End-of-Year Tax Tips for 2022

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California Sales Tax

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California sales tax varies by location. There is a state sales tax as well as local district taxes (counties and cities). Multiple district taxes can apply. California has a statewide sales tax rate of 7.5% PLUS some counties have voter- or local government-approved district taxes – also called special tax districts.

California Sales Tax Rates

California (CA) Sales Tax Rate: 7.5%
Maximum rate for local municipalities: 10.75%

Determining California Sales Tax Nexus

Any business with a physical location in California has nexus, and is therefore required to register to collect sales tax, and to file sales tax returns and pay sales tax to the state.

Other activities that create nexus include someone working for you who lives in the state, having California affiliates who advertise your products in exchange for commission when a sale is made from their affiliate link/marketing activities, or attending a tradeshow and making one or more sales at that show.

Retailers who sell on Amazon and use their Fulfillment by Amazon (FBA) program, will have a physical presence in California if any of their products are stored within a California FBA warehouse.

Determining California Sales Tax Nexus for Out of State Sellers

Out of state sellers who do not have a physical presence in California may be required to collect and remit sales tax if they meet any of the following criteria:

  • Affiliate Nexus – California requires businesses with ties to businesses or affiliates in the state to collect and remit sales tax. This could include developing or designing TPP that is distributed by a remote seller.
  • Click Through Nexus – Those who direct traffic to a website for the purpose and intention of generating a sale establish Nexus for that business. Total referrals on sales of more than $10,000 within a year and total sales of $1,000,000 or more are required to establish click-through nexus.
  • Economic Nexus – California’s economic nexus law requires businesses that sell $500,000 or more of TPP into the state directly or via a marketplace to register to collect sales tax. This also impacts in-state businesses based on the municipalities in which they operate.

What is Eligible for California Sales Tax

Sales tax applies to most goods (tangible personal property) purchased by consumers. Unprepared food is not taxable, nor are some medical devices, prescription medications, or sales to the US Government. California does not have any clothing tax exemptions or sales tax holidays.

Other taxable points to consider include:

  • Services – Most services are not taxable by the state of California. Two exceptions are if the service is inseparable from the property being purchased (such as calibration of a machine being sold), or services related to the fabrication or manufacture of tangible personal property.
  • Shipping charges on orders shipped via common carrier (such as UPS, FedEx, or USPS) are not taxable provided that they are stated separately on the invoice and that the amount charged to the customer is the same amount as charged by the carrier. If you charge the customer more than the actual cost charged by the carrier, the difference is taxable.
  • Drop-shipping – Items that are drop-shipped from a California company on behalf of an out-of-state retailer who is not required to hold a California seller’s permit, should be taxed by the drop-shipper.
  • Vehicles purchased outside the state are subject to the 12-month test. If the vehicle, vessel, or aircraft was purchased outside of California, first used outside the state, and then brought into California within 12 months of purchase, it is taxable (with certain restrictions).

Registration

How do I register for a California resale certificate?

Retailers must obtain a California seller’s permit if they are doing business in California. Out-of-state retailers with at least $500,000 in gross receipts to California purchases within the previous or current calendar year, must register, collect, and remit sales tax to California.

You can click here to register online for a seller’s permit or use tax account.

Filing

How do I file California sales and use tax returns?

Filing can be done online or via mail. You can use BOE’s free online filing option or you can choose to use a third-party service to file with any provider that has successfully completed the BOE acceptance testing and is authorized to receive returns and payment information. If filing online, you may pay through the Electronic Funds Transfer program (EFT), ACH Debit, ACH Credit through your own financial institution or make your payment separately.

The EFT payment program is mandatory if you have a California Seller’s Permit and average $10,000 in monthly payment or more, or you have a Special Taxes and Fees account and average monthly tax or fee payments of $20,000 or more. Other sellers can select this as a voluntary option.

Finally, there is a prepayment sales tax rate for motor vehicle fuel, diesel fuel, and aircraft jet fuel.

