Archive for the ‘California’ Category

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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.

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Posted in California, IRS | No Comments »

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.

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Posted in California, IRS | Comments Closed

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.

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Posted in California, Tax Preparation | Comments Closed

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.

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Posted in California, Nevada | Comments Closed

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.

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Posted in California, IRS | Comments Closed

California (Franchise Tax Board) Conforms to Extension to October 16th

Friday, March 3rd, 2023

The Franchise Tax Board announced late yesterday that California is officially conforming to the IRS extension until October 16th for all tax returns due from January 10th through October 15.  Almost all of California is covered by the extension; only Imperial, Kern, Lassen, Modoc, Plumas, Shasta, and Sierra counties are not covered.  (The largest cities which still have March, April, June, and September deadlines are Bakersfield, El Centro, and Redding.)

The extension covers:

  • 4th quarter 2022 estimated payments due on January 17th;
  • Partnership and S-Corporation returns due on March 15th;
  • Individual, C-Corporation, and Trust/Estate returns due on April 17th;
  • 1st, 2nd, and 3rd quarter 2023 estimated payments due on April 17th, June 15th, and September 15th; and
  • Almost all other tax forms due before October 16th.

Individuals in the federal disaster area do not need to do anything to obtain an extension: It’s automatic.  However, if you have moved from the area because you were impacted by the flooding or you reside outside of the area and were impacted and need the extension you do need to contact the IRS at 866-562-5227; I would also in such a situation contact the FTB.

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IRS Extends California (and Alabama and Georgia) Disaster Areas to October 16th from May 15th

Friday, February 24th, 2023

The IRS announced today that most California taxpayers (most of the state is in a disaster zone from flooding in January) now have until October 16th to file any tax returns.  This also means that impacted taxpayers have until October 16th to make 2022 contributions for IRAs and HSAs.  Additionally, 4th quarter 2022 and 1st and 2nd quarter 2023 estimated payments are now due on October 16th.  California’s Franchise Tax Board normally conforms to all federal disaster extensions; I expect to see confirmation from the FTB by Monday.

Meanwhile, California–especially Southern California–is bracing for more miserable weather.  There are blizzard warnings (!) for the Southern California mountains, and my old homestead of Irvine (and most of Los Angeles-Orange Counties) is under a Flood Watch:

Here is the beginning of the IRS announcement:

Disaster-area taxpayers in most of California and parts of Alabama and Georgia now have until Oct. 16, 2023, to file various federal individual and business tax returns and make tax payments, the Internal Revenue Service announced today. Previously, the deadline had been postponed to May 15 for these areas. 

The IRS is offering relief to any area designated by the Federal Emergency Management Agency (FEMA) in these three states. There are four different eligible FEMA declarations, and the start dates and other details vary for each of these disasters. The current list of eligible localities and other details for each disaster are always available on the disaster relief page on IRS.gov.

The additional relief postpones until Oct. 16, various tax filing and payment deadlines, including those for most calendar-year 2022 individual and business returns. This includes: Individual income tax returns, originally due on April 18; Various business returns, normally due on March 15 and April 18; and returns of tax-exempt organizations, normally due on May 15.

Among other things, this means that eligible taxpayers will also have until Oct. 16 to make 2022 contributions to their IRAs and health savings accounts.

In addition, farmers who choose to forgo making estimated tax payments and normally file their returns by March 1 will now have until Oct. 16, 2023, to file their 2022 return and pay any tax due.

The Oct. 16 deadline also applies to the estimated tax payment for the fourth quarter of 2022, originally due on Jan. 17, 2023. This means that taxpayers can skip making this payment and instead include it with the 2022 return they file, on or before Oct. 16.

The Oct. 16 deadline also applies to 2023 estimated tax payments, normally due on April 18, June 15 and Sept. 15. It also applies to the quarterly payroll and excise tax returns normally due on Jan. 31, April 30 and July 31.

The IRS disaster relief page has details on other returns, payments and tax-related actions qualifying for the additional time. Taxpayers in the affected areas do not need to file any extension paperwork, and they do not need to call the IRS to qualify for the extended time.

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Posted in Alabama, California, IRS | Comments Closed

California Storm Victims’ Tax Deadline Pushed Back to May 15th

Tuesday, January 10th, 2023

The IRS announced today that California storm victims have until May 15th to file any tax returns and make any payments that are due between now and May 14th, including the fourth quarter federal estimated tax payment due January 17th, partnership and S-Corporation tax returns due on March 15th, and individual and C-Corporation tax returns due April 18th.

The IRS is offering relief to any area designated by the Federal Emergency Management Agency (FEMA). This means that individuals and households that reside or have a business in Colusa, El Dorado, Glenn, Humboldt, Los Angeles, Marin, Mariposa, Mendocino, Merced, Monterey, Napa, Orange, Placer, Riverside, Sacramento, San Bernardino, San Diego, San Joaquin, San Luis Obispo, San Mateo, Santa Barbara, Santa Clara, Santa Cruz, Solano, Sonoma, Stanislaus, Sutter, Tehama, Ventura, Yolo and Yuba counties qualify for tax relief. Other areas added later to the disaster area will also qualify for the same relief. The current list of eligible localities is always available on the disaster relief page on IRS.gov.

