family Foundation

The tax law requires a written receipt for every charitable contribution of $250 or more whether the charity is in California or elsewhere. You must obtain from the organization to which you made a contribution "a contemporaneous written acknowledgment." Follow this simple rule and avoid an unnecessary tax controversy.

At one time a canceled check was enough evidence for a charitable contribution deduction, but this is no longer the case since the 2006 Pension Protection Act tightened the requirements for smaller contributions.

The need for a receipt is less obvious in the case of a family foundation, and as a result the family and its California tax attorney must be very careful not to overlook this requirement. Briefly, a Californa family foundation is a fully qualified charitable organization and any transfer of money or property to the foundation must follow all of the rules governing charitable contributions, including the requirement of a contemporaneous written acknowledgment.

A person making a contribution to his or her own California family foundation might think that the actual charitable transfer will occur later when the foundation makes its grants to other entities located in different California counties such as Los Angeles County, Orange County, Ventura County or Santa Barbara County. Unfortunately, for tax purposes that is not the case.

This may seem like a pointless requirement. After all, when you make a contribution to your own family foundation you may be on both sides of the matter. You are the donor making the contribution and, as an officer of the foundation, you are also in a sense the donee.

Congress might logically have provided an exception for California family foundation contributions. But it didn't! As a result, however unnecessary it might seem, you must have the requisite receipt.

What happens if the receipt cannot be produced in timely fashion?

Continue reading "Receipts Required For All Contributions - Even To Your Own California Family Foundation" »

February 11, 2007

Know the Difference Between What Income Is Taxable or Nontaxable in California

Most income we receive is taxable both by California and by the federal government. But there are some situations when certain types of income are not taxed at all or partially taxed.

Examples of items that are not included in your income include:

Child support payments Gifts, bequests and inheritances Tax Exempt Interest from municipal bonds and tax exempt bond mutual funds. Although the interest is not taxable, it must be reported on your income tax return

Workers' compensation benefits

Adoption Expense Reimbursements for qualifying expenses

Meals and Lodging for the convenience of your employer

Compensatory Damages awarded for physical injury or physical sickness

Cash Rebates from a dealer or manufacturer

Examples of items that may or may not be included in your income are:

Life Insurance. Life insurance proceeds paid to you because of the death of the insured person are not taxable unless the policy was turned over to you for a price. If you surrender a policy for cash, you must include in income any proceeds that are more than the cost of the policy.

Scholarship or Fellowship Grant. If you are a candidate for a degree, you can exclude amounts you receive as a qualified scholarship or fellowship. Amounts used for room and board do not qualify

A complete list is available in IRS Publication 525, Taxable and Nontaxable Income. These examples are not all-inclusive.

If you believe the IRS has taxed income that is non-taxable, consult a tax attorney. Call Mitchell A. Port at 310.559.5259.

February 9, 2007

Tax Refunds to Those in California: You Have More Deposit Options

In every county throughout California, including Los Angeles County, Ventura County, Orange County, and Santa Barbara County, you have more choices for the direct deposit of your 2006 federal income tax refunds. Now, you can split refunds among up to three accounts held by as many as three different U.S. financial institutions, such as banks, mutual funds, brokerage firms or credit unions. Those financial institutions need not be in Los Angeles, Ventura, Orange or Santa Barbara counties but can be anywhere in California or outside of California.

The option of a split-refund is available to those of us who choose direct deposit regardless of whether we filed the original returns on paper or in electronic format. However, those of us filing Form 1040-EZ-T, Request for Refund of Federal Telephone Excise Tax, or Form 8379, Injured Spouse Allocation, cannot opt to split our refund.

You can continue to use the direct deposit line on Form 1040 to electronically send your refunds to one account. But if you want to split direct-deposit refunds among two or three accounts or financial institutions, you should complete new Form 8888, Direct Deposit of Refund to More Than One Account.

