Practical tips: IRAs, 401(k)s, choosing the right title and more.

• Author: Williams, Leonard W.
• Position: California Tax

Prior columns have concentrated on California tax matters discussed--and resolved--on the Tax Talk Listserve. That aspect of the listserve has been reasonably quiet recently, but there have been lively discussions on other matters. So this month's column will concentrate on some of those practical tips that have been discussed.

Keeping One's Story Straight

This may be apocryphal, since the CPA who posted it said that she heard it from a former IRS agent, but its point is well taken.

A business claimed salary and other deductions for the wife of one of the owners. So the IRS auditor had a meeting with the family, at the business, to determine what duties the wife fulfilled there. All seemed to be going fine and it appeared that the IRS was convinced that the wife was a bona fide employee. However, as the meeting broke up, the IRS auditor heard the wife asking someone where the bathroom was.

Moral: If you claim family members as employees, be sure that they at least know their way around the building.

IRAs and Qualified Plan Early Withdrawals

Taxpayers who missed all of the jobs created by the prior tax cut, and are waiting for the new jobs that will be created by the most recent tax cut, are withdrawing funds from their IRAs and 401(k)s to survive.

Quick review: If they are under age 59.5, they will be subject to an additional penalty tax of 10 percent to the IRS and 2.5 percent to California unless their withdrawals meet the "substantial equal periodic payment" exception.

There are three qualifying methods to compute the payments: required minimum distribution; fixed amortization; and fixed annuitization. Payments computed under one of those methods must continue for five years from the first payment, or until age 59.5, whichever comes later.

Rev. Rul. 2002-62 states that taxpayers may make a one-time change from one of the above methods to another without the change being treated as a modification subject to the 10-percent penalty tax.

Blank 8109 Federal Tax Deposit Coupons

Despite what the textbooks say, situations arise where a blank 8109 coupon is needed in a hurry. It is possible to get a few for emergencies by sending a simple note requesting blank copies to: Tax Form Committee; Eastern Area Distribution Center; Rancho Cordova, CA 95743-0001.

Obtaining an EIN via the Internet

It is possible to obtain an EIN--Employer Identification Number--via the Internet

For instructions, visit the IRS website at www.irs.gov, click on the "Business"...