Deadlines

What are California’s sales tax deadlines?

When you first received your sales tax permit from the state of California, you were assigned a payment schedule. This schedule is either monthly, quarterly, or annually.

The following due dates apply to California sales tax returns. The due date is noted for each period for monthly, quarterly, and annual reporters. If a due date falls on a Saturday, Sunday, or legal holiday, then the return is due the following business day.

Monthly: Due the last day of the month following the reporting period month.

PeriodDue Date
JanuaryFebruary 28 (or Feb. 29 in a leap year)
FebruaryMarch 31
MarchApril 30
AprilMay 31
MayJune 30
JuneJuly 31
JulyAugust 31
AugustSeptember 30
SeptemberOctober 31
OctoberNovember 30
NovemberDecember 31
DecemberJanuary 31

Quarterly: April 30th, July 31st, October 31st and January 31st for prior quarter. (Prepayment returns are due on the 24th of the prior two months.)

PeriodDue Date
January – March (Q1)April 30
April – June (Q2)July 31
July – September (Q3)October 31
October – December (Q4)January 31

Annual:
For Sales Tax Accounts: Due January 31st for prior year.
For Qualified Purchasers and Consumer Use Tax Accounts: April 15th.
Prepayment accounts file on the 24th of the first 2 months of each quarter.

PeriodDue Date
January – DecemberJanuary 31

Amending Online Returns

How do I amend my California sales and use tax return?

There is no electronic method currently available to amend an online return. You must print the return and write the correct figures on the “Confirm Filing” page of the return filed online, then write “Amended Return” across the top. Submit via mail with any additional payment due or file a claim for refund or credit if you have overpaid. Mail documents to:

California Department of Tax and Fee Administration
Special Taxes and Fees
Appeals and Data Analysis Branch (MIC: 33)
PO Box 942879
Sacramento, CA 94279-0033

Penalties and Interest

Beginning the day after a sales tax return is due, penalties and interest will begin to accrue. These include:

  • A 10 percent penalty if you do not file your tax return by its due date, and a 10 percent penalty if your tax payment is late, not to exceed a total of 10 percent.
  • Interest based on the interest rate shown at the bottom of your return, for each month or partial month that the tax remains unpaid.
  • A Collection Cost Recovery Fee (CRF) if taxes remain unpaid for more than 90 days past the due date, unless you enroll in and adhere to a payment plan.

For more details, see Publication 75 on the California Department of Tax and Fee Administration website.

Other things to note:

California collects sales tax for delivery with special tax districts and “engaged in business” locations. Generally, your customer is liable for the district use tax and you may collect it from them as a courtesy. Learn more details at District Taxes and Delivered Sales web page.

Resources:

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When are 1099s due for 2021?

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Most 1099s are due at the same time they were in previous years. 1099 form Copy As are due to the IRS by March 1st if filing by paper, or March 31st when filing electronically. 

Most 1099s are due at the same time they were in previous years. 1099 form Copy As are due to the IRS by March 1st if filing by paper, or March 31st when filing electronically. Copy Bs are due to recipients by January 31st. Pay careful attention to the due dates and to some to the few exceptions to the standard deadlines to avoid incurring penalties from the IRS.

What’s 1099-NEC and when is it due?

Most should be familiar by now with the new Form 1099-NEC which is now used instead of Form 1099-MISC to report payments of at least $600 to freelancers and independent contractors. 1099-NEC is due to both the IRS and recipients by February 1, making it one of the earliest due forms to the IRS. There is no date extension for filing electronically.

 A few 1099 forms have different due dates.

