California Conformity

California Conformity

Disclaimer: The content is drawn from a variety of sources, including (but not limited to) articles, Internal Revenue Code and Regulations, Court cases, articles, and other unofficial resources.

For a long time there have been differences between Federal and California tax law. As the Federal continues to monkey with tax code, the differences become greater and the work to file a California tax return becomes greater. Although tax software programs usually do most of the work, you still need to know what’s going on just to help clients understand their return.

California passed new legislation (AB 91) that has added some conformity features (which may or may not result in a benefit – you’ll be the judge). The bill is titled the “Loophole Closure and Small Business and Working Families Tax Relief Act of 2019” (LCSMWFTRA if you like acronyms).

  • Taxpayers can now use the rules for accounting method. In short, cash basis accounting for inventory purposes is allowed for businesses with gross income up to $25 million
  • Technical termination of partnerships (where a partner dies the partnership is forced to shut down) is now repealed for California partnerships
  • NOL carryover rules now match federal, i.e., carrybacks are no longer allowed
    • California does not conform to the federal 80% rule
  • Like-Kind exchanges completed after 1/10/2019 must include only real property 
    • California does not restrict exchanges only with real estate for MFJ with AGI of $500,000 or more (Single with AGI of $250,000 or more)
  • Excess business losses for noncorporate taxpayers
    • CA has no sunset date; Federal applies only through 2025
    • CA excess carries forward as an excess business loss; federal as NOL
    • CA calculation comes after applying CA passive activity rules; Federal calculation comes after applying Federal passive activity rules
  • Qualified higher education expenses for computers, etc., only applies to post-secondary education (Federal includes K-12 education)
  • COD discharge due to death or disability for CA has no sunset provision; Federal sunset after 2025
  • EITC: The credit is computed with respect to Federal EIC and amounts have increased
  • Young Child Tax Credit of up to $1,000 refundable for taxpayers with $25,000 or less in qualified earned income

Tax Tip For The Month of December 2018

Tax Tip For The Month of December 2018

When it comes to taxes, end of year accounting is even more crucial as you not only review last years revenue and expenses, but the forethought on how to plan for the upcoming year as well. With this in mind, have you contacted your client’s to have this discussion way in advance? These are some of the key things you should be discussing with your client’s before year end tax season.

  • Have they met their financial goals for the year, and if not, what do they need to put in place to meet them for the upcoming year?
  • Take a look at their overall business expenses and decide what to keep and what to take away in order to keep their overhead down and more money in the bank.
  • Let’s set up an appointment now to discuss next years taxes.
  • Find out if they have a key system in place that can help them look at their overhead, expenses, employee/contractor costs.
  • Discuss the differences between employee vs. contractor to ensure they are within the law.
  • Find out new tax loopholes and issues that may either benefit or hinder your client’s so that you can plan accordingly.
  • Get a system in place to make it easy for your client’s to schedule time to discuss tax issues with you.

Become an asset for your client’s by discussing the upcoming year 6 months in advance in order to plan accordingly. If you haven’t, maybe it’s time to get that appointment on the books to help you plan for a stellar tax year, with little to no surprises when tax time comes around for your client’s.

We hope you found this helpful in managing key milestones for your business owners as you help them through the muddy waters of taxes.