California FTB Self-Employment deduction Change Will Trigger Tax Adjustment Letters.
Some self-employed individuals will be receiving an adjustment letter from the California Franchise Tax Board (FTB). This notice will require the payment of a small amount of additional state tax.
The reason for this adjustment letter stems from a change in the way the deduction for the self-employment tax is computed, which is slightly less than the equivalent federal deduction. The problem is the FTB made this change well into the tax season, after many self- employed individuals had already filed using the prior computation.
Initially, the FTB required all returns filed using the federal computation to amend their returns. They subsequently changed their minds and requested taxpayers not to amend the return. The FTB would simply send out an adjustment letter after tax season.
One problem is that these notices may be perceived by clients as indications of errors on the part of their tax preparers, which is not true.
ClientWhys has prepared a suggested FTB client letter explaining the situation that practitioners can edit to send to their clients in advance of the FTB notices.
Lee Reams Sr.
Lee T. Reams is the Chief Technical Officer of ClientWhys. He is also an Enrolled Agent having managed a 600-plus client tax practice. Educated as an engineer, with a Bachelor's Degree in Mechanical Engineering, Lee left his engineering career in 1975 to expand his part-time tax practice into a full-time career.