To file or not to file, that is the question

Hi Karina
I need advice on filing personal income taxes in California for 2021. My accountant at the time filed a federal tax return, but not one for California. I live abroad full-time but use my parent’s home address in California to receive mail, register to vote, etc. In 2021 all my income was received from a California-based construction company under 1099-Misc.

I need specific advice which forms to file with the California Tax Franchise Board for 2021.

Thank you,
B.

Hello B.,

Depending on your physical presence in the state of California during the 2021 tax year, you may need to file Form 540 California Resident Income Tax Return or Form 540NR California Nonresident or Part-Year Resident Income Tax Return. The next step is to determine your filing requirement based on your filing status, California Gross Income, and California Adjusted Goss Income thresholds. Even if your income is less than your filing threshold, it may still be beneficial to file, if for example, there was income tax withheld on any earnings. If you determine that you need to file a California income tax return, you’ll need to start with your federal tax return. Your federal return will report your AGI. Your AGI is reported on your California return, adjustments are made with form Schedule CA, to arrive at your taxable income and tax due or refund due. Be sure that you are using the appropriate tax year form. Tax laws and consequently tax forms change from year to year. Take a close look on the upper left corner of the income tax form to ensure that you are reporting for the appropriate tax year.

Best of luck!
Karina

Quarterly Tax Payments

The due date is upon us for the second quarter tax payment. A question that I often get asked is, “do I need to be making quarterly tax payments?” and the answer is, it depends. If you expect to earn income from sources outside of employment and expect to owe $1,000 or more in taxes by the time you file, then the answer is, yes! The reason that you want to pay taxes on the federally required Pay-As-You-Go method is to avoid paying an underpayment penalty.

The next question becomes, how much should you pay each quarter. The IRS has two methods that will allow you to meet safe harbor rules (to avoid the underpayment penalty). You can either pay the lower of 100% of the tax you owed last year or pay 90% of the tax you owe in the current year. Under the first method, take a look at your tax return from last year. Your total tax can be found on line 24 of Form 1040 (2023). You can take this number and divide it by 4, this will be the amount that should be paid in each quarter.

The second method is a little bit tricker. Look to Form 1040-ES to determine your taxable income and resulting income tax. Form 1040-ES can be a little intimidating, I encourage you to reach out to your previous tax preparer for additional guidance.

To make your payment, the IRS provides various payment options, but here’s another. If you’re employed, you can ask your employer to withhold additional amounts by providing them with a new W-4 Form. Additional withholding amounts can be requested on line 4(c), Extra Withholding. Income tax whether it’s withheld from employment wages or paid directly to the IRS are going to the same place.

Your quarterly due dates are the following:

1st payment – April 15, 2024
2nd payment – June 17, 2024
3rd payment – September 16, 2024
4th payment – January 15, 2025

I hope you found this information to be helpful. Please leave a comment below if you have any questions or would like to provide feedback.

Answers to your burning questions

Here is where I answer your bookkeeping, accounting, or tax questions. No question is too silly or “dumb.” I am here for you!
As a disclaimer, response posts do not constitute legal or tax advice. I am not a lawyer. Your specific tax situation may differ from questions submitted and may not result in the expected tax or financial outcome. Please consider hiring me as your tax consultant if you would like your specific tax situation to be researched and planned for tax or financial reporting.

Loose Pockets

Question: I’ll sometimes forget my business debit card at home and I’ll use my personal debit card to pay for business purchases. How do I record these business expenses in my bookkeeping?
-Anonymous

Now that you’re a business owner, it’s important to keep your personal and business finances separate. If you’re operating as a Single-Member LLC, you begin to erode your personal liability protections by comingling your personal funds with your business funds. With that being said, if you’re using QuickBooks Online to handle your business bookkeeping, there is a way of recording business expenses paid with a personal bank account or credit card account. Please see the following video tutorial by the Intuit team: How to pay expenses with owner funds

The tutorial walks you through the recording of the business expense and then adding a second line item to the expense entry to record the contribution of capital. The capital contribution account can either be an Owner’s Investment account, Partner’s Contribution account, or Additional Paid-In Capital account, depending on your type of business. These accounts are a type of equity account. You are essentially recording a contribution of capital to your business because it’s as if you transferred money to your business in order to pay for the business expense, without actually going through the conventional method of transferring money from your personal account to your business account.