Given continued storm damage, it would not surprise me to see additional counties (especially in Northern California) added to this list.  Friends of mine living in the San Francisco Bay Area told me of some incredible damage (local to them).

These extensions are automatic.  California’s Franchise Tax Board (the state’s income tax agency) automatically conforms to FEMA-related disaster extensions.

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New York, California, and Illinois Lose AGI & Population Per IRS Data

Sunday, December 25th, 2022

The Tax Foundation produced a report showing the overall gain (and loss) of population and taxpayers’ Adjusted Gross Income (AGI) during the second half of 2019 through the first half of 2020.  For the most part, high tax states were the biggest losers while low tax states were the biggest winners.  While the data includes a portion of the pandemic, “These data, therefore, capture many of the interstate moves made early in the pandemic—between mid-March and mid-July 2020—but do not necessarily capture the bulk of pandemic-related moves, many of which occurred later in 2020 and even into 2021. As such, when interpreting these data, it is important to keep in mind that many of these moves happened before the even more pronounced shift away from large cities and high cost-of-living areas that occurred during the pandemic. [emphasis in original]”

Some of these losses are eye-popping.  New York (which is dead last on this list) lost $19.5 billion in AGI and 248,305 taxpayers.  California (ranking 46th) lost more in population (263,344) but “only” $17.8 billion in AGI.  Meanwhile, Florida gained $23.7 billion in AGI and 166,707 in taxpayers (ranking 4th).  Idaho topped the list with a gain of $2.1 billion in AGI and 36,655 in taxpayers.

This is one area where it’s a zero-sum game.  Every taxpayer who moves between states ends up somewhere else.  If a state loses enough population, the state is forced to make changes.  Indeed, that time is likely coming soon for New York and Illinois–their current trends are just not sustainable.  Meanwhile, the legislature in New York proposed tax increases.  (To her credit, Governor Hochul vetoed the legislation.)

For those who say it’s related to weather, sure, that’s a factor.  Yet Maine–not exactly the warmest state in the Union–ranks seventh.  Indeed, combine sound fiscal practices and great weather and you get Florida.  I’d advise politicians in California, New York, and Illinois to carefully read the study (but I doubt they will).

Here’s an image from the Tax Foundation:

Posted in California, Florida, Illinois, New York | Comments Closed

The Tax Foundation’s 2023 State Business Tax Climate Index: Bring Me the Usual Suspects (Again)!

Tuesday, October 25th, 2022

It seems like it was only yesterday when I wrote about the 2022 State Business Tax Climate Index, but it’s been a year!  This morning, the 2023 Index was released and it’s more of the same.  Let’s look at the top ten states:

1. Wyoming
2. South Dakota
3. Alaska
4. Florida
5. Montana
6. New Hampshire
7. Nevada
8. Utah
9. Indiana
10. North Carolina

As the Tax Foundation notes,

The absence of a major tax is a common factor among many of the top 10 states. Property taxes and unemployment insurance taxes are levied in every state, but there are several states that do without one or more of the major taxes: the corporate income tax, the individual income tax, or the sales tax. Nevada, South Dakota, and Wyoming have no corporate or individual income tax (though Nevada imposes gross receipts taxes); Alaska has no individual income or state-level sales tax; Florida has no individual income tax; and New Hampshire and Montana have no sales tax.

Of course, there’s a bottom ten, too.  And there are few surprises for tax professionals:

41. Alabama
42. Rhode Island
43. Hawaii
44. Vermont
45. Minnesota
46. Maryland
47. Connecticut
48. California
49. New York
50. New Jersey

Again, let me quote the Tax Foundation:

The states in the bottom 10 tend to have a number of afflictions in common: complex, nonneutral taxes with comparatively high rates. New Jersey, for example, is hampered by some of the highest property tax burdens in the country, has the highest-rate corporate income taxes in the county, and has one of the highest-rate individual income taxes. Additionally, the state has a particularly aggressive treatment of international income, levies an inheritance tax, and maintains some of the nation’s worst-structured individual income taxes.

While California bureaucrats would argue that the high and complex tax and regulatory system in the Golden State doesn’t matter, reality is what it is: It truly does matter.  Businesses are relocating out of California, seeking better business environments.  Yes, California has a large population and there will always be business there.

I interacted with numerous small business owners when I lived in Irvine, California (I moved to Las Vegas in December 2011).  None of these business owners plan on retiring in California.  All of them would move their businesses to another state if they could.  That’s a tremendous indictment of the business climate in California.  Sure, it’s a small sample size (around 70), but it ought to scare politicians in California.  Instead, there are propositions on the November ballot that would increase taxes!  Well, I guess some in California want to try for the top spot!

In any case, for those thinking about opening a business I recommend reviewing this important study from the Tax Foundation.  Taxes matter, and they absolutely impact where you conduct business.

Posted in California, Nevada | Comments Closed

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