Archive for the ‘California’ Category

The Train to Nowhere Needs $100 Billion More

Monday, March 18th, 2024

I haven’t written about California’s bullet train in some time, but the news from the Golden State for the train leads me to conclude it will never be completed.  A news story notes that the train needs $4 to $7 billion to complete a segment from Shafter (just north of Bakersfield) to Merced in California’s San Joaquin Valley (and won’t open until 2030 to 2033).  As for completing the line from Los Angeles to San Francisco, let’s add another $100 Billion!  To date, every deadline and projection has been exceeded (in dollars and in length of time); I’ll continue to take the over on this.

California is looking at a budget deficit of $73 Billion.  Sooner or later (very likely sooner), the federal funding propping up this project will cease, and fiscal realities will have to be looked at.  My guess is that there will be a wonderful new bike path in the Central Valley opening in the next few years.

In so many ways this short clip is apropos:

San Diego County Gets Extension Until June 17th

Wednesday, February 28th, 2024

Heavy rains and flooding in San Diego caused the area to be declared a federal disaster zone.  The IRS extended all tax deadlines in San Diego County from January 21, 2024 onward until June 17, 2024.  This includes individual, business, and employment tax returns.  California’s Franchise Tax Board granted the same relief for state taxes.

And there’s a blizzard warning for the Sierra Nevada, Lake Tahoe, and nearby areas from 10am PST tomorrow through 10am PST Sunday.  I’m expecting other areas in California to join San Diego County as federal disaster areas in the coming days.  Be safe!

What’s $68 Billion and 1.1% Among Friends?

Monday, December 11th, 2023

As the late Senator Everett Dirksen said, “A billion here, a billion there, and pretty soon you’re talking real money.”  California is staring at a $68 billion budget deficit.  Ouch.  California depends on personal income tax revenues for 65.9% of the budget–and on the top 1% for 50% of those revenues with the top 0.1% providing 33% of personal income tax revenues to the state.  Meanwhile, the middle class has been leaving California as fast as they can.  As Samuel Johnson said long ago, “Whatever you have, spend less.”

That’s the big issue in California: runaway spending.  What has the state legislature’s response been: Let’s increase tax rates!  Beginning in January, California’s top rate rises to 14.4% (from 13.3%); those in the middle class will see the rate rise from 9.3% to 10.4%.  This doesn’t sound like much, but if a family earns $100,000 a year they can save $1,100 by residing in no-tax Nevada.  The Greater Las Vegas Association of Realtors thanks California for their efforts in helping home sales in the Las Vegas metropolitan area!  And that 1.1% increase could easily increase another 0.4% (to a total of 1.5%).

Now, taxes aren’t everything (of course).  For businesses, regulations matter; California’s regulatory climate is abysmal.  “But Russ, there are a lot of people in California.”  Sure, but businesses that can move will.  I did twelve years ago; others are getting more and more reasons to do so.  The California legislature and Governor Newsom ignore this at their own peril.

The Almost-End of the 2023 Tax Season

Thursday, November 16th, 2023

It’s been a while since I posted: family issues, tax deadlines, and paper in every direction has made me concentrate on serving my clients, and not the blog.  I’ll have a recap of the 2023 Tax Season soon, but today is a celebratory day: Today is the almost-end of the 2023 Tax Season.  Thursday, November 16th is the filing deadline for California taxpayers (except for four counties in the northeast portion of the state).  I believe we have one signature document outstanding, but otherwise our outstanding California returns were filed.

It’s not the end of the 2023 Tax Season, though: taxpayers impacted by hurricanes in Florida (most of the state except for the Miami-Palm Beach area), South Carolina, Maine, and Massachusetts have until Thursday, February 15, 2024 to file their extended 2022 tax returns.  We have four such clients.

The IRS will be turning off electronic filing of individual returns this weekend until sometime in January.  The ancient IRS computer system (it dates to 1959) takes two months or so to be reprogrammed for the following year taxes.  If you need to electronically file a 2020 tax return (or a 2020 amended return), now is a great time to do so because after Friday you won’t be able to.

I’ll also soon have a preview of the upcoming paperwork tsunami disaster and what it means for both the 2024 Tax Season and Automated Underreporting Unit notices in 2025.

When the IRS Computer Sends Out Lots of Bad Notices…

Wednesday, June 7th, 2023

Almost everyone in California has an extension for filing and paying their taxes until October 16th (a result of the flooding in the state in January).  The IRS certainly know about this: they issued multiple announcements on the extensions.  Thus, a California taxpayer could file his or her return today and pay in October without any late payment penalties, late filing penalties, or interest (from April 15th onward).  This is absolutely, positively correct.

But.

