Top 12 tax scams

It’s a new year and a good time to remind your clients about the top tax scams. / more+

Pass-through entities must timely file original tax returns claiming new jobs tax credit in order for owners to claim the credit

A new jobs tax credit of $3,000 is available to small businesses with 20 or less employees for each additional net full-time employee hired and employed in California for tax years beginning on or after January 1, 2009. The total amount of the credit that we can allocate may not exceed $400 million, and claims must be made before a statutorily provided “cut-off” filing date. / more+

Using the Annualization Method in 2009 and 2010

Estimated tax payments have undergone many changes since we started filing season one year ago. / more+

Small Business

Timing is everything

Is your client considering making an S corporation election? Selling or exchanging 50 percent or more of the total interests in an LLC or limited partnership? / more+

Ask the Advocate

Withholding and estimate tax payment changes

This summer the California legislature again revised the estimated tax payment percentages, and also passed some clean-up legislation to clear up confusion on how wage earners with only wage withholding would meet the new estimated tax payment requirements. / more+

Inside FTB

Take a look at the changes happening here at FTB. / more+

Criminal Corner

Our monthly summary on bringing tax criminals to justice, and closing the tax gap one case at a time. / more+

Big Business

California code of civil procedure and foreclosures

Will you clarify how California civil procedures interact with the Internal Revenue Code (IRC)? Specifically how does California Civil Procedure Code (CCP) Sections interact with IRC Section 108, Income from Discharge Indebtedness? / more+

The City of Taft was recently awarded the Enterprise Zone designation. “California Enterprise Zones give communities a chance to develop their economic potential, improve their quality of life and contribute to the state’s economy. Enterprise Zones are part of the Administration’s ongoing efforts to increase the number of jobs through state and local incentives,” said HCD Director Lynn L. Jacobs. “This is the single most important building block for Taft’s economic growth that the city has had in many, many years,” said Lucille Holt, Taft City Grants Administrator. “Its good news because it is not just for new businesses, but for existing Taft businesses as well.”

Businesses within Enterprise Zones are eligible for substantial tax credits and benefits, for example:
- Firms can earn $37,440 or more in state tax credits for each qualified employee hired.
- Corporations can earn sales tax credits on purchases of $20 million per year of qualified machinery and machinery parts.
- Up-front expensing of certain depreciable property.
- Lenders to Zone businesses may receive a net interest deduction.
- Unused tax credits can be applied to future tax years, stretching out the benefit of the initial investment.
- Enterprise Zone companies can earn preference points on state contracts.
- Up to 100% Net Operating Loss (NOL) carry-forward. NOL may be carried forward 15 years.
As you can see, Kern County and the City of Taft are positioned for an exciting future. We are also working with 4th District Supervisor Ray Watson regarding other plans that will create even more exciting possibilities for the greater Taft area.

The City of Ceres continues to grow at a rapid pace.  Over the past decade Ceres has experienced a nearly 90% increase in sales tax generated. Within the last five years development projects have included:

• WinCo Foods Distribution Center 107 acres/720,000 square feet
• Home Depot 10.67 acres/137,156 square feet
• Central Valley Marketplace 8.06 acres/83,710 square feet
• Food-4-Less
• Banking
• Dining
• Service
• Developing projects include the Ceres Commerce Center, an 8.8-acre, 87,000 square foot business park on Mitchell Road at the northern gateway into town. When complete the center will consist of 24 buildings; current construction includes buildings of 3,000 to 6,000 square feet.

At Ceres southern entrance—Mitchell Road at Highway 99—the 420-acre South Gateway Regional Commercial Center is also being developed. The center’s first large retail anchor will break ground in 2007 and major infrastructure projects, including the Service/Mitchell roads interchange are in process.

The Ceres Enterprise Zone encompasses most of the city’s industrial and commercial areas and includes 6,804 acres. An application is now in process—as part of a countywide effort—to expand the Zone by 132 acres, taking in nearly all commercial land on Mitchell Road. Property owners in Zone can take advantage of tax, financial and development incentives and business assistance.

Redlands has always been a popular place for businesses to re-locate due to its proximity to the large Southern California metro areas while still maintaining a lower price of living compared to nearby cities. However it appears that the city of Redlands may soon be able to attract companies by being added to the state’s Enterprise Zone program.

If approved it means that the city would be able to attract new businesses while being able to retain current companies with attractive tax credits.

