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Tax Season Toolkit: everything you need for the most wonderful time of the year!

"It's the most wonderful time of the year," croons Andy Williams through the Muzak system of nearly store you enter this month. But is something lurking in the corner--behind the Game Boys, golf clubs and Post-Millennial Barbies? Could It be the ghost of tax season past waiting to pounce on your holiday bliss like the Grinch on a Whoville resident?

Never fear! With CalCPA's annual Tax Season Toolkit, your slide into tax season will be as cool as a slosh down the snow-laden slopes. Soon you'll be in high gear meeting with clients, researching what's new in the tax codes and updating your software to provide the best service you can. So get ready for the "hap-happiest season of all"--tax time!

California Tax Tips

Practitioner Hotline Hours Cut

Because of budget reductions, the FTB has had to reduce its Tax Practitioner Hotline hours. Hotline hours for the 2003 filing season are Monday-Friday, 8 a.m.-5 p.m. The best time to call is before 10 a.m.

The tax practitioner hotline--(916) 845-7057--will not be open on Saturdays, Sundays or state holidays.

California Package X

One of the best ways to greet tax season is with a copy of the FTB's Package X firmly in your grip. Package X contains 2002 California and IRS tax forms, as well as various California State Board of Equalization and Employment Development Department forms. The FTB offers the print version of the 2002 California Package X in bound and loose-leaf formats for $14, plus sales tax.

For information or to download an order form, go to the Package X Web page at Print and complete the order form and mail it with your check or money order made out to the Franchise Tax Board to: Package X/Tax News; PO Box 2708; Rancho Cordova CA 95741-2708.

Recent Legislation

* Teacher Retention Credit and NOL Deductions Suspended

AB 2065 suspends the California Teacher Retention Credit for the 2002 tax year. There are no carry-over provisions for the credit. The bill also suspends the deduction for net operating losses for the 2002 and 2003 taxable years, then makes the NOL deduction 100 percent.

* Stock Options and Bonuses Taxed at Higher Rate AB 2065 increases withholding on stock options and bonus payments from 6 percent to 9.3 percent, effective Jan. 1.

* Tax Withholding on Real Estate Sales Expands Drastically Effective with sales closing as of Jan. 1, people buying California real estate must withhold 3 1/3 percent of the sales price and send it to the FTB, to comply with AB 2065.

The penalty for not complying is $500 or 10 percent of the withholding amount, whichever is greater.

As of Jan. 1, the new law also expands the withholding requirement to residents and nonresidents alike. Current real estate withholding laws only apply to sales by nonresident sellers of California real estate. Also, unlike the current law, the FIB will not grant individuals a waiver or reduced rate of withholding for sales with small taxable gains.

There are some exceptions to the law. Withholding is not required if the total sale price is $100,000 or less, or for principal residences, sales resulting in a taxable loss, like kind exchanges and some involuntary conversions. Also exempted are sales where the seller is tax exempt or a California corporation or partnership.

* High-Risk Collection Accounts Get Relief

AB 2065 allows the FTB to offer taxpayers with high-risk collection accounts the opportunity to satisfy an unpaid tax liability by paying the tax in full and receiving a waiver of interest, penalties and fees.

New Law impacts Taxation of California Nonresidents

The September/October 2002 issue of the Franchise Tax Board's TaxNews features a comprehensive look at AB 1115. This legislation created new laws guiding California's taxation of nonresidents, former nonresidents and part-year residents. The bill sets rules for calculating loss carry-overs, deferred deductions and deferred income. To access this gem of a resource, go to

Child and Dependent Care Expenses Credit

California will allow parents who are not married to be treated the same as divorced or separated parents. If your client qualifies for the Child and Dependent Care Expense Credit, they must attach Form FTB 3506, Child and Dependent Care Expenses Credit, to Form 540A or Form 540.

Manufacturers Investment Credit

If you have clients who are qualified taxpayers engaged in manufacturing activities in California, they might qualify for a credit equal to 6 percent of the qualified costs paid or incurred for the acquisition or construction of qualified property on or after Jan. 1, 1994. If you believe one of your clients qualifies, go to

Handy FTB Web Tools

The FTB is determined to make its website like your favorite car--easier to use, more reliable and in some instances, as much fun as a Sunday drive. Log on and try out some of their new enhancements.

* Forms and Publications

While your California Package X is a good resource to have, the FTB says it may not be enough. You must have up-to-date California tax forms, which you can view, download and print from the FTB's website. Check out its Tax Forms and Publications Web page and bookmark it as a part of your resource library. You'll assure yourself of always having the correct version of any FTB form, ready to download.

