Tax Season Toolkit: everything you need to navigate through the busy season.
As the holiday season turns into tax season, bringing the promise of constant, adrenaline-fueled deadlines, CPAs can be excused for turning a sentimental eye to winter.
But never fear! CalCPA's annual Tax Season Toolkit is here to help.
As you meet with clients, research what's new in the tax codes and update your software to provide the best service you can, spring ahead and confidently meet the only season that's never late or early--tax season.
California Tax Tips
Practitioner Hotline Hours
The tax practitioner hotline is available Monday-Friday, 8 a.m.-5 p.m., at (916) 845-7057. The hotline is closed on weekends and state holidays. You also can fax questions to (916) 845-6377.
California Package X
A copy of the FTB's Package X will make tax season a little easier. Package X contains 2005 California tax forms and instructions and is offered in bound and loose-leaf print versions.
The FTB is taking orders and will begin shipping Package X in January.
For information, or to download an order form, go to www.ftb.ca.gov/professionals/packageX. Or call (916) 845-7070.
The FTB has compiled a wealth of e-file resources, including FAQs, an e-file opt-out form (Form 8454), program information, a list of approved e-file software providers, an e-file tutorial, sample client letters, and forms and publications at www.ftb.ca.gov/professionals/efile/M_e_file.html.
You can contact the FTB's e-file help desk at (916) 845-0353 or by fax at (916) 845-0287.
To e-mail the FTB with your e-filing questions, visit www.ftb.ca.gov/emailapps/ero.asp or firstname.lastname@example.org.
The FTB accepts electronic signatures for e-filed returns, mirroring IRS procedures by allowing taxpayers and tax professionals to sign using a personal identification number. The FTB accepts electronic signatures using Self-Select PIN, Practitioner PIN methods and the ERO PIN. In addition, you still can use the California E-file Return Authorization (Form 8453).
For more information, including an e-Signature Responsibilities Chart and related FAQs, visit www.ftb.ca.gov/professionals/efile/esig.html.
California Real Estate Withholding Information for Sellers and Buyers
For sales closing during 2005, California law requires withholding of 3.33 percent of the total sales price on sales of California real property. The seller may be exempt from withholding if they certify that they meet an exemption.
For more information on California's withholding requirements, visit www.ftb.ca.gov/individuals/wsc/California_Real_Estate.html. For questions relating to real estate withholding requirements, call (916) 845-7315.
The FTB also has changed the forms for real estate sales closing on or after Jan. 1, 2005. Forms 593-C and 593-L have been expanded to include non-individuals, and Form 593-W has been eliminated. For more, visit www.ftb.ca.gov/aboutftb/newsroom/withholding2005.html.
Tax Rates, Tax Threshold and Standard Deductions
The tax rates have been indexed by 2.8 percent for the 2005 tax year.
The tax threshold has risen to $10,764 of adjusted gross income for single and married filing separate taxpayers, and $21,527 for married filing joint, surviving spouse and head of household taxpayers.
The standard deduction will increase for single or married filing separate taxpayers from $3,165 to $3,254. For married, qualifying widow(er), or head of household taxpayers, the standard deduction increases from $6,330 to $6,508. The personal exemption credit increases for single, married filing separate, or head of household taxpayers from $85 to $87 and for married or surviving spouses from $170 to $174. The dependent exemption credit rises from $265 to $272 for each dependent.
Other tax credits affected by indexing include the Joint Custody Head of Household Credit, Dependent Parent Credit, Qualified Senior Head of Household Credit and the Renter's Tax Credit.
For more, visit www.ftb.ca.gov/aboutFTB/press/2005/05_48.html.
In October, Gov. Schwarzenegger signed AB 115, which conforms California personal income and corporate tax law to federal law for taxable years beginning after 2004. Some significant areas of conformity include:
* S corp changes in the American Jobs Creation Act;
* Filing status and dependency exemptions related to the definition of a qualified child; and
* Liberalized student loan deduction changes for taxable years beginning on or after Jan. 1, 2006.
In general, AB 115 conforms California tax law with the Economic Growth and Tax Relief Reconciliation Act of 2001; the Job Creation and Worker Assistance Act of 2002; the Jobs and Growth Tax Relief Reconciliation Act of 2003; the Medicare Prescription Drug, Improvement, and Modernization Act of 2003; the Working Families Tax Relief Act of 2004; and the American Jobs Creation Act of 2004.
However, there are many areas of nonconformity, including health savings accounts; deduction of income attributable to domestic production activities; and passive activity losses regarding real estate.
For more information, see Page 27.
New ID Number for Taxpayers
Beginning Jan. 1, 2006, many of the notices and bills the FTB sends to your clients will have a unique identification number instead of their Social Security number. The change is the result of a new California law aimed at protecting taxpayers' Social Security numbers from unauthorized use.
