Notes from the Tax Practitioner Liaison
Excess SDI may need special entry for e-file
Have any of your clients received an FTB notice disallowing excess SDI? We look at each W-2 to verify the SDI reported. When a return is e-filed, we must rely on the tax preparer's software to send SDI amounts for each wage and tax statement (W-2) in a specific place in the e-file record. If amounts are not clearly identified as SDI on each W-2, they may not be considered. To avoid errors, check with your software to confirm the correct location to enter your SDI information. Entering the designator (SDI or VPDI), and the amounts in the correct location ensures the SDI is verified accurately on every e-filed return.
Certain fiduciary returns may be reporting income in error
We have noticed Fiduciary returns reporting errors on Form 541, Side 1, in situations where the Fiduciary includes nonresident trustees and/or nonresident beneficiaries. Fiduciaries with nonresident trustees and/or nonresident beneficiaries should only be transferring to Side 1 the income reportable to California. However, some Fiduciaries with nonresident trustees and/or nonresident beneficiaries are transferring all their income (California source income and unapportioned Non-California source income) to Form 541, Side 1. This is incorrect and may trigger the Mental Health Tax and Alternative Minimum Tax in cases where the income level exceeds $1 million. To help prevent these types of errors, we are adding cautionary language to Form 541 and the instructions.
Single member LLC required forms
To clear up some recent confusion over which forms are required for Single Member LLCs (SMLLC), here are the SMLLC forms requirements:
- Complete Form 568
- Side 1.
- Side 2.
- Side 3 (Schedule B).
- Side 4 (Schedule K).
- Complete the LLC worksheet.
- Pay the annual tax and LLC fee.
Schedule B and Schedule K each report different tax attributes necessary for tax administration purposes. For example, Schedule B computes income and deductions while Schedule K allows for state adjustments and credits. Because this type of entity is not federally recognized, finding the starting federal figures for Schedule K can be difficult. We are currently looking at the SMLLC forms for ways to reduce taxpayer burden while balancing our administrative needs. Watch for future updates on SMLLCs!