Here, you'll also find announcements dealing with any corrections the FIB has identified and made on various forms. Correction announcements also are posted on its Tax News Online Web page,

An archive of form corrections for the current filing season also is available.

* Nonresident Withholding Web Page

Nonresidents will see changes in withholding rules in 2003, in particular with real estate tax withholding, so visit this site to stay informed about all facets of nonresident withholding--sports, entertainment, independent contractors, partnerships and more. The page also has a contact list for those times when you need to call about nonresident withholding issues.

* Head of Household Page

Determining if clients qualify to use the head of household filing status is a lot easier if you use the FTB's interactive computer-based guide, located on the practitioners corner of the FTB's Head of Household Web page. Here you can keep informed about head of household developments, sign up to attend a workshop and correspond with people specializing in head of household issues.

Federal Tax Tips

Practitioner Priority Service

The IRS Practitioner Priority Service (formerly called the Practitioner Hotline)--(866) 860-4259--is a toll-free, accounts-related service for tax practitioners. It is your first point of contact for IRS assistance regarding your clients' account-related issues. Calls are routed to a designated site based on the practitioners area code.

Service hours are 7:30 a.m.-5:30 p.m. local time, weekdays.

Forms, Information and More on the Web

At you will find announcements, notices, revenue procedures and rulings.

New Online Directory Gets You Direct Access

The IRS online directory is a new tool allowing tax practitioners direct access to IRS contact information through a keyword search on the IRS website.

The directory, located at, is on the Tax Professionals page. It provides quick and easy online access to IRS upper management and improves access to locate the proper area within the IRS to meet practitioners' needs.

If you have questions or need more information about the new Directory for Practitioners, contact Paula Ray of the National Public Liaison at (202) 927-3764.

Key IRA Changes

Traditional IRAs

The most that can be contributed to a traditional IRA for 2002 is $3,000 (up from $2,000). If the taxpayer is age 50 or older in 2002, the most that can be contributed to a traditional IRA for 2002 is $3,500 (up from $2,000). Besides being able to contribute a larger amount in 2002, the taxpayer may be able to deduct a larger amount.

Increased Roth IRA Contributions

If contributions are made only to Roth IRAs on behalf of the taxpayer, the contribution limit for 2002 is $3,000 (up from $2,000). For those age 50 or older the limit is $3,500 (up from $2,000).

Rollovers of Traditional IRAs to Tax-Sheltered Annuities (Section 403b Plans)

Prior to 2002, taxpayers could not roll over a distribution from a Traditional IRA into a tax-sheltered annuity tax-free. Beginning with distributions as of Jan. 1, taxpayers may be able to roll over distributions tax free from a traditional IRA into a tax-sheltered annuity. The taxpayers cannot roll over any amount that would not have been taxable.

Although a tax-sheltered annuity is allowed to accept such a rollover, it is not required to do so.

2002 Tax Law Changes Education Incentives

Several changes to the contribution rules have been enacted by the 2002 tax law that affect Coverdell Education Savings Accounts--formerly known as Education IRAs Here's a recap:

* Annual contribution limit has been raised from $500 to $2,000 per beneficiary.

* Income eligibility for married contributors has been raised to $190,000. As a couple's income increases from $190,000 to $220,000--which is double the range for unmarried persons--their contribution limit phases out.

* Deadline for contributions for a given year will be the due date of the contributors tax return, without extensions, instead of Dec. 31.

* Beneficiaries may have contributions made to both a Coverdell ESA and a state tuition program in the same year.

More distributions from Coverdell ESAs will qualify for tax-free treatment, thanks to these changes:

* Qualifying educational expenses now include certain elementary and secondary school costs.

* College students who use Coverdell ESA funds also may claim the Hope or Lifetime Learning Credits, as long as the credits are claimed for different expenses than those paid from the ESA funds.

* While most beneficiaries must use their ESA accounts before age 30 or transfer them to a qualified relative, there is no longer an age limit for special needs beneficiaries.

Carry-back Forms and Instructions Available

The IRS has revised forms 1045 and 1139 to reflect the five-year carry-back period that resulted from the 2002 Tax Act (See "NOL Carrybacks and Carryovers,", for more details on the 2002 Tax Act).