The FTB will unveil the California Business e-file Program in January. If you are enrolled in the California e-file Program, you do not need to enroll again for Business e-file. However, if your office will have different contact information for Business e-file, you must update your information at www.ftb.ca.gov/online/8633.
For more information, including applicable forms and schedules, visit www.ftb.ca.gov/professionals/taxnews/tn_05/09_10.html#9. For California Business e-file questions, contact the FTB's e-Programs Customer Service at (916) 845-0353 or email@example.com.
FTB Web Tools
Forms and Publications www.ftb.ca.gov/forms View, print and download California tax forms. A visit to this page ensures you have the latest version of any FTB form when you need it.
You'll also find booklets containing returns, related forms and instructions; a listing of publications providing more detailed information on specific topics, such as real estate withholding; as well as links to federal tax forms, tax forms for other states, sales and use tax information and employee withholding information.
View Payments and Balance Due
You can view estimated tax payments, recent payments applied to a balance due, current balance due and a summary of each balance due tax year for personal income tax accounts at www.ftb.ca.gov/online/myacct. You'll need your client's Social Security number and 2005 customer service number to access individual account information. The customer service number can be obtained at www.ftb.ca.gov/online/csn.
Web Pay This electronic personal income tax payment method electronically debits payments from the customer's bank account. With Web Pay, you can make estimated tax, bill, return or extension payments, as well as request an installment agreement for your client. Learn more at www.ftb.ca.gov/online/webpay.
Check e-file Return Status You can check on the status of an e-file return at www.ftb.ca.gov/online/ifp/ack.html as long as your web browser supports 128-bit SSL encryption.
Federal Tax Tips
Practitioner Priority Service
The IRS Practitioner Priority Service (formerly 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 issues. Calls are routed to a designated site based on the practitioner's area code. Practitioner Priority Service hours are 7:30 a.m.-5:30 p.m. local time, weekdays.
No More IRS Package X
Due to budget cuts in printing and shipping, the IRS has eliminated Package X, Reference Copies of Federal Tax Forms and Instructions, effective Tax Year 2005. As a result, IRS Pub. 1045, Tax Professional's Guide to Federal Tax Products, also will become obsolete.
IRS Web Tools
In addition to the IRS e-file program, www.irs.gov/efile/article/0,,id=118663,00.html, other e-services for tax professionals are available. Disclosure Authorization allows tax professionals to electronically submit Form 2848, Power of Attorney and Declaration of Representative, and Form 8821, Tax Information Authorization. Electronic Account Resolution allows tax professionals to expedite closure on clients' account problems by electronically sending and receiving account-related inquiries. The Transcript Delivery System allows practitioners to request and receive account transcripts, wage and income documents, tax return transcripts, and verification of non-filing letters. Visit www.irs.gov/taxpros/article/0,,id=109646,00.html.
The IRS also offers an array of electronic payment options for individuals and businesses, including electronic funds withdrawal and the Electronic Federal Tax Payment System. The EFTPS is a free service provided by the Treasury, and allows businesses and individuals to pay their federal taxes electronically. For more information, visit www.EFTPS.gov.
Additionally, the IRS has set up a directory of prior publications, which may prove valuable when doing a prior year return and can help refresh your memory to previous law. Visit www.irs.gov/pub/irs-prior.
Mandatory e-Filing for Some Corps, Exempt Organizations
The IRS will require certain large corporations and tax-exempt organizations to e-file their income tax or annual information returns beginning in 2006.
For tax year 2005 returns due in 2006, the regulations require corporations with total assets of $50 million or more to e-file Forms 1120 and 1120S. In addition, tax-exempt organizations with total assets of $100 million or more will be required to e-file tax year 2005 Form 990.
Beginning in 2007, the e-filing requirement will be expanded to include tax year 2006 tax returns of corporations and tax-exempt organizations with $10 million or more in total assets. In addition, private foundations and charitable trusts will be required to electronically file their Form 990-PF regardless of their asset size.
The electronic filing requirements only apply to entities that file at least 250 returns, including income tax, excise tax, information and employment tax returns, during a calendar year.
Facsimile Signatures Allowed
Recent IRS rules outlined in Rev. Proc. 2005-39 allow corporate officers or duly authorized agents to sign employment tax forms using alternative signature methods, including mechanical devices and computer software.
The new rules apply to any form in the 940 series; Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons; Form 8027, Employer's Annual Information Return of Tip Income and Allocated Tips; Form CT-1, Employer's Annual Railroad Retirement Tax Return; and any variant of these forms.
Increased Optional Standard Mileage Rates
The IRS increased the optional standard mileage rates for the final four months of 2005 to 48.5 cents a mile for all business miles driven Sept. 1-Dec. 31, 2005-an 8-cent increase from the 40.5-cent rate in effect for the first eight months of 2005, as set by Rev. Proc. 2004-64.