Joy Juedes from ‘The Sun’ reports, “Redlands soon may have another carrot to dangle in front of businesses.
The city Redevelopment Agency is looking into making 200 to 300 acres north of the 10 Freeway part of the San Bernardino Valley Enterprise Zone, according to agency director Dan Hobbs. “It makes Redlands a more attractive place to locate,” said Redlands-based economist John Husing. The San Bernardino Valley Enterprise Zone is part of the state Enterprise Zone project, which targets “economically distressed” areas, Hobbs said.

The State of California designated a limited number of Enterprise Zones throughout the state to encourage business expansion. For businesses located within an Enterprise Zone, this translates to California tax savings and incentives that can substantially reduce their operating costs. When those incentives are coupled with the additional local incentives, the opportunities and savings are greatly enhanced.

Located in Central California, the Stockton/San Joaquin Enterprise Zone provides business with easy access to all major markets. Interstate 5, State Highway 99, an airport, a nationwide railway system (Burlington Northern Santa Fe and Union Pacific) and the Port of Stockton (on the Deepwater Channel) provide our Enterprise Zone businesses with direct links to world-wide markets.  In addition to the tax incentives for businesses, the Stockton/San Joaquin Enterprise Zone has readily available and favorably priced properties (improved and unimproved), a semi-skilled and skilled workforce, and a public/private network that is committed to providing companies with a pro-business environment.

The Stockton/San Joaquin Enterprise Zone provides businesses with the following savings:

State Tax Credit Incentives

• Hiring Credit ($31,000+ per new employee over a five-year period)
• Sales & Use Tax Credit (On machinery purchases for manufacturing)
• Business Expense Deduction (Up to $20,000/year on tangible personal property)
• Net Operating Loss Carryover (Up to 100% carryover to future years)
• Net Interest Deduction for Lenders (May result in 3-4% increase on return of investment)

Local Incentives

• Reduced Fees -50% discount on Building Permit, Plan Check, Use Permit and Variance Fees
• Development Coordination
• Early Project Review (ERC) Meetings
• One-Stop Permit Centers
• Fee Deferral Program
• Fee Estimates
• Utility Tax Rebate
• Commercial Property Transfer Tax Rebate Employee

Job Recruitment

• Customized Staff Recruitment services at no charge
• On-the Job Training Programs. Wage reimbursement for hiring & training qualified employees
• Specialized Training Programs tailored to your company’s specific needs

Financing Opportunities

• Small Business Administration (SBA) Financing SBA 504 and 7A – discretionary loan packaging fees are waived or deferred
• San Joaquin County Revolving Loan Fund (RLF) Loan packaging fees waived and discounted interest rate
• Stockton’s Façade Improvement Forgivable Loan Program and Downtown Financial Incentive Program

Despite the fact that new businesses in Santa Clarita will be able to take part in the Enterprise Zone program, Jonathan Randles has reported that new legislation is being discussed that could make the area’s EZ program much less effective.

Randles reports that Assemblyman John Perez, D-Los Angeles, is sponsoring an amendment that would require businesses to hire full-time employees and give their employees health benefits to receive the full tax credits.

This would dramatically decrease the effectiveness of the EZ program, since the costs of the health benefits would essentially wipe out the savings from the Enterprise Zone credits.

Enterprise Zones are not limited to California. In fact, several other regions are gaining popularity and attracting large enterprises to due to the numerous tax benefits. One of the more recent examples of this can be found in Oregon, which will host the new Facebook data center.

David Holley reports, “After officially announcing plans to build a data center in Prineville on Thursday, Facebook officials told The Bulletin that the tax incentive offered to the company through an enterprise zone was a key reason it came to Central Oregon. By locating its new data center in the zone, Facebook will be excused from paying as much as $2.8 million a year in local taxes.”

This illustrates the importance of Enterprise Zones and why California needs to continue to push for increased adoption, since it appears we will be facing competition from other states across the country.

Here’s a nice summary of tax changes from the FTB:

Sacramento – The Franchise Tax Board (FTB) today updated state taxpayers on several law changes for the upcoming filing season, and outlined a variety of services provided by the tax department.

Law Changes

Temporary increase in personal income tax rates – A new tax law raises California’s personal income tax rates by .25 percent for 2009 and 2010.

Standard deduction – The standard deduction for single or filing separately decreased from $3,692 to $3,637. For joint, surviving spouse, or head of household filers, it changed from $7,384 to $7,274.

Personal exemption credit – The personal exemption amount for single, filing separately, and head of household filers is reduced from $99 to $98. For joint or surviving spouses, it decreased from $198 to $196. The dependent exemption credit decreased from $309 to $98 per dependent.

