Tax season: everything you need to navigate through the busy season.
As the holiday season turns into tax season--bringing a slew of new tax legislation and the promise of constant, adrenalinefueled deadlines--CPAs can be excused for wanting to extend their winter tax hibernation.
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 your questions to (916) 845-6377.
California Package X
A copy of the FTB's Package X in hand will make tax season a little easier. The package contains 2004 California tax forms and instructions and is offered in two types of print versions--bound and loose-leaf.
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. You also can call (916) 845-7070 or write to: Franchise Tax Board, PO Box 2708; Rancho Cordova CA 95741-2708.
The FTB has compiled a wealth of e-file resources, including FAQs, a copy of the Assembly bill that made e-file mandatory, 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.
The FTB is adding electronic signature options to its e-file procedures, mirroring IRS procedures by allowing taxpayers and tax professionals to sign using a personal identification number. Beginning in January, the FTB will accept electronic signatures using Self-Select PIN and Practitioner PIN methods. In addition, you still will have the option to use the California E-file Return Authorization (Form 8453).
California Real Estate Withholding Information for Sellers and Buyers
For sales closing during 2004, California law requires withholding of 3 1/3 percent of the total sales price on sales of California real property. The seller may be exempt from withholding if they certify and meet an exemption. For more information on California's withholding requirements, visit www.ftb.ca.gov/individuals/wsc/California_Real_Estate.html.
For complex questions relating to real estate withholding requirements, call (916) 845-7315.
Tax Rates, Tax Threshold and Standard Deductions
The tax rates have been indexed by 3.1 percent for the 2004 tax year. The tax threshold has risen to $10,492 of adjusted gross income for single and married filing separate taxpayers and $20,931 for married, surviving spouse, and head of household taxpayers.
The standard deduction will increase for single or married filing separate taxpayers from $3,070 to $3,165. For married, qualifying widow(er), or head of household taxpayers, the standard deduction increases from $6,140 to $6,330. The personal exemption credit increases for single, married filing separately, or head of household taxpayers from $82 to $85 and for married or surviving spouses from $164 to $170. The dependent exemption credit rises from $257 to $265 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/2004/04_83.html.
The teacher retention tax credit has once again been suspended, this time for two years. Teachers still get the $200 federal above-the-line deduction. Alternatively, teacher might consider writing off contributions of supplies to schools as a charitable donation.
FTB Web Tools
Forms and Publications www.ftb.ca.gov/forms
An up-to-date list of California tax forms can be viewed, downloaded and printed from the FTB website. A visit to this page ensures you have the latest and most correct 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 head of household and tax credits; as well as links to federal tax forms, tax forms for other states, sales and use tax information, employee withholding information and estate tax information.
View Payments and Balance Due
Do you need a tax year summary or want to keep track of a client's account? 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 2004 customer service number to access individual account information. The customer service number can be obtained at www.ftb.ca.gov/online/csn.
The FTB offers Web Pay, an electronic personal income tax payment method that electronically debits payments from the customer's bank account. With Web Pay, you can make estimated tax, return or extension payments, as well as request an installment agreement for your client. Learn more at www.ftb.ca.gov/online/webpay.
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.
IRS Package X
The IRS Package X contains 2004 federal tax forms and instructions. The two-volume set is available without charge. It can be ordered by completing IRS Form 3975 found in IRS Publication 1045.
IRS Web Tools
In addition to the IRS e-file program, which can be found at www.irs.gov/efile/article/0,,id=118663,00.html, new e-services 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 2004 Working Families Tax Relief Act
The 2004 Working Families Tax Relief Act was signed into law Oct. 4, 2004, extending several tax breaks created by earlier legislation, amounting to a $132 billion tax cut for individuals and a $14 billion tax cut for businesses.
The new act extends the $1,000 child tax credit; and the elimination of the marriage penalty in the standard deduction and the 15-percent tax bracket. These provisions continue at their enhanced levels through 2010.
Beyond extensions, the act also includes several new provisions, such as a new uniform definition of a child.
