2008 California Tax Law Changes

Read on for some changes that will effect your 2008 California income tax returns. For those of you with Net Operating Losses you were planning on using this year you may need to make estimated payments now. Please call us if you have any questions about these or other tax issues.

Happy Reading.

2008 California Tax Law Changes

Compiled by Monica A. Lawver, CPA

The California state governor signed the new budget on September 30, 2008, which includes several tax-related changes. The law makes the following key changes:

• Limits business tax credits to 50% of net tax (before credits) for tax years 2008 and 2009.
• Suspends NOL deductions for 2008 and 2009.
• Requires the LLC fee to be estimated and paid 10 months before the current due date of the return, and imposes a 10% underpayment penalty. Thus, calendar-year LLCs will pay their 2008 LLC fee by April 15, 2009, and their estimated 2009 fee on June 15, 2009.
• Accelerates the required payment of estimated payments. The law changes estimate payment percentages to 30% of the annual tax liability for the 1st and 2nd estimate payment installments and 20% of the annual tax liability for the 3rd and 4th installments under both personal income tax and corporation income tax law for tax years on or after January 1, 2009.
• Eliminates prior year safe harbor for high income individual taxpayers. Starting in 2009, the law eliminates the option of using 110% of the prior year's tax to compute the required annual payment for taxpayers with AGI of $1 million or more ($500,000 in the case of a married individual filing a separate return). These taxpayers must make estimated payments based on current year income.
• Makes electronic payment mandatory for high-income individuals. Individual taxpayers with estimated tax or extension payments over $20,000, or with tax liabilities over $80,000, must pay electronically (e-pay). The mandatory e-pay requirement is based on estimated tax or extension payments made or tax returns you file for taxable years beginning on or after January 1, 2009. After a taxpayer makes a payment or files a return that meets the threshold, the FTB should send a “courtesy notice” instructing the taxpayer to make all future payments electronically. More information is available on the FTB website at: http://www.ftb.ca.gov/individuals/Mandatory_e-pay.shtml.