Alongside IRS's Tiger, State's Tax Form Is a Pussycat

Associated Press

Compared to your federal tax return, your California personal income tax form will be a breeze to complete this year.

Even if it takes you several hours to fill out your federal return, you will probably be able to complete your state return in a matter of minutes.

However, too much haste to rush through California's simplified personal income tax forms could easily lead to mistakes that could delay an expected refund by a month or more or require time-consuming corrections later.

Simple arithmetic errors and forgetting to sign returns traditionally are the most common taxpayer mistakes.

But this year, state officials warn that another likely error may be entering the wrong income figure on the front page of your return.

That is a new source of possible errors this year because you no longer start your state calculations with the W-2 wage statement you used in past years. Instead, you enter the "adjusted gross income" total from your federal return.

But to make that relatively simple change more complicated, your adjusted gross income is in a different place on each of the three different versions available for filing federal taxes. It is on line 30 if you file an itemized federal Form 1040, on line 12 if you file on the Form 1040A, or on line 3 if you file the Form 1040EZ.

It is really not as complicated as it sounds, and the bottom line is a simpler and quicker state income tax return for all Californians.

The other bottom-line issue on your state return--the amount you owe the state--is a little harder to generalize about. But it will probably be good news if you are in a low- or middle-income bracket, and bad news if you are in the upper brackets.

These changes are all results of massive revisions over the last 1 1/2 years in the federal and state income tax codes. Most of those hundreds of changes take effect for the first time on the 1987 tax returns that are due between today and April 15.

In general, both the federal and state laws have been simplified to eliminate scores of deductions, income exclusions and other special treatments and loopholes. Those changes, which in almost all cases increase the amount subject to taxation, are offset by across-the-board reductions in tax rates and reductions in the number of tax brackets.

Despite all of these changes, your 1987 federal tax forms look very similar to forms from previous years, and so do the instruction books. However, the instructions themselves are very different.

By contrast, the state Form 540, the long form, and Form 540A, the short form, have been been totally redesigned.

The state Franchise Tax Board even picked a different color, a green background instead of the federal blue, specifically to alert taxpayers to the idea that the form is different.

And instead of following the federal format line-by-line, with non-conforming items scattered throughout various forms and attachments, the new state return is organized in an entirely different manner.

The state forms start with the final income and deduction figures from your federal return, and all of the sections where state law varies from the federal law are grouped together--five lines on the back page of the short form, or a 24-line "California Adjustments" page added to the long form.

The most common income adjustment involves the rebates 12 million Californians received on their state taxes. Those rebates are taxable income on federal returns, but are excluded on state returns. On the deduction side, the most common adjustment also involves state taxes, which you may take as a deduction on your federal return, but not your state return.

A Single Sheet

If you file the state short form, that is about all there is to it. The renter's credit form, if you qualify, and the list of voluntary charitable contributions you may make through your tax return are both on the back of the single sheet you must file.

And if you file on the state's long form, there is not much more. The long form is just two sheets of double-sided forms for homeowners, plus a third page if you claim the renter's tax credit.

If you file the state long form, instead of filling out separate supplemental schedules and forms that for the most part duplicated federal forms, you are required beginning this year to attach a copy of your federal return to your state return.

Last year, only 3.5 million Californians used the state's short form, compared to about 9.5 million who filed the long form, state Franchise Tax Board spokesman Jim Reber said.

But this year, Reber said, at least half of the 13 million Californians expected to file state returns should be able to use the short form, including several million who file long forms for federal taxes.

State Short Form

Both forms are included in the same tax booklet this year, so you can more easily determine which is right for you.

Basically, if you did not have capital gains; if you are not self-employed; if you did not draw any income out from an IRA (individual retirement account) fund; if you did not pay estimated taxes, and if you do not claim any of the state's relatively obscure special tax credits then you can probably file the state short form, even if you itemized on a federal long form.

If you had no deductions on your federal return except the usual homeowner's deductions, and if your only income was from wages and interest, then you almost certainly can use the short form for your state taxes.

In addition to that, the short form is 10 lines shorter than last year's form, and the long form is 20 lines shorter.

Possible Pitfalls

As simple as that is, there are still possible pitfalls.

For example, if you file the short form, the renter's tax credit, which is worth $60 to you if you are single or $137 if married or head of household, is included on the short form.

But if you file on the long form, you must go all the way to the back of your state instruction book, to pages 38 and 39, for a renter's tax credit form to attach to your long form.

Since so many items were changed in the state's tax law, it is difficult to predict how individual taxpayers will fare compared to the previous law.

Whether you end up paying more or less depends principally on whether you are hurt more by the loss of deductions than you benefit from the bigger personal tax credits and standard deductions and lower rates, which now are capped at 9.3% instead of the previous 11%.

Lower End of Scale

However, most couples earning $75,000 or less and individuals earning $37,500 or less will pay less to the state, while most couples earning more than $100,000 and individuals earning more than $50,000 will pay more, especially if they had investments in tax shelters.

At the lower end of the income scale, individuals with annual incomes of $7,720 or less and couples with incomes of $15,450 or less will have no state tax liability this year. However, those taxpayers still must file returns to claim the renter's tax credit or get back any state taxes withheld by employers or any excessive payments that may have been deducted for state disability insurance.

Individuals earning less than $9,420 and couples earning less than $18,980 are also eligible for additional special tax credits, which can be claimed on line 20 of the short form. If you fail to claim that credit, the state's computers are programmed to calculate that credit and give it to you anyway, but that requires special handling that could delay a refund by a month or more.

No Liability

Overall, of the estimated 13 million Californians expected to file state returns this year, about 2.5 million will have no tax liability and must file only to get their renter's tax credits.

Of the remaining 10.5 million, about half will owe more than was withheld, and about half will be due refunds.

If you are among those due a refund, you can expect it within about two weeks if you file by mid-February. If you file between mid-February and mid-March, your refund will probably take three to four weeks. If you wait until the final few weeks before the April 15 deadline, which most taxpayers do, it could take up to two months to get your refund, Reber said.

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