Yes, there’s a but.  The wonderful IRS computer is sending out balance due notices to California clients (including one of ours).  John Smith (not his real name) owes the IRS about $30,000 for his 2022 tax (the return was filed in mid-May); he’s already set up a payment on IRS Direct Pay for October 16th.  Earlier this week he received a CP14 notice showing his balance due with penalties and interest.  This caused him to call me, where I confirmed that he didn’t have to pay the IRS until October and that the IRS notice was erroneous, and:

  • Mr. Smith previously called the normal IRS telephone line (800-829-1040), and the agent he spoke to wasn’t aware of the extension for Californians and told him that he did need to pay now or penalties or interest would be charged.  He also waited on hold for over two hours before speaking with someone;
  • I called the Practitioner Priority Service and discovered that (a) calls regarding these notices are heavy, (b) the IRS is apparently looking at stopping sending out the CP14 notices to Californians, and (c) yes, almost everyone in California doesn’t have to pay until October 16th.

The agent I worked with did put a freeze on notices to Mr. Smith, so his situation should be fine.  (It’s possible he’ll receive another notice in early October, but given his payment will be made in mid-October that’s not a big deal.)  But this is a result of not thinking things through completely.  These notices should never have been sent.  California’s Franchise Tax Board (California’s state tax agency) did not send Mr. Smith a notice regarding his California balance due (about $5,000).  That payment, too, is scheduled to be made on October 16th.  It shouldn’t have been a big deal for the IRS to correctly program its computers.

Of course, the IRS is dealing with technology that’s older than I am.  Yes, the main IRS computer system dates back to 1959.  Think punch cards and a computer that takes up a huge room.  (An aside: Are you a COBOL programmer?  If you are, the IRS wants to hire you!)  Making programming changes is very difficult.  The money going to the IRS to upgrade technology is really needed.  (Yes, there’s no guarantee that it will be spent wisely but the IRS definitely needs to update its computer systems.)

If you are a California resident and receive a CP14 notice, let your tax professional know.  At this point, it may be that a call to the IRS is necessary (unfortunately), but you really don’t have to pay until October 16th (unless you live in one of the three California counties that weren’t extended).

Why Were California Returns Extended Again from May to October? (A Theory)

Monday, May 8th, 2023

Back in January, severe winter storms impacted California.  Much of the state was declared a federal disaster area; these declarations are always county-by-county.  As of today, only two counties in California (both in the northeastern corner of the state) are not federal disaster zones.  The IRS rightly extended tax filing deadlines from April 18th to May 15th.

But on February 24th the IRS announced that they were again extending California deadlines from May to October.  Why was this done?  The announcement doesn’t specify a reason, and almost all other disaster zones didn’t get this treatment.  For example, victims of the horrific tornadoes in Mississippi are looking at a July 31st deadline.  Indeed, Broward County (Florida) was just declared a federal disaster zone due to massive flooding in April; their tax deadline was extended only to August 15th.  I have a theory, and it has nothing to do with taxes and everything to do with politics.

President Biden recently formally announced he’s running for reelection.  (It’s been clear for a while he’s running.)  One of his biggest rivals in the Democratic Party is California Governor Gavin Newsom.  Governor Newsom recently toured other states and gave the impression (at least, to me) that he’s considering running for President.  Meanwhile, California faces a budget crisis–there’s at least a $22.5 billion deficit.  And that figure likely understates the problem: the tech industry is not doing well, and that (a) drives personal income tax collections in California (the top 1% of taxpayers pay about half the state’s personal income tax, and many of that 1% are technology industry executives) and (b) personal income tax collections make up about two-thirds of California tax collections.

Suppose you were running for reelection and you wanted to make sure a rival couldn’t run against you.  A budget crisis right at the time the rival would be announcing his candidacy would sure hurt him.  California was forced in January to extend its own deadlines for tax filing to May (state law mandates conformity to federal disaster extensions).  Delaying payments five more months would cause problems to California’s finances–and given the current state of the tech industry might kneecap a rival from running.  (When the IRS extended the deadline to October, California did conform.)  All good political reasons for delaying the deadline another five months.  Of course, the IRS is supposed to be an apolitical organization; however, one thing I’ve learned from the Lois Lerner scandal is that most political appointees within the IRS absolutely, positively look at the political spin on almost everything they do.

Now, I have no proof of what I’ve written.  It’s a theory (some might even call it a conspiracy theory).  It does, though, conform to the facts of the situation and there’s no evidence that I can find to refute my theory.  I hope I’m wrong about it, but like investigators looking at a troubling situation I suspect I’m correct.

Why You Use Certified Mail When Mailing Items to Tax Agencies

Wednesday, April 26th, 2023

My mother passed away last year (after a long and fruitful life).  I filed her final tax returns–and money was due to both the IRS and California.  I could not use IRS Direct Pay, nor could I have the funds debited from my bank account; thus, I mailed checks (and vouchers) to the tax agencies.  I sent these on Monday, April 17th using certified mail.

