• California: Agencies Assist Taxpayers With Guidelines And Audit Information
  • August 28, 2015 | Authors: David H. Godenswager; David M. Kall; Susan Millradt McGlone
  • Law Firm: McDonald Hopkins LLC - Cleveland Office
  • Increased audits

    Earlier this month, the Franchise Tax Board (FTB) announced that it would be increasing the number of audits for taxpayers deducting employee business expenses (EBE), starting in August with the 2011 and 2012 tax years. The FTB explained that it had discovered a large number of taxpayers who claim unreimbursed EBE on Schedule A that appear to be questionable.

    The FTB reminds taxpayers that it defines valid employee business expenses as those that are:
    • Paid or incurred during your tax year
    • Required to carry on a trade or business
    • Ordinary and necessary
    • Not reimbursed by one’s employer
    • Not eligible to obtain reimbursement from one’s employer
    The audit involves, in part, the FTB’s request that taxpayers who claim these expenses provide their employer's reimbursement policy and other documentation to substantiate their claims.

    Taxpayers can file amended tax return(s) if their business expenses do not qualify for a deduction.

    Head of household guidelines

    In a recent publication, the FTB reminded California taxpayers of the requirements for claiming a head of household status, which enables a lower tax liability and a higher standard deduction than the single filing status. In order to qualify for head of household filing status the taxpayer must meet all of the following requirements:
    • The taxpayer was unmarried and not a registered domestic partner (RDP), or they met the requirements to be considered unmarried or considered not in a registered domestic partnership as of the last day of the tax year.
    • The taxpayer paid more than one-half the costs of maintaining his or her home for the year.
    • The taxpayer’s home was the main home for the taxpayer and a qualifying person who lived with the taxpayer for more than one-half the year. For limited exceptions to this rule, see the discussions regarding for parent/stepparent (father or mother) and temporary absence in FTB Publication 1540, California Head of Household Filing Status.
    • The qualifying person was related to the taxpayer and met the requirements to be a qualifying child or qualifying relative.
    • Generally, the taxpayer was entitled to a Dependent Exemption Credit for their qualifying person. However, under limited circumstances, the taxpayer does not need to be entitled to a Dependent Exemption Credit for his or her qualifying child. See FTB Publication 1540 and our law summary, Head of Household Filing Status, Taxpayer Unmarried, and Not in a Registered Domestic Partnership, Applicable to Tax Years 2007 and Thereafter, Section B.1.e.
    • The taxpayer was not a nonresident alien at any time during the year.
    The publication also contains several additional links to assist taxpayers to avoid an error while claiming the head of household status and being subject to the resulting tax assessment with interest.

    New web portal

    Last month, the Governor’s Office of Business and Economic Development (GO-Biz) announced its launch of the California Business Portal, “a one-stop-shop website for business owners looking for information and assistance.” The portal provides information to business owners on new business start-ups, permits and licenses, incentives, and local resources, among other things.

    Key features of the portal include the following:
    • Quick start guides: Short guides that contain the essential information for starting and growing specific types of businesses in California.
    • California business navigator: Custom information for individual business, such as permits, licenses, and incentives.
    • Service desk: Answers to commonly asked questions, customizable when a business owner submits a specific question.
    The portal also provides more particularized assistance, like the Innovation and Entrepreneurship unit, which administers California’s Innovation Hub (iHub) program. The unit “functions to develop an environment that encourages entrepreneurship, promotes long-term economic growth, and facilitates job creation through innovation. It also serves to convene key stakeholders needed to support GO-Biz activities throughout the state as well as stimulate entrepreneurship and the development of California’s innovation workforce.”