What’s new for filing 2018 tax returns
Taxpayers may contribute to the following new funds:
- Organ and Tissue Donor Registry Voluntary Tax Contribution Fund
- National Alliance on Mental Illness California Voluntary Tax Contribution Fund
- Schools Not Prisons Voluntary Tax Contribution Fund
California Earned Income Tax Credit (EITC)
For taxable years beginning on or after January 1, 2018, the age limit for an eligible individual without a qualifying child is revised to 18 years or older. Search our website for EITC or get form California Earned Income Tax Credit (FTB 3514) for more information.
New Employment Credit
The sunset date for the New Employment Credit is extended until taxable years beginning before January 1, 2026. Search our website for NECor get form New Employment Credit (FTB 3554) for more information.
California Competes Tax Credit
The sunset date for the California Competes Tax Credit is extended until taxable years beginning before January 1, 2030. Visit the GO-Biz website at business.ca.gov, search our website for ca competes, or get form California Competes Tax Credit (FTB 3531) for more information.
Native American Earned Income Exemption
For taxable years beginning on or after January 1, 2018, federally recognized tribal members living in California Indian country who earn income from any federally recognized California Indian country are exempt from California taxation. This exemption applies only to earned income. Enrolled tribal members who receive per capita income must reside in their affiliated tribe’s Indian country to qualify for tax-exempt status. Get the Instructions for Schedule CA (540) and Instructions for Enrolled Tribal Member Certification (FTB 3504), for more information.
Engineers, Land Surveyors, and Architectures
California extended the authorization for persons licensed to engage in the practice of engineering, land surveying or architecture to form limited liability partnerships until January 1, 2026.
New Partnership Audit Regime
For federal purposes, the Bipartisan Budget Act of 2015 replaced the Tax Equity and Fiscal Responsibility Act of 1982, creating a centralized partnership audit regime, and generally transferring the liability for the tax due to the partnership. All partnerships with tax years beginning after 2017 are subject to this new regime unless an eligible partnership elects out. For California purposes, taxable years beginning on or after January 1, 2018, partnerships are required to report each change or correction made by the IRS, FTB, for the reviewed year within 6 months after the date of each final federal determination, and will generally be liable for the tax due.
Schedule K-1 (1065-B) and its instructions
Public Law 114-74, Title XI, Section 1101(b) repealed the electing large partnership rules for partnership tax years beginning after 2017. As a result, Schedule K-1 (Form 1065-B) and its instructions will be obsoleted after 2017.
Federal Tax Reform
The Tax Cuts and Jobs Act (TCJA) signed into law on December 22, 2017, made changes to the Internal Revenue Code (IRC). In general, California Revenue and Taxation Code does not conform to the changes. California taxpayers continue to follow the IRC as of the specified date of January 1, 2015, with modifications. The IRS issued Notice 2019-11 to provide for a waiver of the estimated tax penalty for taxpayers whose 2018 federal income tax withholding and estimated tax payments fell short of their total tax liability for the year. This relief is designed to help taxpayers who were unable to properly adjust their withholding and estimated tax payments to reflect an array of changes under the TCJA, the far-reaching tax reform law enacted in December 2017. For California purposes, the TJCA had no general impact to the amount of state income tax an individual California state income taxpayer would owe. Thus, it is not necessary for California provide a similar waiver as described in IRS Notice 2019-11.
California does not conform to the amendments under the TCJA. The TCJA amended IRC Section 1031 limiting its application to real property that is not primarily held for sale. Additionally, under the TCJA, exchanges of personal property and intangible property do not qualify for non-recognition of gain or loss as like-kind exchanges. Get Instructions for Sales of Business Property (Schedule D-1) for more information.
IRC Section 965 Deferred Foreign Income
California does not conform. Under federal law, if a taxpayer owns (directly or indirectly) certain foreign corporations, they may now have to include certain deferred foreign income on their return.
Global Intangible Low-Taxed Income (GILTI) Under IRC Section 951A
California does not conform. Under federal law, if a taxpayer is a U.S. shareholder of a controlled foreign corporation, they must include their GILTI in their income.
New Deduction for Pass-Through Income
California does not conform to the TCJA additions of the IRC Section 199A, Qualified Business Income, for tax years beginning after December 31, 2017, and before January 1, 2026.
Qualified Opportunity Zone Funds
California does not conform to the deferral and exclusion of capital gains reinvested or invested in federal opportunity zone funds under IRC Sections 1400Z-1 and 1400Z-2, and has no similar provisions. The TCJA established Opportunity Zones. IRC Sections 1400Z-1 and 1400Z-2 provide a temporary deferral of inclusion of gross income for capital gains reinvested in a qualified opportunity fund, and exclude capital gains from the sale or exchange of an investment in such funds.
California law does not conform to the federal repeal of the technical terminations of a partnership. The TCJA repealed the IRC Section 708(b)(1)(B) rule providing for technical terminations of partnerships. For California purposes, 2 short period returns are still required.
California does not conform to the federal modification to depreciation limitations on luxury automobiles (IRC Section 280F).
Net Operating Losses (NOLs)
California law does not conform to the TCJA changes to the rules for NOLs. California taxpayers continue to compute NOLs in conformity to federal rules as of the specified date of January 1, 2015, with modifications.
California does not conform to the amendment under the TCJA. The TCJA amended IRC Section 1221 excluding a patent, invention, model or design (whether or not patented), and a secret formula or process held by the taxpayer who created the property (and certain other taxpayers) from the definition of a capital asset. For California purposes, IRC Section 1221 as of January 1, 2015, applies.
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Last Updated: 01.30.2019