Further CA Enterprise Tax Guidelines that come into impact for states exterior of CA Replace: 2021

in the June 2020, Gov. Gavin Newson (D) Signing of Bill 85, which included retrospective tax increases.

  1. AB85 suspends a company’s ability to claim a CA net operating loss (NOL) deduction in 2020, 2021, or 2022. (“Net operating losses” occur when a company’s expenses exceed a year’s sales).
  2. Companies with net income below $ 1 million can still claim the NOL deduction. Hence, if your business lost money in 2020 and then net income of $ 1 million or more in 2021 and beyond, your NOLs would be suspended.

This law applies to all companies – individuals (Sch C-Filers), flow-through companies, and C-companies.

The law also limits retrospectively $ 5 million The amount of loans a company can apply for in 2020, 2021, and 2022.

A minor tax break has been introduced for certain companies re-registering in 2021, 2022 or 2023 to do business in the state, with a three-year suspension 800 dollars Minimum corporate income tax.

SB 1447 has passed law: The Small Business Tax Credit

Small business hiring tax credit is available and is subject to availability $ 1,000 per net new employee up to $ 100,000 per business.

The requirements for obtaining the loan are that the company:

  • Has less than 100 employees and
  • The second quarter of 2020 saw gross income fall by 50% or more.

The credit can lower a company’s income tax, corporate tax, or sales tax. The credit expires December 31, 2021.

Prop 19 – The property tax law

Prop 19 is described as protecting the elderly or those who transfer property from one generation to the next, and in practice limits the conditions under which owners can transfer property California Real estate between parent and child without triggering a revaluation of the real estate value for real estate tax purposes.

The new rules come into effect on February 16, 2021.

According to Prop 19, real estate is taxed according to its estimated value (also known as the base year value or taxable value) rather than its fair value.

The estimated value is the purchase price plus a 2% increase per year until a change of ownership occurs.

Applicable law excludes transfers between parents and children of the transferor’s primary residence (a) regardless of value from revaluation, and (b) $ 1 million the estimated value of “other properties” (such as second homes and investment properties). This is commonly referred to as parent-child exclusion.

Prop 19 has the following effects:

  • The ability to transfer $ 1 million the estimated value of “other property” is eliminated.
  • The ability to transfer a primary residence between parent and child without reassessment only applies if two conditions are met:
    • The primary residence must also become the primary residence of the recipient (or child). and
    • The fair value (FMV) of the main residence at the time of the transfer must not exceed the estimated value of the transferor by more than $ 1 million.

If the difference between FMV and the assessed value is greater than $ 1 millionthen the NEW assessed value of the FMV is less $ 1 million.

If the principal residence of the transferor does not become the principal residence of the recipient, the property will be revalued at its fair market value.

What the new law of Prop19 means for you:

If you transferred a house to a child and bought that house in the 1960s or 70s in an off the beaten path area and the world around you has grown in recent years, your property value has increased significantly. And now if you downsize and give your child the property to use as their primary residence; You can “give” them a large tax burden.

The following invoices have NOT been incorporated into the law:

AB 1253 would have increased California highest income tax rate from 13.3% income to 16.8% for some high income individuals that would have been retroactive January 1, 2020 (before COVID-19).

AB 2088, “The Wealth Tax”, would have imposed a wealth tax of 0.4% on all of the above assets $ 30 million (holding global assets) taking into account all assets and liabilities held by any person worldwide.

  • It could have applied to residents, part-year residents, and anyone who stayed in for more than 60 days California in a given year.
  • If the wealth tax had been passed, there would have been a “tail” that would keep you paying for ten years. Probably this was aimed at people migrating from CA to AZ and TX for tax reasons, as that law would have taxed people who left CA as well.

John Milikowsky
[email protected]

SOURCE Milikowsky Tax Act