New estimated tax payment percentages – Effective January 1, 2010, the quarterly estimated payment schedule percentages are changed for both corporate and personal income taxes to 30 percent, 40 percent, zero, and 30 percent for the first through the fourth quarter installments, respectively.

New backup withholding requirements – Effective January 1, 2010, generally payers that are required to withhold and send backup withholding to the IRS are also required to withhold and send seven percent to FTB except for:

·         Payment of interest and dividends.

·         Any release of loan funds made by a financial institution in the normal course of business.

Small business new jobs tax credit – For 2009 new hires, provides a $3,000 tax credit for each additional qualified full-time employee hired by a qualified small business employer. Qualified employers need to act fast as the credit funding is limited to $400 million. The credit must be claimed on a timely-filed original (not amended) 2009 return received before the $400 million limit is reached. This credit is not subject to the 50 percent limitation for business credits in 2009.

Generally speaking, employers qualify for the credit if they employed 20 or fewer employees on the last day of the preceding taxable year (for calendar taxpayers this would be December 31, 2008). And, they have a net increase in qualified full-time employees in 2009 compared to the number of full-time employees employed in the preceding taxable year.

Military spouses residency relief –Effective January 1, 2009, federal law provides that civilian spouses of military personnel who are in California only because of their spouses’ military orders, do not become California residents. They are also exempt from state income tax on their “service income” earnings such as wages, commissions, or other personal service income earned in California. To qualify, civilian spouses must have the same “domicile” as their military spouses. One’s “domicile” is generally the place they consider to be their true home and where they intend to return to make their permanent home.

540NR booklets –Booklets for FTB Form 540NR, California Nonresident or Part-Year Resident Income Tax Return, will no longer be mailed directly to taxpayers. The 540NR Booklet and any other related tax forms and instructions are available online at ftb.ca.gov.

Net operating losses suspended – For 2009, net operating losses from prior years cannot be deducted by taxpayers whose net business income is $500,000 or more. Instead, they will need to carry them forward. The time limit to carry forward net operating losses increases from 10 to 20 years. New with 2011 net operating losses, taxpayers can carry back those losses for two years. Taxpayers with net business income of less than $500,000 or with disaster loss carryovers are not affected by the net operating loss suspension rules.

Business tax credit limitations – For 2009, tax credits are limited to 50 percent of the net tax for taxpayers with net business income of $500,000 or more. Be sure to review our tax forms instructions for more details.

Taxpayer Assistance

Self Services

FTB encourages taxpayers and practitioners to explore its many self-service applications. In addition to the interactive voice response options available through FTB’s call center phone lines, there are also several online web-based applications that provide useful information and services during the filing season. Some of these applications are discussed below.

Voluntary Income Tax Assistance – Starting February 1, more than 1,000 centers statewide open through the Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) programs. These sites offer free help with tax form preparation.Some offer services in Spanish, Chinese, Vietnamese, and Korean. For information on locations throughout California, visit ftb.ca.gov and click on the free filing assistance link.

Phone service –FTB provides 24-hour toll-free automated phone service at 800.338.0505. To speak with a customer service representative, FTB staffs its general toll-free phone line,      800.852.5711, from 8 a.m. to 5 p.m., weekdays excluding state holidays.

Field Offices – FTB has six regional field offices that provide walk-in service from 8 a.m. to         4 p.m., weekdays in Los Angeles, Oakland, Sacramento, San Diego, San Francisco, and Santa Ana. For directions, visit ftb.ca.gov and click on theContact Us tab.

Customer Service Availability – Due to limited resources, reaching a customer service representative in the call center or in an FTB field office may be more difficult this upcoming filing season. If you need to speak to a representative, the best times to call are Tuesday through Friday and either before or after lunch. FTB suggests you contact them early in the tax filing season to avoid the crowd of last-minute tax filers.

ReadyReturn –Sometaxpayers qualify for FTB’s online ReadyReturn program that completes the tax return for the taxpayer. It is based on information already collected from employers such as W-2s. More than 2 million taxpayers will qualify who last year:

·         Earned wages from a single employer.

·         Filed either as single or head of household.

·         Took the standard deduction.

·         Claimed no more than five dependents.

Taxpayers who are renters and who can be claimed as a dependent are also eligible.