The IRS will electronically deposit refunds to your accounts held by a U.S. financial institution if an accurate account number and American Bankers Association (ABA) routing number is supplied and the financial institution accepts direct deposits for the type of accounts designated. If an error is made, the IRS assumes no responsibility for it.

You can take advantage of important differences in saving time when you do things electronically instead of by paper. For those of us filing our taxes electronically, the refund is deposited in our account within two weeks. A paper check refund takes three weeks. Those of us filing taxes on paper, the process is longer; we get our direct deposit refund within four to six weeks or paper checks within six weeks.

To speak about this topic with a California tax attorney, call Mitchell A. Port at (310) 559-5259.

February 9, 2007

Tax Exempt Entities in California: IRS Offers You An Online Workshop To Operate A 501(c)(3)

Do you have a tax exempt entity in California? The Internal Revenue Service has launched a new web-based version of its popular Exempt Organizations Workshop covering tax compliance issues confronted by your small and mid-sized tax exempt organizations.

The free online workshop – Stay Exempt – Tax Basics for 501(c)(3)s – consists of five interactive modules on tax compliance topics for exempt organizations. They are:

Tax-Exempt Status – How can you keep your 501(c)(3) exempt?

Unrelated Business Income – Does your organization generate taxable income?

Employment Issues – How should you treat your workers for tax purposes?

Form 990 – Would you like to file an error-free return?

Required Disclosures – To whom do you have to show your records?

You can access this new training program at www.stayexempt.org. You can complete the modules in any order and repeat them as many times as you like. The online training website does not require registration and its visitors will remain anonymous.

If you would like the help of a tax lawyer, call Mitchell A. Port at 310.559.5259.

February 8, 2007

California Taxpayers: Are You Missing A Form 1099?

For certain types of income you receive from your work in California, Los Angeles, or elsewhere, you may get a Form 1099 for use with your federal and California state individual income tax return. You should receive your Form 1099 information returns by the January 31, 2007 deadline. Form 1099 is an information return provided by the one who pays your income.

If you have not received a Form 1099 within a few days after the deadline that you believe you should have received it, I recommend that you contact the person or company who paid you in order to get the missing information. If by February 15th you still don’t have the form, call the IRS for assistance at 800-829-1040.

If you don’t get the Form 1099 you expect, you may still be able to figure out the income earned from a particular source. For example, your bank may put a summary of the interest paid to you during the year on the December or January bank statement. In this way, you can still prepare your individual income tax return without waiting to get the Form 1099.

Different types of Form 1099 show income from various sources. The IRS calls this type of Form 1099 a 1099-series. Usually, you are not required to attach the 1099-series to your tax return except when you receive a Form 1099-R or Form 1099-INT that shows federal income tax withheld. I recommend that you keep a copy of all the 1099s that you receive with your tax records for the year.

There are several different forms in the Form 1099-series, including:

Form 1099–B, Proceeds From Broker and Barter Exchange Transactions

Form 1099–DIV, Dividends and Distributions

Form 1099–INT, Interest Income

Form 1099–MISC, Miscellaneous Income

Form 1099–OID, Original Issue Discount

Form 1099–R, Distributions from Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.

Form SSA–1099, Social Security Benefit Statement

After you file your income tax return and later receive a Form 1099 for income that you did not fully include on that return, I suggest that you report the income and take credit for any federal income tax withheld by filing Form 1040X, Amended U.S. Individual Income Tax Return.

The IRS Web site at IRS.gov or its toll-free number at 800-TAX-FORM (800-829-3676) makes available the Form 1040X and instructions.

If you need the assistance of a California tax attorney, call Mitchell A. Port at 310.559.5259.

February 7, 2007

California's Franchise Tax Board, the IRS and Tax Payment Plans

For those of us who can’t resolve our California or federal tax debt immediately, an installment agreement can be a good payment option. You may be eligible for an installment agreement which allows for the full payment of the tax debt in smaller, more manageable monthly amounts. Your installment agreement, payment agreement, payment option or a payment plan are all the idea same since each one allows you to make payments over time on the tax you owe. That sounds like a good deal, but you can save money by paying the full amount you owe as quickly as possible to minimize the interest and penalties you’ll be charged.