The following forms vary a bit from the conventional due dates mentioned above. The following list notes how they deviate:

  • 1099-LS. Reportable Life Insurance Sale. Due by February 15, 2022, to the reportable policy sale payment recipient. Due by January 15, 2022, to the issuer, or earlier as required by Regulations section 1.6050Y-2(d)(2)(iI)(A).
  • 1099-MISC. Miscellaneous Income. Due to the recipient by Feb 15th if it includes:
    • Substitute dividends and tax-exempt interest payments reportable by brokers of $10 or more.
    • Gross proceeds paid to attorneys of $600 or more.
  • 1099-S. Proceeds from real estate transactions. Due to the recipient Feb 15.
  • 1099-SB. Seller’s Investment in Life Insurance Contract. Due to the IRS March 1. Due to the recipient February 15.
  • 1099-QA. Distributions from ABLE accounts. Due to the IRS by Feb 28th, it does not have a later due date when filing electronically.

Additional Resource: A full list of forms and due dates can be found on the IRS website.

File 1099s correctly and on time to avoid penalties

You’ll want to get your 1099 forms submitted correctly and by the due date as you may be subject to a penalty for failing to do so.

Penalties may apply:

  • If you fail to file timely.
  • If you fail to include all information required to be shown on a return.
  • If you include incorrect information on a return.
  • If you file on paper when you were required to file electronically.
  • If you report an incorrect TIN.
  • If you fail to report a TIN.
  • If you fail to file paper forms that are not machine-readable and applicable revenue procedures provides for a machine-readable paper form.

Penalties increase the longer you wait to correct them

If you realize you made a mistake, it’s important to address it as quickly as possible to avoid paying increased fees.

The penalty is as follows:

  • $50 per information return if you correctly file within 30 days (by March 30 if the due date is February 28); maximum penalty $565,000 per year ($197,500 for small businesses, defined below).
  • $110 per information return if you correctly file more than 30 days after the due date but by August 1; maximum penalty $1,696,000 per year ($565,000 for small businesses).
  • $280 per information return if you file after August 1 or you do not file required information returns; maximum penalty $3,392,000 per year ($1,130,500 for small businesses).
What to do if you make a mistake

Fortunately, correcting a mistake isn’t too difficult – but you want to do it quickly. There are two types of errors – each with slightly different steps to address them.

Error Type 1 – This is if your mistake involved an incorrect amount of money, code, or checkbox. To correct it, follow these simple steps:

    1. Prepare a new information return.
    2. Enter an “X” in the “CORRECTED” box at the top of the form.
    3. Correct any recipient information and report other information as per the original return.

Error Type 2 – These mistakes are a little more complicated to fix – and include the following mistakes; no payee TIN, incorrect payee TIN, or incorrect payee name. To correct this, follow these steps:

Step 1:

    1. Prepare a new information return.
    2. Enter an “X” in the “CORRECTED” box at the top of the form.
    3. Enter the payer, recipient, and account number information exactly as it appeared on the original incorrect return; however, enter -0- (zero) for all money amounts.

Step 2:

    1. Prepare a new information return.
    2. Do not enter an “X” in the “CORRECTED” box at the top of the form. Prepare the new return as though it is an original.
    3. Include all the correct information on the form including the correct TIN and name.

A few time-saving tips

TIN matching

The easiest way to stave off penalties for name/TIN mismatches is to use the IRS’ online TIN matching program before completing 1099-MISC/1099-NEC forms. You may verify up to 25 name/TIN combos on the screen. However, you must register with the IRS to use this program.

Additional Resource: Learn more about TIN matching from the IRS.

TIN truncation

You may truncate the first five digits of a payee’s TIN on their paper or electronic copies; forms filed with the IRS must contain the full TIN. These TTINs, as they’re called, look like this: XXX-XX-1234 or ***-**-1234 for SSNs, or XX-XXX1234 or **-***1234 for EINs. You can’t truncate your own EIN.

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Tax Year 2022 Inflation Rates Announced

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As the economy warms up in recovery mode, inflation starts to raise its ugly head. Everything—from baby food to new cars—costs more.

As the economy warms up in recovery mode, inflation starts to raise its ugly head. Everything—from baby food to new cars—costs more.