Today, Thursday, April 26th, the IRS payment was received (it has not cleared my bank account yet, but should in the next day or so).  Yes, it took nine days to be received.  Here’s the tracking for it:

As to why it sat around for four days in Cincinnati, you’ve got me.  No matter, because the payment deadline is a postmark deadline I’m fine and my mother’s tax to the IRS for her final return was timely paid.

Meanwhile, Sacramento is a lot closer than Cincinnati; you’d expect the payment to California to have already been processed.  Well, no:

The payment’s been somewhere in Sacramento since April 19th and is still somewhere other than with the Franchise Tax Board (FTB), California’s income tax agency.  Again, I have no answers for the postal service’s ineptitude but sooner or later (perhaps that should be later or later) the payment will make it to the FTB.  Because I mailed it certified mail–and have that proof–even if the payment is lost I’ll be fine.

Each of these envelopes cost $4.78 (total) to mail; that’s $4.15 more than first class mail.  The late payment penalty and interest would be in the hundreds of dollars for each of these payments.  If I had not mailed these certified mail, I could be looking at those penalties. (Yes, the tax agencies are supposed to look at postmarks but I’ve received plenty of mail without postmarks.)

There’s one other issue: The IRS (and other tax agencies) need to lengthen the time period for responding to notices.  These mail delays are typical–and the IRS needs to build in current realities to mailed responses to notices.

Bozo Tax Tip #4: Procrastinate!

Tuesday, April 11th, 2023

Today is April 11th. The tax deadline is just seven days away.

What happens if you wake up and it’s April 18, 2023, and you can’t file your tax? File an extension. Download Form 4868, make an estimate of what you owe, pay that, and mail the voucher and check to the address noted for your state. Use certified mail, return receipt, of course. And don’t forget your state income tax. Some states have automatic extensions (California does), some don’t, while others have deadlines that don’t match the federal tax deadline (Hawaii state taxes are due on April 20th, for example). Automatic extensions are of time to file, not pay, so download the extension form and mail off a payment to your state, too. If you mail your extension, make sure you mail it certified mail, return receipt requested. (You can do that from most Automated Postal Centers, too.)

By the way, I strongly suggest you electronically file the extension. The IRS will happily take your extension electronically; many (but not all) states will, too.

But what do you do if you wait until May 18th? Well, get your paperwork together so you can file as quickly as possible and avoid even more penalties. Penalties escalate, so unless you want 25% penalties, get everything ready and see your tax professional next week. He’ll have time for you, and you can leisurely complete your return and only pay one week of interest, one month of the Failure to Pay penalty (0.5% of the tax due), and one month of the Failure to File Penalty (5% of the tax due).

There is a silver lining in all of this. If you are owed a refund and haven’t filed, you will likely receive interest from the IRS. Yes, interest works both ways: The IRS must pay interest on late-filed returns owed refunds. Just one note about that: The interest is taxable.

NOTE: If you reside in a federally declared disaster zone (for example, most of California), you have an automatic extension of time to file and pay; most Californians have until October 16th.

Bozo Tax Tip #9: Nevada Corporations or LLCs

Tuesday, April 4th, 2023

As we continue with our Bozo Tax Tips–things you absolutely, positively shouldn’t do but somewhere someone will try anyway–it’s time for an old favorite. Given the business and regulatory climate in California, lots of businesses are trying to escape taxes by becoming a Nevada business entity. While I’m focusing on California and Nevada, the principle applies to any pair of states.

Nevada is doing everything it can to draw businesses from California. Frankly, California is doing a lot to draw businesses away from the Bronze Golden State. But just like last year you need to beware if you’re going to incorporate in Nevada.

If the corporation (or LLC) operates in California it will need to file a California tax return. Period. It doesn’t matter if the corporation (or LLC) is a California corporation/LLC, a Delaware corporation/LLC, or a Nevada corporation/LLC.

Now, if you’re planning on moving to Nevada forming a business entity in the Silver State can be a very good idea (as I know). But thinking you’re going to avoid California taxes just because you’re a Nevada entity is, well, bozo.

Today Is the Partnership & S-Corporation Deadline

Wednesday, March 15th, 2023

You know what today is, right?  Yes, the Ides of March–and the US tax filing deadline for partnerships and S-Corporations.  If your entity isn’t ready to file, download Form 7004 (the extension request) and mail it using certified mail today.  The deadline is a postmark deadline so it doesn’t matter when your extension is received–but you need to maintain proof of filing.  Better yet, efile your extension and you don’t have to stand in line at the Post Office.  (You can also send your extension via an IRS authorized private delivery service.  Beware, not all offerings are authorized and it does matter.)

Most states piggyback onto the federal extension, but not all of them.  New York, for example, requires a separate extension to be filed.

If you’re in most of California, you have an automatic extension until October 16th and you don’t have to send in an extension.