Alternative Minimum Tax (AMT)
The Jobs and Growth Tax Relief Reconciliation Act of 2003 raised the AMT exemptions to $58,000 for married individuals filing a joint return and surviving spouses, and $40,250 for individuals for 2003 and 2004, up from $49,000 and $35,750 respectively.
And now, taxpayers affected by AMT can take advantage of these exemptions for another year. However, in 2006, the AMT exemptions return to $45,000 for joint returns and $33,750 for individuals.
The exemption will remain at $29,000 for married filing separately until 2006, when it will return to $22,500.
Certain nonrefundable personal tax credits--including the Child and Dependent Care, Hope Scholarship and Lifetime Learning credits--continue to offset AMT.
Child Tax Credit
The new law extends the $1,000 child tax credit to 2010. Under the old law, this credit would have fallen to $700 for 2005-08. Taxpayers with a credit amount more than their tax could get a refund of the difference, up to 10 percent of the amount by which their 2004 taxable earned income exceeds $10,750. This percentage was raised to 15 percent for 2004, meaning a larger refund for many of these taxpayers.
Marriage Penalty Relief
The new law follows the same rule as 2004 as to the basic standard deduction for joint returns: twice the basic standard deduction for single returns, effective for 2005-08. The basic standard deduction for joint returns will be twice the basic standard deduction for single returns for tax years 2004-10, instead of dropping to 174 percent of what singles pay.
The 15 percent bracket for joint returns was scheduled to go down to 180 percent of that for singles. But the 2004 Tax Act increases the size of the 15 percent tax rate bracket for joint returns to twice the size of the corresponding tax rate bracket for single returns effective for 2005-07. The size of the 15 percent tax rate bracket for joint returns is twice the size of the corresponding tax rate bracket for single returns for tax years 2003-10.
Uniform Definition of a Qualifying Child
The existing law contained five commonly used provisions that provide benefits to taxpayers with children: dependency exemption; child credit; earned income credit; dependent care credit; and head of household filing status. For tax years beginning after 2004, the new law establishes a uniform definition of qualifying child for purposes of these five benefits.
Under the new definition, a child is the taxpayer's qualifying child if the child has the same principal place of abode as the taxpayer for more than one-half of the tax year; a specified relationship to the taxpayer; and has not yet attained a specified age. A tie-breaking rule applies if more than one taxpayer may claim a child as a qualifying child.
Sales Tax Deduction
Those who itemize deductions will have a choice of claiming a state and local tax deduction for either sales or income taxes on their 2004 and 2005 returns. The IRS will provide optional tables for use in determining the sales tax deduction amount, relieving taxpayers of the need to save receipts throughout the year. Sales taxes paid on motor vehicles and boats may be added to the table amount, but only up to the amount paid at the general sales tax rate. Taxpayers will check a box on Schedule A, Itemized Deductions, to indicate whether their deduction is for sales or income taxes.
For more on the 2004 Working Families Tax Relief Act, visit www.calcpa.org/californiacpa/articles/2004/11.06.htm.
The American Jobs Creation Act of 2004
The American Jobs Creation Act of 2004 had its impetus in world trade agreements, when it became apparent that many domestic exporters were subjected to trade sanctions by the European Union. But a variety of tax incentives and revenue offshoots are included in the act.
Sec. 179 Extension
The new law extends the increased amounts a taxpayer may expense under Sec. 179 ($100,000 indexed for inflation) for two years, through the 2007 tax year. The new law includes off-the-shelf computer software as qualifying property, and taxpayers may revoke expensing elections on amended returns for tax years beginning before 2008.
S Corp Simplifications
The new act also seeks to simplify S corp status by treating all members of a family (up to six generations) as one shareholder; increasing the number of shareholders to 100, from 75 for tax years beginning after 2004; allowing IRAs to be shareholders of bank S corp stock; and disregarding unexercised powers of appointment in determining the potential current beneficiaries in an electing small business trust for tax years beginning after 2004.