To keep up, the Internal Revenue Service has to update its tax processes and forms to adjust for inflation. So, the IRS has released the newest inflation adjustments for the 2022 tax year. They’ll generally apply to returns filed in 2023.

The full list is laid out in Revenue Procedure 2021-45.

What are the major changes?

The standard deduction generally leads the list of tax items of interest to taxpayers. Because of the adjustment for inflation, married couples filing jointly will see their standard deduction rise $800 to $25,900 for tax year 2022.

Singles and married taxpayers filing separately will see their standard deduction go up $400 to $12,950.

Heads of household also get a higher standard deduction; theirs rises by $600 to $19,400.

Not everything increases, though. The personal exemption stays at zero for tax year 2022, just like the prior year. The personal exemption was eliminated by the Tax Cuts and Jobs Act, signed into law in late 2017.

What are the marginal rates?

There’s no change in the top tax rate for tax year 2022; that remains at 37% for single taxpayers with income greater than $539,900 or for married taxpayers filing jointly with incomes above $647,850.

Other rates include:

  • 35%, for incomes over $215,950 ($431,900 for married couples filing jointly);
  • 32% for incomes over $170,050 ($340,100 for married couples filing jointly);
  • 24% for incomes over $89,075 ($178,150 for married couples filing jointly);
  • 22% for incomes over $41,775 ($83,550 for married couples filing jointly);
  • 12% for incomes over $10,275 ($20,550 for married couples filing jointly).
  • The lowest rate is 10% for incomes of single individuals with incomes of $10,275 or less ($20,550 for married couples filing jointly).

There’s no limit on itemized deductions in 2022, like the previous four tax years. The limitation was wiped out by the Tax Cuts and Jobs Act.

The Alternative Minimum Tax exemption for 2022 got a boost; the exemption amount goes up to $75,900 from 2021’s $73,600. Phase-out ranges were also increased.

Other various rate increases include:

Earned Income Tax Credit – The maximum EITC amount is marginally higher, rising from $6,728 to $6,935 for qualifying taxpayers with three or more children in tax year 2022. Revenue Procedure 2021-45 has details on other maximum levels, income thresholds and phase-outs.

Transportation Fringe Benefit – In 2022, the monthly limit for the qualified transportation fringe benefit and the limitation for qualified parking goes up to $280.

Foreign Income Exclusion – The exclusion for foreign earned income increases to $112,000 for tax year 2022. The 2021 exclusion was $108,700.

Gifts – For 2022, the exclusion for gifts is raised to an annual maximum of $16,000, an increase of $1,000 from the prior tax year.

Adoptions – The maximum credit for adoptions in tax year 2022 is increased to $14,890, up from $14,440 in 2021.

For more information on these and other rates, maximums and health account limits, see Revenue Procedure 2021-45.

Source: IR-2021-219

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2nd stimulus check update:

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If you didn’t get payment, you can now ‘Free File’ with the IRS

If you don’t receive your second stimulus payment or if you never received the first stimulus, you will need to file a tax return to get the money.

On Friday, the IRS opened up Free File, free online tax preparation products, so taxpayers can claim a credit that will help them get their payment.

While the site is open, the IRS won’t be accepting electronic returns until Feb. 12 so it can take extra time program and test its system to handle the credits that apply to the second stimulus payments, it said.https://7efd4769829af622da3600cdc3bfb07f.safeframe.googlesyndication.com/safeframe/1-0-37/html/container.html

The IRS said leading tax software providers make their online products available for free as part of a 19-year partnership with the agency. There are nine products in English and two in Spanish, the IRS said.

More than 4 million people used the free products last year, the IRS said.

IRS Free File is available to any taxpayer or family that earned $72,000 or less in 2020.

“IRS Free File providers will accept completed tax returns and hold them until they can be filed electronically once the IRS begins processing returns,” the IRS said. “The Free File Fillable Forms, the electronic version of IRS paper forms, also will be available later when the filing season begins. This product is best for people comfortable preparing their own taxes and is safe and secure.”

