California: Better late than Never
As of July 1, 2019, California legislators have agreed to follow certain key business tax provisions of the 2018 federal Tax Cuts and Jobs Act, fondly known as TCJA. This law was passed at the federal level in December of 2017.
Simplification? NOT.
Federal and State tax rules are often at odds which makes income tax return filing complicated enough. The 2018 tax filing season (which is still underway for both businesses and individuals on extension) was further complicated by the late enactment of federal changes impacting 2018 tax returns, the lack of clarity around many of the provisions, and California’s failure to adopt key provisions.
California’s late conformity with the following provisions means that wineries who benefitted from Federal tax law changes may want to take another look at their 2018 business tax returns (even if already filed) to determine if there are available California tax savings:
- Cash Basis Tax Filing Expanded - Small businesses and farming corporations whose average annual gross receipts (for three prior taxable years) don’t exceed $25 million can elect the cash method of accounting for federal and California income tax purposes. California has made this election available retroactively - for taxable years beginning in 2018.
- Deduction of Costs Allowed – California has now conformed with federal provisions that allow qualified taxpayers to exclude certain direct and indirect costs from inventory by exempting them from uniform capitalization rules. To qualify, your winery’s average annual gross receipts must be $25 million or less for the prior three taxable years. This option can be elected retroactively in California for taxable years beginning in 2018.
Other provisions that apply to businesses in California beginning in 2019 include:
- Rules related to technical terminations of partnerships
- Changes in eligibility for like-kind exchanges (Applies to exchanges after January 10, 2019.)
- Limits on noncorporate business losses and carryovers
- Stock purchases treated as asset acquisitions (Applies to acquisitions on or after July 1, 2019.)
Other States
While California has now conformed with certain aspects of federal law for businesses, taxpayers filing tax returns in multiple states may still be required to make different taxable income calculations for each state in which they operate.
Individual Tax Returns
Many of the key changes for individual income tax filers have not been adopted by CA, so individuals can expect to have itemized deductions apply differently to their Federal and California tax returns for the foreseeable future.
Please contact a member of our team for more details on how these changes may apply to your specific situation.