The legendary complexity of the Tax Code is common knowledge among Californians. While the IRS has taken steps to simplify the tax return process, arcane and difficult rules can come into play for many taxpayers, and mistakes made on returns can lead to contact from the IRS. In addition, the differences between California’s tax laws and the federal government’s can be enough to confound even the savviest taxpayers.
One of the most glaring differences lies in the filing statuses same-sex couples can elect in California. Since the federal government does not recognize same-sex marriage, couples will have to file their federal returns using “single” status. They would file their state returns jointly, however. But matters are not that simple. California’s status as a community property state affects how same-sex couples would report their income on their federal returns, requiring them to pool then split income evenly.
Another thorny tax issue involves dependents. California has the highest percentage of people over 65 who have moved in with family to cut costs in a tough economy. An increasing number of grown children are also living at home. Homeowners may be able to take a beneficial deduction on their tax returns by counting cohabiting relatives as dependents, but the availability of the deduction depends on how much the relatives earn and the source of the income.
Two taxes that many Californians might not have heard of can also come into play this tax season: the use tax and the alternative minimum tax. The use tax captures sales tax that was not paid on online purchases. You can calculate it using actual receipts or a sliding scale based on your income. The alternative minimum tax (AMT) is, at bottom, a different formula for calculating tax liability. People with certain tax attributes, such as large capital gains, can be affected by the AMT and have to pay more tax.
The dizzying assortment of tax laws makes it essential to keep detailed records and file accurate returns. But mistakes can happen, and an experienced California tax law attorney can help those who are contacted by the IRS.
Source: Los Angeles Times, “Californians face particularly challenging tax issues,” Kathy M. Kristof, Feb. 18, 2012.