If you have clients who reside in or do business in California, don’t forget these important tax planning items:

The Franchise Tax Board (FTB) continues to scrutinize and audit, taxpayers using the Head-of-Household (HOH) filing status. FTB sent audit letters to about 135,000 filers who claimed HOH filing status on 2009 returns. Thus, it is worthwhile to review the rules with clients to be sure HOH is the proper status. Also see FTB Publications 1540 and 1585. The FTB also “highly recommends” that e-filers attached Form 4803e to their return to possibly avoid a HOH audit.

California Registered Domestic Partners (RDPs) will want to consider CCA 201021050 released by the IRS. It notes that change in CA properly law regarding community property and RDPs, means that for tax years beginning after 2006, a CA RDP is to report one-half of the community income. RDPs may amend prior year returns, but are not required to. PLR201021048 also notes that withholding credits would also be split equally between the RDPs. May be advantageous for some RDPs to amend federal returns as overall tax liability could be reduced. While there is not ruling, a similar result likely applies to CA same-sex married couples. See IRS Pub 555 on community property and FTB Pub 776.

To claim either the New Home or First-Time Buyer Credit, the individual must have a Certificate of Allocation which should also state how much can be claimed. Cautions:
• Individual must have timely applied and met qualifications – application due within two weeks of close of escrow.
• Must occupy home as principal residence for at least two years following purchase or will lose the credit. Be sure to ask client in 2010, 2011 and 2012.
• If unmarried co-owners, be sure each knows their credit (should be on their certificate – may want to check those of all co-owners to verify your client’s amount is correct).
• Keep copy of the certificate in taxpayer file.

For more tax tips for California taxpayers, register for the California Tax Update webcast taught by Annette Nellen, CPA, Esq., professor at San Jose State University. Choose to attend January 6 or January 12. Earn 2 CPE hours.

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