SUV Tax Breaks Lowered
The new law limits the cost of an SUV that may be expensed via Sec. 179 to $25,000, effective for SUVs placed in service after Oct. 22, 2004.
Charitable Contributions of Vehicles, Boats and Planes
Charitable contributions of motor vehicles, boats and aircraft are now limited to the sales proceeds received by the charity once it sells the vehicle. To take a deduction, a written statement must be obtained and attached to the donator's tax return. But the new rules don't apply to contributions made before Dec. 31, 2004, or contributions totalling less than $500.
New Requirements for Nonqualified Deferred Compensation Plans
To avoid immediate taxation, deferred compensation plans--which include salary reduction plans, 401(k) wrap-arounds and supplemental executive retirement plans--executed after Dec. 31, 2004, must:
* Require the election of a deferral date before the services being compensated occur;
* Limit the available types of permitted investment alternatives;
* Prohibit assets from being held outside the United States;
* Abolish deferrals related to the employer's financial health to stop executives from receiving payouts preceding their company's financial failure; and
* Restrict distributions to specific dates or events, such as employee disability, separation from service, or change in company's ownership or control.
These rules affect all deferred plans effective after Dec. 31, 2004, and those undergoing material modification after Oct. 3, 2004.
Consistent 15-year Amortization Period for Intangibles
The act conforms the amortization period for both organizational and startup expenditures to 15-year period amortization period applicable to intangibles (Sec. 197) effective for expenditures after the date of enactment.
RELATED ARTICLE: TAX TIP
Non-manual preparer signatures allowed
The IRS has authorized income tax return preparers [as defined in Regs. Sec. 301.7701-15(a)] to sign original or amended returns and extension requests, filed after 2003, by means of a rubber stamp, mechanical device or computer software program.
These alternative signing methods must include a facsimile of either the individual preparer's signature or printed name. preparers using one of these alternatives are personally responsible for affixing their signatures to returns or extension requests.
Those preparers must provide all other required information such as name, address, relevant employer identification number, the preparer's individual identification number and phone number.
This does not alter the signature requirements for any other type of document currently required to be manually signed. It also does not alter the requirement that returns or extension requests be signed by the taxpayer by handwritten signature or other authorized means.
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 (800) 223-7270 www.bna.com/tmweb/cs.htm
Creative Solutions Ultra Tax (800) 968-0600 www.creativesolutions.thomson.com/netcsi/Index.aspx
ExacTax (800) 254-2244 www.exactax.com/support/Index.php
Lacerte (800) 933-9999 www.Iscsoft.com/support/s_landing.htm
GoSystem Tax RS (800) 327-8829 https://support.riahome.com
ProSystemFX (800) PFX-9998 http://prosystemfxsupport.tax.cchgroup.com/
TaxWise (706) 624-4200 email@example.com
RELATED ARTICLE: TaxTalk Listserve
The TaxTalk listserve is an online community for posing and answering tax questions, discussing tax issues and passing on tax information. The listserve began in 1999 with a handful of tax professionals and now numbers in excess of 600 subscribers.
For details on how to sign up, go to www.calcpa.org/members/listservers.
RELATED ARTICLE: TAX TIP
Be aware: the new schedule m-3
A new Schedule M-3 (Form 1120), Net Income (Loss) Reconciliation for Corporations With Total Assets of $10 Million or More, is effective for taxable years ending on or after Dec. 31, 2004. Schedule M-3 is a separate form to be attached to the regular corporate income tax return.
For federal purposes, corporations required to complete Schedule M-3 will not have to complete Schedule M-1, Reconciliation of Income (Loss) per Books With Income per Return. However, the corporation must still complete the California Schedule M-1 and:
* Attach a copy of the Schedule M-3 to the California Franchise or Income Tax Return; or
* Attach a complete copy of the federal return; or
* A Schedule M-3 in a spreadsheet format.
For more information on Schedule M-3, visit www.irs.gov/newsroom/article/0,,id=124997,00.html.
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|Date:||Dec 1, 2004|
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