You may be eligible for an installment agreement on past taxes but you must have filed all required tax returns and paid your estimated tax payments for current taxes if required.

How to Set Up an Installment Agreement

If you want to pay off a tax debt through an installment agreement, and owe:

$25,000 or less in combined tax, penalties, and interest can use the Online Payment Agreement (OPA) or call the number on the bill or notice (have the bill or notice available, along with the social security number). A fill-in Request for Installment Agreement, Form 9465, is available online that can be mailed to the address on the bill.

More than $25,000 in combined tax, penalties, and interest may still qualify for an installment agreement, but a Collection Information Statement, Form 433F may need to be completed. Call the number on the bill or mail the Request for Installment Agreement, Form 9465 and Form 433F to the address on the bill.

Eventually, you will receive a written notification telling you whether your terms for an installment agreement have been accepted or if they need to be modified.

To speak with a tax attorney, call Mitchell A. Port at (310) 559-5259.

February 7, 2007

You Will Be Impacted By Tax Law Changes In 2006 - California Be Aware

You and I should be aware of important changes to the tax law before we complete our 2006 federal and California state income tax forms. Those changes will likely affect our California state tax returns too. It may be time to consult with a California tax attorney on this or other tax matters.

For more information, you may visit the IRS website at http://www.irs.gov/. Also, you can check out Publication 553, Highlights of 2006 Tax Changes, and your Form 1040 instruction book. The California Franchise Tax Board has its useful information posted at http://ftb.ca.gov/.

Here are some changes that may affect your tax return:

Continue reading "You Will Be Impacted By Tax Law Changes In 2006 - California Be Aware" »

February 6, 2007

California Tax Filing Deadline Extended to April 17

California - through the Franchise Tax Board - and the IRS has announced that tax returns and tax payments that would otherwise be due on April 16 (the first Monday after April 15) will be timely if filed or paid by Tuesday, Apr. 17. This is because of newly enacted legislation in Sacramento, California and Washington, D.C. designates April 16 as a holiday. This is not a federal holiday, the California Franchise Tax Board and IRS will be open for business, but nevertheless is a holiday for the rule about timely filing and paying.

Federal tax authorities say that most IRS forms, instructions and publications have already gone to print with the incorrect Apr. 16 date and will not be revised. California’s Franchise Tax Board takes a similar position.

The broadened Apr. 17 deadline applies to the following:

Calendar-year 2006 federal individual income tax returns, whether filed electronically or on paper (Forms 1040, 1040A or 1040EZ).

Tax-year 2006 balance-due payments, whether made electronically (direct debit or credit card) or by check.

For calendar-year taxpayers, individual estimated tax payments for the first quarter of 2007, whether made electronically or by check. In rare cases, estimated tax payments for the second, third and fourth quarters may be affected for individuals operating on a fiscal year that is not a calendar year.

Individual refund claims for tax year 2003, where the regular three-year statute of limitations is expiring.

For calendar-year taxpayers, tax-year 2006 contributions to a Roth or traditional IRA.

Corporation income tax returns, including S corporations (Forms 1120, 1120-A and 1120S) for a fiscal year ending on Jan. 31, 2007, and any balance due.

For calendar-year corporations, the estimated tax payment for the first quarter of 2007. In some cases, estimated tax payments for the second, third and fourth quarters may be affected for corporations operating on a fiscal year that is not a calendar year.

Calendar-year estate and trust income tax returns (Form 1041) and any balance due.

Calendar-year 2006 partnership returns (Form 1065).

Extension requests for any return whether submitted electronically or on Form 4868.

The March tax deposit for employers (generally, small businesses) required to deposit withholding taxes on a monthly basis.