A version of this article was published in the December 2017 issue of California CPA Magazine.
With the rapid changes taking place in the economy and regulatory world, there’s much to know when it comes to filing for your 2017 California state taxes. Here are some of the most important changes:
Extensions for Partnership and LLC Returns (AB 119) | Businesses
AB 119 changes the automatic extension for filing partnership and LLC returns from six months to seven months, effective for 2017 tax year returns and thereafter (R&TC Section 18567). For calendar-year partnerships and LLCs taxed as partnerships, the extended due date will return to October 15.
AB 119 directs the Franchise Tax Board (FTB) to presume reasonable cause and not willful neglect for the late-filing penalty (R&TC Section 19131) and the per-partner or member penalty (R&TC Section 19172) for 2016 returns filed after the September 15, 2017 due date if the partnership or LLC both:
At this time, the FTB hasn’t specified how they’re going to implement this provision.
AB 119 didn’t change the extended due date for any other entity returns.
FTB to Revise Income Tax Forms and Instructions for Use Tax Reporting Requirements (AB 1593) | Individuals and Businesses
For the returns required to be filed for taxable years beginning on January 1, 2017, and thereafter, AB 1593 requires the FTB to revise the personal income tax return related to use tax reporting.
AB 1593 requires:
E-filed returns will be rejected if the use tax lines are left blank.
FTB Income Tax Forms for Use Tax Reporting and Payment; Acceptable Tax Return Means Original Return (AB 1717) | Individual and Businesses
AB 1717 made the following changes:
AB 1717 changed the original return definition to avoid the California Department of Tax and Fee Administration from asserting late payment penalties where the FTB transferred the use tax payment to cover any shortfall in the income tax liability.
CA Earned Income Tax Credit (SB 106) | Individuals
For taxable years beginning on or after January 1, 2017, California conforms to federal law and allows the credit to be calculated on self-employment income. SB 106 increases the maximum adjusted gross income (AGI) phase-out amounts for the California Earned Income Tax Credit (EITC) by substituting new tables for the credit and phase-out percentages and the earned income amount.
For taxable years beginning on or after January 1, 2018, the phase-out amounts will be annually adjusted in the same manner as the income tax brackets.
Minimum Voluntary Contribution Amount (AB 111) | Individuals
AB 111 reduces the minimum contribution amount requirement to zero for any voluntary contribution fund that has a minimum contribution requirement for 2017.
New Check-Off Designated Charitable Funds | Individuals
The following bills would allow a taxpayer to make a voluntary contribution to one of the funds listed below on their state personal income tax return:
Voluntary Disclosure Program Expansion (SB 813) |Individuals and Businesses
For voluntary disclosure agreements (VDAs) entered into on or after January 1, 2018, SB 813 modifies the VDA Program’s provisions to allow the following to participate:
SB 813 also updates the list of penalties the FTB won’t assess for the taxable years covered by the VDA entered into on or after January 1, 2017, to include the failure to file a timely return for:
Electronic Communication with FTB—Extended (AB 1720)
AB 1720 extended the date for alternative electronic communications, MyFTB, between taxpayers and the FTB, from January 1, 2018, to January 1, 2025.
Economic Nexus Thresholds Indexed for Inflation | Businesses
The threshold amounts are indexed for inflation and revised annually.
Interest on Corporate Refunds and Interest Rates for January 1, 2018 | Individuals and Businesses
The FTB began paying 1% interest on corporation refunds beginning July 1, 2017. Prior to July 1, 2017, the FTB paid 0% interest on corporate refunds. The corporation overpayment rate will remain 1% through June 30, 2018.
The current interest rate on personal income tax underpayments and overpayments, corporation underpayments, and estimate penalties will remain the same at 4% through June 30, 2018. For certain corporate underpayments subject to the additional 2% interest—hot interest—the combined interest rate increases from 5% to 6%.
2017 Disaster Losses | Individuals and Businesses
October California Wildfires
The FTB announced special tax relief for California taxpayers impacted by wildfires. Affected taxpayers are granted an extension to file 2016 California tax returns and make payments until January 31, 2018.
The IRS granted an extension to file certain individual and business tax returns and make certain tax payments to January 31, 2018. This relief applies to taxpayers in nine counties: Butte, Lake, Mendocino, Napa, Nevada, Orange, Solano, Sonoma, and Yuba. In addition, firefighters and relief workers who provided relief services, but live elsewhere, also qualify for the extension. This relief applied to various tax filing and payment deadlines that occurred starting on October 8, 2017. This includes:
A variety of other returns, payments, and tax-related actions also qualify for additional time. See the IRS’s disaster relief page for details on these and other relief the IRS has offered since the wildfires began, October 8, 2017.
The FTB automatically follows federal postponement periods for any presidentially declared disasters.
Hurricanes Harvey, Irma, and Maria
The FTB automatically follows the announced federal postponement periods for hurricanes Harvey, Irma, and Maria. Affected taxpayers were granted an extension to file tax returns and make payments until January 31, 2018. For instance, if Hurricane Harvey impacted a taxpayer who earns income in California, that taxpayer has extra time to file a California tax return.
On September 26, 2017, the IRS issued a recap of special relief for taxpayers affected by the three hurricanes. A variety of other returns, payments, and tax-related actions also qualify for additional time. See the IRS’s disaster relief page for details on these and other relief the IRS has offered since these hurricanes began hitting in August.
The FTB will also follow these extended dates and will cancel interest and any late filing or late payment penalties that would otherwise apply.
Other 2017 California Disasters
Taxpayers may deduct a disaster loss for any loss sustained in any city or county in California that’s proclaimed by the governor to be in a state of emergency.
Claiming a Disaster Loss on the California Return
If you e-file, use the disaster code provided in the following chart. If you file a paper return, print the following information in red ink across the top:
For more information regarding California disaster losses, refer to Publication 1034, Disaster Loss How to Claim a State Deduction, on the FTB website