The IRS said each IRS Free File provider sets its own eligibility rules for products based on age, income and state residency, but those who earn less than $72,000 a year will find at least one product for which they qualify.

The agency said people who did not receive a stimulus payment will need to claim a “Recovery Rebate Credit” on their federal returns to get the benefit.

In 2020, the IRS issued two stimulus payments, known as Economic Impact Payments.

The first payments were up to $1,200 person and $500 per qualifying child. The second payments were up to $600 per eligible person and $600 per qualifying child.

Know that the IRS had until Jan. 15 to send out all second stimulus payments. If you haven’t received one, a check or debit card could still come in the mail.

Use the IRS Get My Payment tool to see if a payment was sent to you.

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IRS Tax Return Filing Deadlines, Extensions and Refund Dates 2021

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The table below shows key 2021 deadline dates for filing 2020 tax returns and requesting temporary extensions. Given the number of missing government payments around the COVID relief economic stimulus payments and especially the dependent child stimulus payment, I expect there to a keen interest in the upcoming tax season. Especially for those expecting a large refund (see expected 2020-2021 tax refund schedule).

  • Jan. 11, 2021: Deadline for employees who earned more than $20 in tip income in December 2020 to report this income to their employers on Form 4070
  • Jan. 15, 2021: Deadline to pay the fourth-quarter estimated tax payment for tax year 2020
  • Feb. 1, 2021: Deadline for employers to mail out W-2 Forms to their employees and for businesses to furnish 1099 Forms reporting non-employee compensation, bank interest, dividends, and distributions from a retirement plan
  • Feb. 1, 2021: Deadline for financial institutions to mail out Form 1099-B relating to sales of stock, bonds, or mutual funds through a brokerage account, Form 1099-S relating to real estate transactions; and Form 1099-MISC, if the sender is reporting payments in boxes 8 or 14
  • Feb. 1, 2021: Deadline for catching up on unpaid fourth-quarter estimated taxes without additional penalties by filing 2020 tax returns
  • Feb. 10, 2021: Deadline for employees who earned more than $20 in tip income in January 2021 to report this income to their employers
  • March 1, 2021: Deadline for businesses to mail Forms 1099 and 1096 to the IRS
  • March 2, 2021: Deadline for farmers and fishermen to file individual income tax returns
  • March 10, 2021: Deadline for employees who earned more than $20 in tip income in February 2021 to report this income to their employers
  • March 15, 2021: Deadline for corporate tax returns (Form 1120-S) for tax year 2020, or to request an automatic six-month extension of time to file (Form 7004) for corporations that use the calendar year as their tax year, and for filing partnership tax returns (Form 1065) or to request an automatic five-month extension of time to file (Form 7004)
  • March 31, 2021: Deadline for businesses to e-file Forms 1099 and 1096 to the IRS, except Form 1099-NEC
  • April 12, 2021: Deadline for employees who earned more than $20 in tip income in March 2021 to report this income to their employers
  • April 15, 2021: Deadline to file individual tax returns (Form 1040) and C Corporation (Form 1120) for the tax year 2020 or to request an automatic extension (Form 4868) for an extra six months to file your return, and for payment of any tax due
  • April 15, 2021: Deadline for household employers who paid $2,200 or more in wages in 2020 to file Schedule H for Form 1040
  • April 15, 2021: Deadline for first-quarter estimated tax payments for the 2021 tax year
  • May 10, 2021: Deadline for employees who earned more than $20 in tip income in April 2021 to report this income to their employers
  • June 10, 2021: Deadline for employees who earned more than $20 in tip income in May 2021 to report this income to their employers
  • June 15, 2021: Deadline for second-quarter estimated tax payments for the 2021 tax year
  • June 15, 2021: Deadline for U.S. citizens living abroad to file individual tax returns or file Form 4868 for an automatic four-month extension
  • July 12, 2021: Deadline for employees who earned more than $20 in tip income in June 2021 to report this income to their employers
  • Aug. 10, 2021: Deadline for employees who earned more than $20 in tip income in July 2021 to report this income to their employers
  • Sept. 10, 2021: Deadline for employees who earned more than $20 in tip income in August 2021 to report this income to their employers
  • Sept. 15, 2021: Deadline for third-quarter estimated tax payments for the 2021 tax year
  • Sept. 15, 2021: Final deadline to file corporate tax returns for tax year 2020, if an extension was requested (Forms 1120, 1120-A, 1120-S)
  • Oct. 12, 2021: Deadline for employees who earned more than $20 in tip income in September 2021 to report this income to their employers
  • Oct. 15, 2021: Final extended deadline to file individual tax returns for the year 2020 (Form 1040)
  • Oct. 15, 2021: Deadline for taxpayers who earned $69,000 or less in adjusted gross income (AGI) for tax year 2020 to use Free File to prepare and file their returns
  • Nov. 10, 2021: Deadline for employees who earned more than $20 in tip income in October 2021 to report this income to their employers
  • Dec. 10, 2021: Deadline for employees who earned more than $20 in tip income in November 2021 to report this income to their employers
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When You’ll Get Your Stimulus Check

