Tax Season Toolkit: everything you need to navigate through the busy season.

• Position: Worker, Homeownership, and Business Assistance Act of 2009

With the coming of the new year, CPAs will be launched headlong into tax season. And the rapid changes taking place in the economy and regulatory world means there's much to be wary of. But, never fear! CalCPA's annual Tax Season Toolkit is here to help.

(Note: Information is as of Nov. 1, 2009. Details of other legislation, including the Worker, Homeownership, and Business Assistance Act of 2009 signed into law Nov. 6, were being reviewed as of presstime and are not included.)

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California Tax Tips

Changes Effective in 2009

The governor called two special legislative sessions this year (in addition to general session; to reduce California's ongoing budget deficits. These sessions resulted in significant tax law changes for the 2009 tax filing period. Here is a recap.

Estimated Payments and Wage Withholding Steepens for 2010

For tax year 2009, estimated personal income and corporate tax payments increased from equal quarterly payments to required quarterly installments of 30 percent each for the first and second installments, and 20 percent each for the third and fourth installments.

For 2010, the required quarterly payments are 30 percent for the first, 40 percent for the second, no amount for the third and 30 percent for the final fourth quarter.

More importantly, this provision was expanded to include this accelerated withholding on all wages paid on or after Nov. 1, 2009.

Other withholding increases include 6.6 percent on "supplemental wages" and 10.23 percent on stock options and bonus payments paid on or after Nov. 1, 2009.

Back-up Withholding Conformity

For payments made on or after Jan. 1, 2010, California back-up withholding is required at a rate of 7 percent on such payments subject to federal back up withholding.

Remit Payments Electronically for Certain Amounts

All tax payments paid after Jan. 1, 2009 must be remitted electronically if an individual meets any of the following thresholds:

* Installment payment exceeds $20,000; or

* Total tax liability exceeds $80,000 for years 2009 and forward.

A 1 percent penalty for noncompliance will be applied to the amount paid. An exception exists if reasonable cause and not willful neglect is established for the nonelectronic payment.

Business Use Tax Registration for 'Qualified Purchasers'

Businesses that have at least $100,000 in annual gross receipts are required to register for a use tax account with the Board of Equalization. An annual filing is required to report and pay use tax on the total sales price of tangible merchandise purchased during the preceding calendar year.

The return for 2009 is due by April 15, 2010. This initial year will include calendar year 2007 and 2008 purchases, in addition to 2009. For more information, go to www.boe.ca.gov/news/pdf/1232/pdf.

Sales and Use Tax Rate Increased by One Percent

Beginning April 1, 2009, and effective through June 30, 2011, the slate sales and use tax rate is increased by 1 percent.

Net Operating Losses Suspended for 2009

NOLs were suspended for 2008 and continue to be suspended for both personal income and corporate taxpayers for 2009. This applies to all California NOL provisions, including qualified small business and Enterprise Zone NOLs. An exception exists for taxpayers with less than $500,000 in business income for the taxable year.

Suspended NOLs for 2008 and 2009 will be allowed additional carryover periods of two years and one year, respectively. Additionally, the NOL carryover period is extended to 20 years for NOLs incurred in 2008 and forward.

Business Tax Credit Limitations Remain for 2009

Business tax credits (including the Enterprise Zone and Research Credits) may only offset up to 50 percent of the net tax for years 2008 and 2009. An exception exists for taxpayers with less than $500,000 in business income for the taxable year.

Up to two years will be added (depending on length of nonuse) to the carryover period of business tax credits that otherwise have a limited carryover period.

Nonresident Group Filers Expanded

For tax year 2009, one or more nonresident partners, LLC members, S corporation shareholders and directors can now elect to be included in a nonresident, group return instead of filing their own individual nonresident tax return(s). The composite return filing requires withholding at the highest lax rate. For California source income in excess of $1 million, the 1 percent add-on tax will apply to the entire amount(s). For those nonresidents electing to be included in multiple composite returns, the add-on tax applies if the aggregate amount of California source income exceeds the $1 million threshold.

Statute of Limitations Extended for Refunds of Taxes Paid to Other States

For taxes paid to another state on or after Jan. 1, 2009, taxpayers may file claims for refunds or credits for taxes paid to other states within one year from the date the tax is paid, even if the standard four-year statute of limitations period has lapsed.

LLC Fee Prepay Required by the 15th of the Sixth Month

Starting in 2009 and forward, LLCs must accurately estimate and remit the LLC fee for the full taxable year by the 15th of the sixth month of that year. For example, for a 2010 calendar year taxpayer, the LLC fee is due by June 15, 2010.

Vehicle License Fee Increase

Effective May 19, 2009, the state Vehicle License Fee increased from 0.65 percent to 1.15 percent. The increase does not apply to certain truck trailers, semitrailers and other commercial vehicles. The rate increase is effective through June 30, 2011.

Individual Income Tax Rates Increased by .25 percent

For tax years beginning on or after Jan. 1, 2009, the individual tax rates increased by 0.25 percent. The increase applies to resident and nonresident, individuals, to taxable estates and trusts, and to regular and alternative minimum tax rates.

The 0.25 percent rate increase, is effective through Dec. 31, 2010.

Corporate tax rates (including S corporations) remain unchanged.

Dependent Credit Reduced by $211 or More Per Dependent

For tax years beginning on or after Jan. 1, 2009, the dependent credit is reduced to an amount equal to the individual personal exemption credit. The 2009 credit amount is $98 per dependent. Comparing that to the 2008 number, that results in a $211 reduction in dependent credit.

The dependent credit reduction is effective through Dec. 31, 2010.

New Home Purchase Tax Credit

Individuals who purchase a new, never previously occupied, single-family residence between March 1, 2009 March 1, 2010, are eligible for a credit equal to the lesser of 5 percent of the purchase price or $10,000 against their California personal income tax. The credit must be claimed in equal amounts over three successive tax years, beginning with the tax year in which the purchase is made.

Credits must be pre-approved before taxpayers claims it on their tax return. The Legislature limited available credits for all taxpayers to $100 million. The available credits were fully used by July 2009. This credit is no longer available unless the Legislature takes further action.

Small-Business Hiring Tax Credit

For taxable years beginning on or after Jan. 1, 2009, a credit against individual and corporate income/franchise tax is granted in an amount equal to $3,000, prorated as provided, for each qualified full-time employee hired during the taxable year by a qualified employer.

A "qualified employer" must have 20 or fewer employees on the last day of the preceding tax year and may only claim a credit on the net increase in "qualified employees" for the current year in comparison to last year. New businesses reflect all qualified employees as net increases.

Credits will cease to be granted in the calendar quarter when the total credits claimed on all state returns for all eligible years under this statute cumulatively total $400 million.

Motion Picture Tax Credits

For taxable years beginning on or after Jan. 1, 2011, a credit against individual and corporate income tax is granted in an amount equal to a specified percentage of the qualified expenditures attributable to the production of a qualified motion picture in California. Credits must be certified in...