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State of California Franchise Tax Board

Tax News
What’s New for Filing 2013 Tax Returns

Standard Deductions

The standard deduction amount for single or separate taxpayers increased from $3,841 to $3,906 for tax year 2013. For joint, surviving spouse/registered domestic partner (RDP), or head of household taxpayers, the standard deduction increased from $7,682 to $7,812 for tax year 2013.

Personal Exemptions

The personal exemption amount for single, separate, and head of household taxpayers increased to $106 for the 2013 tax year. For joint or surviving spouse/RDP, the personal exemption credit increased to $212.

Dependent Exemptions Credit

The dependent exemption credit increased from $321 per dependent claimed in 2012 to $326 each for 2013.

Minimum Wage

On and after July 1, 2014, the minimum wage for all industries shall not be less than nine dollars ($9) per hour.

Medical and Dental Expense Deduction

Federal changed the allowable medical and dental expense deduction amount for federal purposes. A deduction is allowed for unreimbursed allowable medical and dental expenses that exceed 10 percent of federal adjusted gross income (AGI) California allows a deduction for medical and dental expenses that exceed 7.5 percent of federal AGI. For more information, go to ftb.ca.gov and search for Schedule CA 540.

Nonqualified Deferred Compensation Tax Rate Decrease

For taxable years beginning on or after January 1, 2013, the rate of additional tax was reduced from 20 percent to 5 percent of any amount deferred under a nonqualified deferred compensation plan included income.

Voluntary Contributions

Personal income taxpayers may contribute to the following three new funds:

  • Protect Our Coast and Oceans Fund
  • Keep Arts in Schools Fund
  • American Red Cross, California Chapters Fund

Like-Kind Exchanges

For taxable years beginning on or after January 1, 2014, California Revenue and Taxation Code (R&TC) Sections 18032 and 24953 require California resident and nonresident taxpayers who defer gain on the sale or exchange of California property for out of state replacement property under Internal Revenue Code Section (IRC) 1031 to file an annual information return with us. Taxpayers are required to file an information return for the taxable year of the exchange and in each subsequent taxable year in which the gain or loss attributable to the exchange has not been recognized. If a taxpayer fails to file the required information return, we can estimate the net income, from any available information, including the amount of gain deferred, and propose to assess the amount of tax, interest, and penalties due. For more information, go to Like Kind Exchange Reporting Requirements.

Nonprofit Organizations Conducting Campaign Activity

Beginning January 1, 2014, the Government Code relating to campaign activity was amended to add reporting requirements for “reporting nonprofit organizations” that engage in campaign activity.

Government Code Section 54964.6 was added to require reporting nonprofit organizations that engage in campaign activities of specified amounts to:

  • File FTB 3589 with us and post on the nonprofit’s Internet website the identity and amount of each specific source or sources of funds it receives for campaign activity.
  • Deposit into a separate bank account all “specific source or sources of funds” it receives.
  • Pay for all campaign activity from that separate bank account.
  • Provide a description of the campaign activity.
  • Report the identity and amount of payments the organization makes from the required separate bank account.

Tax Exempt Application Method

Effective on or after January 1, 2014, organizations that are federally tax-exempt under Internal Revenue Code (IRC) 501(c)(4), 501(c)(5), 501(c)(6), or 501(c)(7) may submit a copy of their Internal Revenue Service (IRS) tax-exempt determination letter to us to establish their state income tax exemption. Organizations that are tax exempt under 501(c)(3), may continue to submit a copy of the IRS tax-exempt determination letter to us to establish their state income tax exemption.

New e-filing for Fiduciaries

We offer e-filing for fiduciaries filing Form 541, California Fiduciary Income Tax Return, for taxable years beginning on or after January 1, 2013. Check with the software provider to see if they support fiduciary (estate or trust) e-filing.

Elimination of Tax Clearance Requirement

Effective on or after January 1, 2014, California no longer requires any estate to obtain a Tax Clearance Certificate.