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Want to know when your stimulus check will arrive?

Here’s what you need to know.

Stimulus Checks

For many Americans, stimulus checks will arrive soon. Treasury Secretary Steven Mnuchin has said most Americans will receive their stimulus check by April 17. Director of the U.S. National Economic Council Larry Kudlow said checks will start going out this week or next. According to The Washington Post, which has reviewed a timetable from the IRS, stimulus checks could be distributed as follows (of course, these dates are subject to change):

April 9, 2020

Stimulus checks could be sent to some taxpayers as early as Thursday, April 9. If you filed your income taxes in 2018 or 2019 and provided your direct deposit information to the IRS, your stimulus check could be sent today. Estimated arrival time in your bank account could be on or before April 14, 2020.

April 24, 2020

The IRS will begin sending paper stimulus checks. The plan is to send paper stimulus checks to taxpayers with the lowest adjusted gross income first. Therefore, taxpayers who earned less than $10,000 will receive a paper check first.

May 1, 2020

This week, the IRS will send paper stimulus checks to taxpayers who earned between $10,001 and $20,000.

May 8, 2020

This week, the IRS will send paper stimulus checks to taxpayers who earned between $20,001 and $30,000.

May – September 2020

From May through September, the IRS will continue to send paper checks in order from lowest income to highest income based on 2018 or 2019 tax information.

September 4, 2020

The IRS will mail any remaining checks, such as to married couples making $198,000 (the maximum joint income that is eligible to receive a stimulus check).

September 11, 2020

The IRS will send checks to those who didn’t provide contact information to the IRS.

Can You Get Your Stimulus Check Sooner?

You may be able to get your stimulus check sooner (although no guarantees of course):

  • Check if you qualify to receive a stimulus check.
  • Direct Deposit Information: If you provided direct deposit information on your 2018 or 2019 income tax return, then the IRS already has your direct deposit information. How do you know if you provided your direct deposit information? If you paid federal income taxes online from your bank account or received a federal tax refund in your bank account, then you likely provided direct deposit information.
  • File Taxes: If you haven’t filed 2018 or 2019 income taxes, you can still file them. Make sure to provide direct deposit deposit information to get your stimulus check faster.
  • No Taxes, But Social Security: If you don’t file taxes, but you receive Social Security benefits, you don’t have to file any taxes to qualify. You’ll automatically receive a stimulus check.
  • New IRS Portal: In late April or early May, according to the memo, the IRS expects to create an online portal that will enable taxpayers to update their direct deposit information and check the status of their stimulus check. For those who don’t file taxes, but who receive Social Security benefits, you can also update your direct deposit information once the online portal is available.
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