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Reading Material - California Specific Tax Course |
| General Information |
| In general, California conforms to federal tax law for the most part. However, any differences between California and federal must be noted in the tax forms in order for you to calculate the California state tax returns correctly. There will be many differences. Your job as tax preparer is to make sure that you apply credits and deductions to tax income correctly. Familiarize yourself with different deductions and credits which federal allows and what differences, if any, with which the state of California does not conform with. There may be new federal tax laws passed that the state of California has not got around to consider yet, and therefore, you may have to make adjustments accordingly. If there is a federal tax deduction or credit, you need to look for the corresponding California state deduction or credit and if there is none, you need to remove it from the California gross income. |
| In this reading material, we are mostly concerned with items that differ in preparing your tax returns for California and federal. When there is a difference in your California returns, you must file the difference and make the adjustments on your Schedule CA (Form 540) California Adjustments form for the most part. Usually if both Federal and California agree on the tax laws, there will be no need to file Schedule CA of Form 540. When there are no differences then your California form preparation is very easy and figures simply transfer over from the federal tax return. Maybe this is what tax professionals mean by short form in the tax preparation profession. Not according to H&R Block though. To most H&R Block tax preparation offices, short form means anything that is beyond just filing your tax return with Form W-2. Every tax office or tax professional will normally determine what is considered short form and what is considered long form. It seems that most tax work is a long form tax return. |
| In preparing your tax returns please make sure to have an interview packet in place if you don’t already have one. The importance of some sort of interview packet cannot be overlooked. The interview packet will be so helpful in case of an audit and for your paper trail of the way you perform your job. You must be able to substantiate that you are asking the correct questions on each and every interview you have with your tax clients. Your job will become so much easier if you have everything possible in front of you and the question you need to ask should be listed in one packet so that you may not miss anything. You need to prepare a thoroughly complete tax return for your taxpayer client. |
| Net Operating Loss (NOL) Carryback |
| Net Operating Loss (NOL). What is it? You know that if you own a business you can manipulate your income to certain extent. You can make decisions towards the end of the year that will allow you to also manipulate your tax rate. Again, this is to a certain extent and it is all legal. The correct name for using time to manipulate your tax return is called tax planning. When you use the tools available to you in tax planning, you forecast your tax liability based on all the facts present at the moment and you work of ways to reduce your tax liability. If you need a loss to offset your income and you know that a business will most likely operate at a loss in the first three years, you may want to venture into a new business. The goal of starting a business is to make a profit and a loss is just something that happens early on in the start of your new venture. This has to do with all the set up expense at the beginning of the business start-up. You may have an NOL as a result. |
| You should consider tax planning as part of your tax filing practice. You should tell your clients to consider tax planning early on before the start of tax season. There are certain things you can do at the end of the year to lower you rate, such a paying off bills to make them deductible in the current year. This is a very common practice and so common that the Internal Revenue Service and California have placed rules to limit this practice. You usually have limits on what items you can prepay. Usually items which you pay should correspond with the period for which they apply. |
| Copyright © 2014 [Hera's Income Tax School]. All Annual Federal Tax Refresher Course rights reserved. |
| Revised: 07/09/15 |
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