The new four-month rate for computing deductible medical or moving expenses will be 22 cents a mile, up from 15 cents for the first eight months of 2005. The rate for providing services for charitable organizations is set by statute, not the IRS, and remains at 14 cents a mile.
2006 Pension Plan Limitations
The IRS has unveiled cost-of-living adjustments applicable to dollar limitations for pension plans and other items for tax year 2006. For most of the limitations, the increase in the cost-of-living index met the statutory thresholds that trigger their adjustment.
Additionally, several limitations set by the Economic Growth and Tax Relief Reconciliation Act of 2001 are scheduled to increase at the beginning of 2006.
For more, visit www.irs.gov/newsroom/article/0,,id=149631,00.html.
KATRINA: Tax Relief
Extended Due Dates The IRS granted special relief for taxpayers in various parts of Louisiana, Mississippi and Alabama struck by Hurricane Katrina by extending the due dates for filing tax returns and paying taxes until Feb. 28, 2006, for taxpayers in nine Texas counties and five Louisiana parishes. The FTB likewise has extended tax-filing dates and waived interest penalties.
Retirement Plans Loans to Katrina Victims 401(k)s and similar employer-sponsored retirement plans, such as 403(b) tax-sheltered annuities and certain 457 deferred-compensation plans, can make loans and hardship distributions to victims of Hurricane Katrina and members of their families. To qualify for this relief, hardship withdrawals must be made by March 31, 2006.
Early Distributions: To qualify, the distribution must be made on or after Aug. 25, 2005, and before Jan. 1, 2007, from an eligible retirement plan such as a qualified plan or an IRA, to an eligible individual--one whose principal residence was in the Hurricane Katrina disaster area on Aug. 28, 2005, and who sustained an economic loss from the hurricane.
Loans A loan from a qualified employer plan to an eligible individual, defined above, is not treated as a taxable distribution of plan benefits if it is made on or after Aug. 25, 2005, and before Jan.1, 2007, and does not exceed a certain dollar limitation.
Recontributions A qualified individual who, after Feb. 28, 2005, and before Aug 29, 2005, took a distribution such as a hardship distribution from a 401(k) plan or 403(b) annuity or a qualified first-time homebuyer distribution from an IRA to purchase or construct a home in the Hurricane Katrina disaster area, but it was not purchased or constructed as a result of Hurricane Katrina, could recontribute the funds to the plan without any tax consequence. The individual must recontribute the funds during the period beginning Aug. 25, 2005, and ending Feb. 28, 2006.
Temporary Suspension of Charitable Contribution Limits A provision in the Katrina Emergency Tax Relief Act of 2005 allows donors to make cash gifts to charities by the end of this year to deduct an amount equal to virtually 100 percent of their adjusted gross incomes. Caution: As of Nov. 9, 2005, California had not conformed to the Katrina Emergency Tax Relief Act of 2005. For more, see the Federal Tax column, Page 36.
RELATED ARTICLE: TAX TIP
Circular 230: Written Advice
The IRS has amended Circular 230, which outlines ethical behavior for tax professionals, to curb abusive tax avoidance transactions.
A practitioner who provides a covered opinion must comply with the practice standards of Sec. 10.35 of Circular 230, which provides mandatory requirements for written tax advice.
The mandatory requirements for written advice prohibit practitioners from providing advice that, for example, relies on incorrect factual assumptions or representations; does not consider all relevant facts; or fails to analyze important legal issues.
A covered opinion must now:
* Identify and consider all facts that the practitioner determines to be relevant;
* Relate the applicable law, including potentially applicable judicial doctrines, to the relevant facts;
* Evaluate significant federal tax issues; and
* Include the practitioner's conclusion as to the likelihood that the federal tax treatment of the transaction or matter that is the subject of the opinion is the proper treatment and the reasons for that conclusion.
For more, visit www.irs.gov/irs/article/0,,id=132445,00.html.
RELATED ARTICLE: TAX TIP
Tax SOFTWARE SUPPORT
Every major provider offers call-in, e-mail and online support. Here's a guide to tax software support:
BNA Tax Management
Creative Solutions Ultra Tax
GoSystem Tax RS
RELATED ARTICLE: TAX TIP
Raise Your Hand:
Find a CPA
As tax season begins, don't forget to register or update your information with CalCPA.org's Find a CPA.
Find a CPA is among the most popular pages on the website, receiving thousands of hits each month. The feature has matched scores of taxpayers with the local CPAs who best suit their needs.
Your listing specifies not only where you practice, but how you practice. Listings include services provided, industries served and languages spoken.
Add your name to the directory--or update your profile if you're already listed--at www.calcpa.org/find.
RELATED ARTICLE: TAX TIP
The TaxTalk listserve is an online community of more than 600 subscribers for posing and answering tax questions, discussing tax issues and passing on tax information. For details on how to sign up, go to www.calcpa.org/members/listservers.
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|Title Annotation:||tax rules and regulations|
|Date:||Dec 1, 2005|
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