Single-Sales Factor Formula

For taxable years beginning on or after January 1, 2013, R&TC Section 25128.7 requires all business income of an apportioning trade or business, other than an apportioning trade or business under R&TC Section 25128(b), to apportion its business income to California using the single-sales factor formula.

Market Assignment

For taxable years beginning on or after January 1, 2013, R&TC Section 25136 requires all taxpayers to assign sales, other than sales of tangible personal property, using market assignment.

Net Operating Loss (NOL) Carryback

NOLs incurred in taxable years beginning on or after January 1, 2013, shall be carried back to each of the preceding two taxable years.

The allowable NOL carryback percentage varies. For an NOL incurred in a taxable year beginning on or after:

  • January 1, 2013, and before January 1, 2014, the carryback amount shall not exceed 50 percent of the NOL.
  • January 1, 2014, and before January 1, 2015, the carryback amount shall not exceed 75 percent of the NOL.
  • January 1, 2015, the carryback amount shall be 100 percent of the NOL.

See the article, Net Operating Loss Carryback, New for 2013, in this edition of Tax News for more detailed information.

Doing Business As (DBA)

The DBA field moved from the entity area of California Forms 565 and 568 to new Question FF on Side 3 of the form. If the partnership or limited liability company is doing business under a name other than the name entered on Side 1 of Form 565 or Form 568, see instructions for Question FF.

Cable System Operators

For taxable years beginning on or after January 1, 2013, certain cable system operators shall apportion business income under the provisions of R&TC Section 25136.1.

Limited Liability Company (LLC)

If the LLC elects to be taxed as a corporation for federal tax purposes, the LLC must file Form 100‑ES and enter the California corporation number, federal employer identification number (FEIN), and California Secretary of State file number (CA SOS), if applicable, in the space provided. We will assign an identification number upon receipt of the first estimated tax payment, tax payment, or the first tax return. The LLC will be subject to the applicable provisions of the Corporation Tax Law and should be considered a corporation for purpose of all instructions unless otherwise indicated.

Penalty for non-registered, suspended, or forfeited LLC

For taxable years beginning January 1, 2013, we will assess a $2,000 penalty against an LLC (domestic/foreign) that is doing business within the state while not registered to do business within the state or while suspended or forfeited and fails to file its required tax return upon notice and demand.

Credits

Enterprise Zone (EZ) Incentives Repealed, Form 3805Z

Assembly Bill 93 and Senate Bill 90 were enacted into law on July 11, 2013.For taxable years beginning on or after January 1, 2014, taxpayers cannot generate the following EZ incentives:

  • Business Expense Deduction
  • Net Interest Deduction
  • Net Operating Loss

For taxable years beginning on or after January 1, 2014, taxpayers cannot generate any EZ Hiring Credit except for:

Qualified employees who are hired on or before December 31, 2013, by the qualified taxpayer within the Enterprise Zone and paid or incurred qualified wages during the 60-month period immediately following the hire date shall continue to qualify for the credit under this section for taxable years beginning on or after January 1, 2014.

EZ Sales or Use Tax Credit

For taxpayers engaged in a trade or business in a repealed EZ, the sales or use tax credit may only be taken on qualified property purchased on or before December 31, 2013, and placed in service on or before December 31, 2014.The sales or use tax credit is not available for assets purchased on or after January 1, 2014, regardless of when the assets were placed in service.

EZ Credits Carryover Period

The portion of any EZ sales or use tax credit or hiring credit remaining for carryover to taxable years beginning on January 1, 2014, shall be carried over only to the succeeding 10 taxable years if necessary, or until the credit is exhausted, whichever occurs first.