CalFile – More than 6.5 million taxpayers are qualified to use CalFile, FTB’s no-cost, direct-to- FTB, online filing program. Taxpayers type in their tax return information on FTB’s website and transmit their return directly to FTB. CalFileaccepts taxpayers with income of up to $321,483, itemized deductions, and some tax credits.

My FTB Account – This online service allows taxpayers to get information such as estimated tax payments, any balances due, state W-2 information, or FTB issued 1099 forms. Use this information to avoid claiming the wrong amount of estimated tax payments, which is the top error made on returns.

Answers to Frequently Asked Questions – Find answers to questions about various tax topics such as return filing requirements, tax credits and the requirements to be able to use the Head of Household filing status online atftb.ca.gov.

Pay Taxes Online – FTB’s Web Pay allows taxpayers to authorize a payment from their bank account to pay their return balance due or extension payment. Payment must be made on or before April 15 to avoid penalties and interest. Taxpayers can also make estimated tax or any bill payments online, and sign up for email reminders of upcoming estimate payment due dates. Taxpayers can schedule estimated tax payments up to one year in advance. For a fee, taxpayers can pay their taxes with their American Express, Discover/NOVUS, MasterCard, and Visa cards. FTB also accepts payments made via Western Union.

Can’t Pay Your Taxes Timely? –ftb.ca.gov and select payment options andinstallment agreement request. Monthly installment payment plans are available to people who cannot pay what they owe when it is due. Generally taxpayers who owe less than $25,000 and can repay the tax within five years qualify for a payment plan. Sign up online at

Tax Tips

Federal Earned Income Tax Credit – This is a federal incentive for low-income individuals and families. Taxpayers earning less than $48,279 can qualify for a “refundable” credit that can total up to $5,657. “Refundable” means that you do not have to have a tax liability to get a refund check from the government. If you think you might qualify, visit the IRS website at irs.gov and search for EITC Assistant.California has no comparable state credit.

Recordkeeping – Keep a copy of your state tax returns and all supporting records. FTB may request information from you regarding your tax return at any time within the California statute of limitations period, which is generally four years from the return’s due date.

The Orange County Business Council has endorsed State Senator Lou Correa, representing the 34th state Senatorial District, for re-election. Correa is an advocate of the Business Council’s key initiatives to enhance infrastructure investment, increase supply of workforce housing and promote solid education programs to ensure a skilled 21st century workforce.

“We are pleased to endorse Senator Lou Correa for re-election because of his strong record of support for OCBC’s business agenda,” said Lucy Dunn, President and CEO of the Orange County Business Council.

Senator Correa understands the connection between a strong business environment, sustainable infrastructure and jobs creation. He has been supportive of expansion of the 91, a vital link in goods and people movement between the Inland Empire and Orange County, as well as expansion of the 57, and he has been the long-time advocate of the completion of the Santa Ana River project. OCBC applauds the leadership Senator Correa has shown in supporting the comprehensive water package, a critical issue that directly impacts California’s future growth and sustainability, both economically and environmentally.

Throughout his years of service in the Assembly and in the Senate, Correa has championed a number of legislative proposals, balancing the needs of the business community, environment and social equity, working to ensure a high quality of life for both Orange County and the state. Senator Correa introduced legislation that proposed a simple and sensible reform to the California Environmental Quality Act (CEQA) that doesn’t diminish its authority, but helps to facilitate the process and he also supported additional housing legislation that helps with home affordability by reducing regulatory red tape that drives up costs. He has co-sponsored Enterprise Zone legislation, rightly seeing that the path to California’s economic recovery starts with giving business effective tools to create jobs and begin to grow again.
State Senator Lou Correa was elected to the 34th Senate District in 2006, representing Anaheim, Buena Park, Fullerton, Garden Grove, Santa Ana, Stanton and Westminster. In 2004, Correa was elected to the Orange County Board of Supervisors, representing central Orange County. Prior to his election to the Board of Supervisors, he served as a State Assembly Member from 1998 to 2004 representing the 69th District.

On Friday, January 22nd, 2010, representatives from the State Franchise Tax Board (FTB) and the Federal Internal Revenue Service (IRS) will present information on the state and federal Enterprise Zone programs and other business law updates.

This is an opportunity to get educated on tax credits and programs the business community can take advantage of in tax year 2009 AND begin planning for tax year 2010.

Details:
Friday. January 22, 2010
Registration 8-8:30 AM Event 8:30-10:30 AM
South County Regional Education Center
800 National City Blvd. National City

To RSVP:
Call: (619) 424 5143
Email: cindy@sandiegosouth.com