You can download Form 1139 (rev. June 2002), Corporate Application for Tentative Refund, at

The revised instructions for Form 1139 are available at

Form 1045 (rev. May 2002), Application for Tentative Refund, is available at Its instructions, revised in May, can be found at

Above-Line Deductions for Clean-Fuel Vehicles

The IRS has certified two more gas-electric hybrid automobiles as being eligible for the clean-fuel deduction.

Buyers of a Honda Insight for model years 2000-02 and buyers of a Honda Civic Hybrid for model year 2003 can claim an above-line deduction of $2,000 for the year that the vehicle was first put into use.

Get the details at

30 Percent Bonus Depreciation

An additional 30 percent bonus depreciation allows you to write off 30 percent of the cost of qualified equipment for a business. This is generally effective for property acquired after Sep. 10, 2001. (See "Depreciation Detailed," California has not conformed.


Here to Stay

"It's the car versus the horse and buggy," says FTB Filing Division Chief Lisa Crowe about paper filing versus e-filing. Both the IRS and the FTB are moving forward with their visions of having 80 percent of all returns e-filed by 2008.

The Journal of Accountancy (October 2002) released the results of a national tax software survey, which found that 89 percent of preparers offered clients the use of electronic filing--up from 79 percent last year. And 60 percent of respondents reported that they file their own federal returns this way.

Beginning with the 2002 tax year, the FTB is offering free e-filing for California Form 540EZ. Other forms require a separate commercial service to perform the e-file through the FTB's direct filing portal. For a list of FTB-approved e-file service providers, go to Check out the IRS e-file Web page,, for a list of approved IRS e-file providers.

Subscription Tax Research Services

Tax practitioners can subscribe to one of several paid services that provide both online and CD-ROM-based resources. Services can provide IRC; regulations, IRS publications, notices and announcements; revenue rulings, revenue procedures, letter rulings and IRS Chief Counsel advice; cases, document and code section summaries; tax law guidance; and new tax legislation explanations. Some services are more specialized than others. For instance, Spidell's,, specializes in California tax information, while Super Forms is a forms-only service whose CD interfaces with most tax preparation packages.

To learn which is right for you, check out their websites. Or, better yet, subscribe to CalCPA's TaxTalk listserve and get your peers' opinions.

Top providers include:

* BNA,

* CCH Incorporated,

* One Disc,

* Practitioners Publishing Company,

* RIA,

* Spidell Publishing,

RELATED ARTICLE: TaxTalk Listserve



The TaxTalk listserve is a forum for discussing tax issues, asking tax questions and passing on tax information to other CalCPA members. TaxTalk began in 1999 and has increased from a handful of subscribers to about 400. For details on how to sign up, go to

Here's what a few active subscribers have to say about TaxTalk:

"Every time I get in a discussion with a tax professional I've just met, the topic comes up of information sources. I ask two questions. Are you a member of CalCPA? If not, why not, and if yes, why aren't you on TaxTalk? Then I give them the subscription address," says Playa Del Rey-based industry CPA Ann Sherrod Russell. "There are other tax listserves out there, but they don't get much above the standard deduction level. This list is unique."

"I have learned more from these e-mails than any seminar that I have attended. The knowledge base [on TaxTalk] is stunning," says Harriet Reiter, CPA, based in Los Angeles. "My skills have sharpened measurably and just knowing that [my CPA peers] all are there helps to lift the troublesome burden that we all feel when we just don't know the answer."

"I have been able to provide a better service to my clients as well as have some fun and some occasional controversy," says Santa Maria-based CPA Patrick McDermott. "My practice would not be same without [it]!"

"I look forward to moving onward with this group and would be open to new ideas on how we can improve the listserve," says James C. Counts, CPA, TaxTalk's creator and moderator. "I would like more CalCPA members to enjoy the networking and professionalism of our group."




Every major provider offers call-in, e-mail and online support. Here's a quick contact guide to tax software support:

BNA Tax Management

(800) 223-7270

Creative Solutions

Ultra Tax

(800) 968-8900


(800) 254-2244


(800) 933-9999

GoSystem Tax RS

(800) 327-8829


(800) 434-6818


(800) PFX-9998


One of the best ways to greet tax season is with a copy of the FTB's Package X firmly in your grip.
COPYRIGHT 2002 California Society of Certified Public Accountants
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Copyright 2002, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Publication:California CPA
Article Type:Directory
Geographic Code:1U9CA
Date:Dec 1, 2002
Previous Article:10 Deadly Sins: common errors to avoid in charitable trust administration.
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