Local Agency Military Base Recovery Area (LAMBRA) Incentives Repealed Form 3807

Assembly Bill 93 and Senate Bill 90 were enacted into law on July 11, 2013. For taxable years beginning on or after January 1, 2014, taxpayers cannot generate the following LAMBRA incentives:

  • Sales or Use Tax Credit
  • Business Expense Deduction
  • Net Operating Loss

For taxable years beginning on or after January 1, 2014, taxpayers cannot generate any LAMBRA Hiring Credit except for:

Qualified employees who are hired on or before December 31, 2013, by the qualified taxpayer within the Local Agency Military Base Recovery Area and paid or incurred qualified wages during the 60-month period immediately following the hire date shall continue to qualify for the credit under this section for taxable years beginning on or after January 1, 2014.

LAMBRA Credits Carryover Period

The portion of any LAMBRA sales or use tax credit or hiring credit remaining for carryover to taxable years beginning on or after January 1, 2014, shall be carried over only to the succeeding 10 taxable years if necessary, or until the credit is exhausted, whichever occurs first.

Expired Manufacturing Enhancement Area (MEA), California Form 3808

The MEA expired as of December 31, 2012. Taxpayers can no longer generate/incur MEA hiring credits for qualified employees hired on or after January 1, 2013. Any unused credit may be carried over and applied against the tax on MEA business income in the current year and future years until exhausted. However, qualified taxpayers can generate/incur MEA hiring credits for qualified employees hired prior to the MEA expiration date for wages paid or incurred within the 60-month period of the MEA
hiring credit.

MEA Credits Carryover Period

The portion of any MEA hiring credit remaining for carryover to taxable years beginning on or after January 1, 2014, shall be carried over only to the succeeding 10 taxable years if necessary, or until the credit is exhausted, whichever occurs first.

Expired Targeted Tax Area (TTA) California Form 3809

The TTA expired as of December 31, 2012.Generally, no further TTA incentives can be generated after the expiration date.

TTA Hiring Credit

Taxpayers can no longer generate/incur TTA hiring credits for qualified employees hired on or after January 1, 2013.Any unused credit may be carried over and applied against the tax on TTA business income in the current year and future years until exhausted. However, qualified taxpayers can generate/incur TTA hiring credits for qualified employees hired prior to the TTA expiration date for wages paid or incurred within the 60-month period of the TTA hiring credit.

TTA Sales or Use Tax Credit

For taxpayers engaged in a trade or business in an expired TTA, the sales or use tax credit may only be generated for qualified property purchased on or before December 31, 2012, and placed in service on or before December 31, 2012.The sales or use tax credit is not available for assets purchased and/or placed in service on or after January 1, 2013.

TTA NOL Carryover Deduction

Taxpayers can no longer generate/incur any TTA NOL for taxable years beginning on or after January 1, 2013.Taxpayers can claim an NOL carryover deduction from prior years.

TTA Business Expense Deduction

Taxpayers can no longer generate any business expense deduction for taxable years beginning on or after January 1, 2013. However, the business expense deduction is subject to recapture (added back to income) if certain conditions apply.

TTA Credits Carryover Period

The portion of any TTA sales or use tax credit or hiring credit remaining for carryover to taxable years beginning on or after January 1, 2014, shall be carried over only to the succeeding 10 taxable years if necessary, or until the credit is exhausted, whichever occurs first.

Enterprise Zone Employee Credit, California Form 3553

For taxable years beginning on or after January 1, 2014, taxpayers cannot generate an Enterprise Zone Employee Credit.

Research Credit, California Form 3523

Credit Allocation and Carryover per Entity, Part III has been added to the form to capture and track the amounts of credit generated, claimed, and assigned by entities for members of the combined report.

New Jobs Credit, California Form 3527

For taxable years beginning on or after January 1, 2014, taxpayers cannot generate a New Jobs Credit.

California Motion Picture and Television Production Credit, California Form 3541

For taxable years beginning on or after January 1, 2011, the California Motion Picture and Television Production Credit can reduce tax below the tentative minimum tax (TMT) for corporations.

Back to February 2014 Tax News

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