Biz expenses: schedule A questionables & other FTB updates.

• Author: Williams, Len
• Position: CA Tax - Franchise Tax Board

The August issue of the FTB's Tax News stated that the FTB has noticed a large number of taxpayers who claim unreimbursed employee business expenses on Schedule A that appear questionable. Accordingly, it has increased the number of audits for taxpayers deducting employee business expenses on personal returns for the 2011 and 2012 years.

The FTB will request taxpayers who claim these expenses to provide their employer's reimbursement policy and other documentation to substantiate their claim. This has long been an area of widespread misperceptions by taxpayers. The imposition of the 2 percent of AGI floor that the total of such expenses must exceed before becoming deductible reduced the number of taxpayers claiming such expenses, but apparently abuses continue.

There are two widespread misperceptions about the deductibility of such expenses, and one booby trap:

* That employees have a choice of whether to take an authorized reimbursement, or claim it as an itemized deduction on their tax return. Taxpayers don't have that choice. If they're entitled to reimbursement, then they may not take the expense as a tax deduction.

* That employees would be better off taking the expense as a deduction rather than getting the reimbursement. That is incorrect because the reimbursement is a 100 percent recovery of their expenditure. Taking it as a deduction results in a recovery of only the amount of the expenditure multiplied by one's marginal tax bracket.

* The booby trap, which occurs on federal tax returns more than on California returns, is that miscellaneous item deductions aren't a deduction in computing alternative minimum taxable income.

MyFTB Accounts Update

Because of security concerns, the projected launch of the enhanced MyFTB account program has been delayed until January. Practitioners and taxpayers who have an existing account can continue to log into their accounts. However, new online registrations won't be available until January when the new version is launched.

Unintentionally Revoking a Power of Attorney Can Cause Problems

This problem can result for a small firm, even though powers of attorney (POA) usually are signed by only one person, and that person should know of any prior POAs granted. However, if the client has gone to an outside firm for a specific problem--such as unclaimed property specialists or tax credit firms--and that firm requires a POA, that POA will revoke the prior one on file with the FTB.

For large firms, there...