California Tax
ACCT 456
Introduction
(1) Prep Form 540
(2) CASales Taxes and Prop Taxes (local)
(3) Personal Inc Tax (and corp)
(4) CA v. federal - diffs; assume some knowl of fed (indiv)
Law as of + conformity/nonconformity
Reading - condensed material (Guidebook)
Income Tax
Tax Rate Schedules and Tables Current Individual Rate Schedules and
Tables Individual Maximum Rate
Current Corp Franchise Tax, Inc Tax Corp max and min
– max 8.84% (yrs begin after 96)– S Corps: 1.5%– min: 800
0 1st yr, 0 2nd yr (new C & S)
(yrs begin after 99)
Combined CA Inc Tax and Fed Inc Tax Individuals: remember
– deduc of CA tax on fed return– upper brackets (phase outs: exemptions,
itemized - fed & CA)
Return Prep - Formula
RESIDENTS (v. part yr, nonresidents) Formula - CA now an AGI state basically start fed AGI + or - modifications to income + or - modifications to itemized deductions;
TI personal exemption credit(s) dep exemp credit other credits
Much of Federal Law is Conformed to
e.g. AMT - Sch P e.g. Kiddie Tax - Form
3800 Due date 4/15 paperless ext. 10/15
paym Form 3519
Return filing requirements:
Using CA GI & AGI Single
– GI– AGI
MFJ– GI– AGI
Resident:
In state other than temporarily or transitorily
9 months presumption = resident or domicile in state and outside temporarily
or transitorily = resident see cases and factors
Filing Status
usually same as fed exceptions: spouse
different state resident or active military - option
Personal & Dep Exemptions:
Credits:– pers - t/p & sp – dependents
reduced if fed AGI> threshold – MFS 1250 x 6 – Single HOH 2500 x 6 – MFJ 2500 x 12
Blind and/or > age 65 - additional
Standard Deductions
single, MFS MFJ, HOH, QW Dependent claimed on another return may elect differently from federal - i.e.,
standard v. itemized
Conformity and Nonconformity and Other Diffs
Conformity or not (Spidell) – failure to adopt fed changes
Other Differences - state policy
Modifications - To Fed AGI - (more imp) Schedule CA Interest on State & Local Obligationss - add
back other than CA Interest of Fed Obligations - subtract Deprec - post 86 MACRS & 87-92 179, CA
= fed (no addition or subtraction) – pre 87 not ACRS for CA but pre ACRS
methods– corps still use pre ACRS
179 expense (an example of non-conformity)87-92 CA & fed same
93-96 CA 10,000; fed 17,500
97-98 CA 13,000 7 16,000; FED 18,000 & 18,500
99-02 CA & Fed same
99 19,000
00 20,000
01-02 - 24,000
03 – 25,000 CA; 100,000 Fed (JGTRRA ’03)
Cap G&L - same after 86 (Sch D, 540)(except for depreciation differences)
State income tax refund – subtract if from CA or any other state– rationale: no tax benefit (not deduc’d
540) Unempl Comp - not taxed (subtract)
Social Security - none taxed in CA (subtract if included on federal) (fed formula)
CA lottery winnings - exempt (subtract) IRA & Keogh - post 86 limits were same so
taxable on distrib same if all from post 86
Expenses related to tax exempt income (see below)
PAL - rules same (except R/E pros - fed 93) other G or L (fed 4797) (CA D -1) (rules
same)
NOL
No CB in CA 10 yr CF
00-01 55%
02-03 60%, suspended
04 100% No NOL 91 & 92
Modifications – to fed itemized – (more imp) Schedule CA Need not elect same as fed (itemized or standard)
(need not attach Schedule A) Taxes – state & local inc taxes (incld SDI) NOT
deduc (sub) Attach Schedule A – usually not
Not 540A
540 if 1040 attached forms other than A&B (attach on file 1040)
If itemized CA, but not fed – mock A
Tax Exempt Income Expenses: – fed obligs - not deduct exps bec not incld
inc (subtract)– state obligs: - deduct exps (add) (other
than CA) bec include in inc– CA (no change)
CA lottery - not deduct expenses (subtract)
Itemized Deduc Phase Out
6% v. fed 3% fed AGI> threshold
single, MFS H of H MFJ
Credits (more imp)
Order specified form for each > 3 attach Schedule P renters: back in 1998 non refundable
– amount– phaseout– 93-97: none
Credit - Inc Taxes Paid to Another State net income tax paid to state (not local)
(exclude AMT or like) if income sourced to other state & taxed
also in CA intangibles producing income = attrib’d to
CA only (e.g., out-of-state bank acct of CA resid)
Limit - proportion of CA tax
no c/o Schedule S & copy
of other state return
Other Credits
Personal & dependency exceptions
Household & dep care credit– Back in 100, % of
federal, refundable
