California Tax Law Changes for 2008 Returns

Suspended Net Operation Loss
Business Tax Credits
Prepayment of LLC Fee
CA 2009 Estimated Tax Changes

There are several new changes in the California tax law that may affect income tax returns prepared in 2009. These changes are effective for tax years beginning on or after January 1, 2009.

Suspended Net Operating Loss

For taxable years beginning 2008 and 2009, California has suspended the Net Operating Loss Carryover Deduction for companies with taxable income greater than $500,000. If taxable income is less than $500,000 or has disaster loss carryovers, the NOL suspension rules do not apply. Corporations may continue to compute and carry over NOL during the suspension period.

Business Tax Credits

Business tax credits will only be available to offset 50% of the California tax liability (e.g. R&D credit, Enterprise Zone and Low Income Housing Credits)

Prepayment of LLC Fee

An LLC must prepay their LLC fee by June 15. You can penalty proof yourself by paying in last year’s fee by June 15.

Example: A calendar year LLC must for estimate its 2009 gross receipts by June 15, 2009 and pay the LLC based on this estimate or pay in the 2008 LLC fee to avoid any penalty. The penalty is 10% of the amount of any underpayment.

CA 2009 Estimated Tax Changes

Taxpayers with California estimated tax payments of $20,000 or more or a projected 2009 tax liability of $80,000 or more are now required to submit their payments to the Franchise Tax Board electronically. This is for tax years beginning after January 1, 2009 and so the 4th quarter estimate of 2008 and extension payments for 2008 are exempt. Once you meet this threshold, all payments current and future must be submitted electronically even if you do not meet these minimum thresholds in the current year. Failure to submit electronically will subject you to a 1% penalty of the amount.

Payments can be made electronically using the web pay option on the ftb website at www.ftb.ca.gov under the individuals tab pay tax.

You can also pay by credit card however, this will result in an additional charge of 2.5% of the amount.

This is effective for all payments made after December 31, 2008.

For all California taxpayers, the % of estimated taxes that need to be paid in has also changed:

Prior law indicated that you could pay in 4 equal installments (e.g. 25% )

New Law says that you must pay in the following percentages:
30% 1st & 2nd quarter
20% 3rd & 4th quarters

California taxpayers who have or are projected to have adjusted gross income of $1 million or more (or $500K for married filing separately) cannot use the 110% safe harbor for prior years. Therefore, these taxpayers must use the 90% of current year tax.

We hope you found this information helpful. Please contact us if we can assist in completing your tax return.