Friday, March 9, 2012

California Non-Resident Return Filing

Q.  Recently I received a notice from the FTB (California) FTB 4600B requesting a tax return for 2010. I was able to download the filing requirements for a non-resident return (I now live in Kentucky), and page 3 for the instructions for 540NR Tax Booklet specifically lists California Gross Income limits, which for my filing status and age indicate no filing requirement. What do I do now?

A.  I had a client, now living in Idaho, who received the same notice. When I called the Franchise Tax Board on his behalf, I was told that it is the Gross Income together with California source income that triggers a filing requirement. To be clear, they are talking about the Gross Income on your federal return. If it is above the threshold limits listed on the instructions, California wants a return.

The best I can offer is that the instructions on the 540NR booket are very misleading. California is one of the states that taxes you on your world wide income. I suggest you go ahead and file a return. Most of the time, you will owe no tax; you just need to go through the hassle of filing a non-resident return. Trust me on this: California will make your life miserable if you don't file the return once a demand letter goes out, which is the case with the notice you received.

Thursday, March 8, 2012

Purpose of Form 8453

Q.  Each year I receive Form 8453 from my brokerage firm, but I don't know what to do with it. Can you tell me its purpose?

A.  By law, your brokerage firm is required to send Form 8453 into the IRS reporting the balance of your retirement account. So, the first purpose would be to check the balance reported to see if it agrees with your records. The second purpose however, is to help calculate the tax basis of any non-deductible IRA contributions and or Roth IRA contributions. You may recall that traditional contributions are usually deductible, and therefore 100% taxable when withdrawn at retirement age. If, however, you were unable to deduct all or a portion of your contribution, a portion of your withdrawal will be non-taxable. Most professional software programs keep this information, which is why we request them from our clients.

Wednesday, March 7, 2012

CA Self-Employment Tax Adjustment

Q.  I'm a resident of California, so I need to file both a federal & California return. I am also self-employed, and don't understand the adjustment CA is requesting for the deductible part of self-employment taxes. Can you help explain this?

A.  CA did not conform to the extra deduction allowed for self employment taxes on the federal return. Prior to this year, you were able to take a deduction of one half of the self employment taxes paid on page one of Form 1040. Currently, the federal deduction allowed is 57.51% of self employment taxes due. CA, however, only allows the deduction for 50% of self employment taxes due. Therefore, the difference must be added back to CA taxable income on Form 540 Schedule CA line 27.

Tuesday, March 6, 2012

Missing Social Security Form

Q.  I seem to be missing the statement I receive each year from Social Security. I know I need to report it on my taxes. Can I go online and download this form?

A.  Although you cannot download SSA-1099, you can request it online. Just go to the Social Security Administration website and request a new one. For your convenience, here is the link to request this form: Social Security Administration. They can mail another out to you in a week or so.

Monday, March 5, 2012

Tax Tip

At any given time, I have several taxes "ready-to-go" except for the dreaded K-1 information from Partnerships, LLCs, Fiduciary and S-Corporation returns. If you're wearing a path out to your mailbox looking for them, try going to the company's website and see if they are available to download. Quite often you can save yourself (and your equally frustrated preparer) a couple of weeks. If you sign up for automatic email notifications,  you may receive an email confirming the expected availability date of these documents. It's worth a look!