Teacher Retention Credit
After `99, suspended ‘02 Teach in elem/sec/vocat sch/in CA, K-12 Credit Years of service req’d
– 250 4 – less than 6– 500 6 – less than 11– 1000 11 – less than 20– 1500 20 or more
Limit teacher retention credit: 50% x total x ratio (teacher wages & salary (total AGI)
Ratio 1 Total tax = pers inc tax: before ests, less all
credits except teacher excess unemploym contribs, w/h any refundables
Other Items
Excess SDI– (>annual amount)– (>1 employer usually)
Distinguish Contributions (compare federal presidential check off
Estimated Tax
Penalties - including minimum
Min pen: $100 or 100% of tax if return not filed w/i 60 days due date
Fail to file: 5%/mo; max 25% Fail to file: 15%/mo; max 75% (if fraud) Fail to pay: 5% & ½%/mo If both file & pay: higher of pay or (file &
fail to furnish info)
Income Tax Administration - CA
FTB - State Controller, Director Department of Finance, Chair of SBE
FTB & IRS exchange info (CA t/p’s required to report changes to fed return)
Tax return preparers: CPA, PA, CA Bar, EA need not register
Others - register with Dept of Consumer Affairs-Ann fee, bond, (60 hrs, 20 CPE)
FTB
issue rulings audit manual litigation fees taxpayer Bill of Rights
Change of address Fed form 8822 CA 1-800-852-
5711 CA form 3533
Deficiencies
FTB determines additional tax due math error Jeopardy assessment estimate income tax + levy notice of proposed deficiency denial renter’s credit
Protest w/i FTB
w/i 60 days of mailing of notification signed by t/p or representative (power of attorney -Form 3520 - need not be
admitted or have particular qualifications) 2 copies of protest + notice suggested oral hearing - request, branch office,
representative
Taxpayer Bill of Rts
Recovery of Litigation costs; but 10,000 pen for friv lit
State defense: substantially justified Also civil action for economic damages Plus possible reimb of reas fees on appeal
to SBE from FTB (discretionary) And burden shift on appeal to SBE And more
Appeal - to SBE
upon notice of FTB action on protest w/i 30 days of date FTB notice 2 copies of appeal 2 copies of supporting documents (effective
1/1/92-SBE mails to FTB)
Requirements - Appeal - SBE
In writing State: is an appeal Name of appellants Amounts, years
date FTB notice facts points & authorities portion t/p concede signature
Hearing - SBE
formal sworn testimony reps not req’d to be
admitted 30 days for petition
for rehearing
SOL on assessment: CA SOL for mailing notice v. Fed SOL for assem:
General rule - CA 4 yrs after filing (if ext’d, filing) (if early, from due date )
Fed 3 yrs from actual filing Waiver - possible, automatic if fed waiver
(runs to 6 mo after fed) Omit 25% GI - 6 yrs (like fed); False or no
return - no SOL (like fed);
Fail to report changes or amendment of fed - CA open
if report - 2 yrs from report or CA SOL, whichever later; 4 yrs if out of time to report
T/p document w/i 60 days of assessment SOL - FTB has another 60 days lim: + 60 days
No CA mitigation 3d party record keeper - intervention by t/p
to quash subpoena - suspend SOL (like fed)
SOL on Collection
20 yrs (7/1/06) federal 10 yrs
Refunds
claim - usually 540X, individuals appeal - 90 days from disallowance by
FTB, to SBE SOL - general rule: 4 yrs from last day for
filing (w/o extension) or 1 yr from overpayment (later)
federal refund SOL: 3&2, from actual filing unless file early
waivers - federal rules differ 2 yrs from giving notice of amended fed (if
>CA general rule)
Suit: only after file claim
FTB no rt to appeal adverse dec by SBE
Time to file: Later of– 4 yrs from due date return– 1 yr from date tax paid– 90 days from notice FTB action (no
action 6 mos - disallowance)– 90 days from notice SBE action
Death Taxes (after 6/8/82)
Today - 2 death taxes: estate, GST = pickup = amount of state credit allowed
against fed taxes (state credit on fed 760 phasing out per EGTRRA `01)
previously - CA inheritance tax: 1893 - 6/8/82; CA gift tax 1939 - 6/8/82
State reaction to EGTRRA `01
Fed credit depends on situs of prop, apportion credit among states based on gross value
Return due - DOD, delinquent after 9 mos File - CA + copy of Federal (form 706)
Deficiency - State controller administers
4 yr SOL or agreement no SOL fraud or fail
to file GST - if resident at
transfer or prop (R/E or personal) w/i CA