Tips for the 2012 Tax Year
With April 15 just around the corner, here are some helpful California tax tips to keep in mind for the 2012 tax year:
1. Did you expect to receive a refund from the Franchise Tax Board?
Your refund may be waiting for you! The Franchise Tax Board (FTB) is holding more than 16.1 million dollars in returned state income tax refunds. Most of these 38,000 refunds were returned by the U.S. Postal Service due to taxpayers who moved, but did not update their address with the FTB. To update your address with the FTB, see the Access MyFTB Account feature on FTB’s website. If you are unsure whether you received a refund, you can Check Your Refund Status.
2. Can Head of Household filing status help you get a lower tax rate?
Everyone who qualifies for the Head of Household (HOH) filing status is encouraged to take advantage of it because it does offer lower tax rates. You can generally claim HOH filing status if you are unmarried, you paid more than one-half the costs of keeping up your home for the year, and your home was the main home for you and a qualifying person who lived with you for more than half the year.
Keep in mind that two people cannot claim the same individual as a qualifying person, and it is important to maintain complete records to show when the qualifying person lived with you.
The qualifications for HOH status are highly technical and commonly misunderstood. Click on HOH for more information.
3. Are you entitled to a credit for paying child care expenses?
You may be eligible for the Child and Dependent Care Credit (CDC Credit) if you paid for child or dependent care services for your qualifying person so that you (and your spouse/registered domestic partner [RDP], if applicable) could work or look for work. Your qualifying person can be any of the following:
- Your qualifying child under the age of 13; or
- Your spouse, RDP, or dependent who was physically or mentally incapable of self-care, regardless of age; or
- Any person who was physically or mentally incapable of self-care and who would have been your dependent except that they received gross income of 3,700 dollars or more, they filed a joint return, or you or your spouse/RDP with whom you filed a joint return could be claimed as a dependent on someone else’s return.
Most types of care qualify for the credit, provided that they take place in California, including care provided at your home, the home of your care provider, a day care center, nursery school, or day camp.
To claim the credit, complete and attach FTB Form 3506, Child and Dependent Expenses Care Credit to your California tax return. The credit is nonrefundable, meaning it can only be used to offset your tax liability. Any excess credit remaining cannot be refunded or carried forward. For more information about the CDC Credit please see child and dependent expenses on FTB's website.
4. Do you have California State Lottery winnings?
If so, congratulations on your winnings, and I have more good news: California State Lottery winnings are nontaxable by the FTB. However, keep in mind that certain other gambling winnings are taxable and will need to be reported. For example, if you won at the racetrack or hit a casino jackpot, you are required to include winnings of 600 dollars or more in your income. Even though California and other states with income taxes may treat gambling, game show, and lottery winnings differently, the Internal Revenue Service (IRS) does not. As far as the IRS is concerned, all gambling winnings, including state lottery winnings, are taxable and must be reported as income. This applies to charitable gambling and online gambling as well as the commercial variety, and even illegal gambling. Regardless of the gaming’s legitimacy, the federal government expects you to report it. To do so, use IRS Form 1040, U.S. Individual Income Tax Return, and report other income on line 21.
If you include California lottery winnings on your federal return, use FTB Schedule CA (540), California Adjustments-Residents to exclude this income on your California income tax return. For further information on gambling winnings and filing forms, go to www.ftb.ca.gov.
5. Do you use part of your home for your business?
If so, you may be entitled to deduct expenses for the business use of your home. These expenses may include mortgage interest, insurance, utilities, repairs, and depreciation. To qualify, you must regularly use part of the home exclusively for conducting business. For example, if you use an extra bedroom to run your online business, you can take a home office deduction for the extra bedroom. Generally, deductions for a home office are based on the percentage of your home devoted to business use. So, if you use a whole room or part of a room for conducting your business, you need to figure out the percentage of your home devoted to your business activities.
For a full explanation of tax deductions for your home office refer to IRS Publication 587, Business Use of Your Home and IRS Form 8829, Expenses for Business Use of Your Home Instructions and its Instructions, Inst 8283.
6. Did you make charitable contributions during 2012?
Generally, tax deductions are allowed for contributions made to qualified organizations. To deduct a charitable contribution, you must file Form 1040 and itemize deductions as described in Inst 1040, Instructions for Schedule A. You may generally deduct up to 50 percent of your adjusted gross income, but other limitations may apply in some cases. All cash contributions, regardless of amount, require either a bank statement, receipt from the charity, or a payroll deduction record. For cash donations of 250 dollars or more, a written acknowledgment from the charitable organization is also required. Noncash contributions require additional documentation that varies depending on the value of the donation.
For more information on charitable contributions, refer to IRS Form 8283, Noncash Charitable Contributions, and its Instructions, Inst 8283, as well as Publication 526, Charitable Contributions. For information on determining value, refer to Publication 561, Determining the Value of Donated Property. These forms and publications are available at www.irs.gov or by calling 1-800-TAX-FORM (1-800-829-3676).
NOTE: This page contains a general summary of the applicable law. There are many factors not discussed on this page. You should not rely on this information alone in determining how to complete your income tax returns. For assistance, visit www.ftb.ca.gov or call 1-800-852-5711.
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