Tax season toolkit.

• Author: Josephs, Stuart R.

Everything you need to hammer away at busy season.

After the bustle of the coming holidays, CPAs will be launched into tax season. With the rapid changes taking place in the economy and regulatory world, there's much to know when it comes to filing for your clients. But, never fear. CalCPA's annual Tax Season Toolkit is here.

California Tax Update

This year's legislative session included a number of bills aimed at making California a more competitive business environment. Other bills focused on funding higher education grants and promoting college savings through tax refunds. Here's a look at these and other changes you'll want to be aware of for the 2015 fling season.

Retroactive Changes

Mortgage Forgiveness Debt Relief

California retroactively extended its exclusion for personal income from qualified mortgage debt discharged on or after Jan. 1. 2013. and before Jan. I, 2014. The exclusion is limited to:

* Qualified principal residence indebtedness of 3800,000 ($400.(KM) for married persons or registered domestic partners filing separately!.

* Up to 8500,000 in gross income ($250,000 lor married persons or registered domestic partners filing separately! clue to qualified mortgage debt forgiven.

Taxpayers who have already reported discharged mortgage debt as income on his or her 2013 tax return can file a Form 540X, Amended Individual Income Tax Return, to exclude the income for a reduction in tax liability. Taxpayers who file a Form 540X will need to write "MORTGAGE DEBT RELIEF" in red capital letters across the top of the form.

Disaster Losses for San Diego Wildfires, Napa and Solano Earthquake

Both individuals and businesses located in declared disaster areas of Napa, Solano or San Diego counties that incurred disaster losses may amend their 2013 tax returns to claim the loss and obtain a refund.

Taxpayers claiming disaster losses should write "DISASTER LOSS XAPA EARTHQUAKE 2014" or "DISASTER SAX DIEGO WILDFIRES 201 I" in red capital letters across the top of their returns.

If a taxpayer's state tax returns were lost or damaged in either of the disasters, the taxpayer should complete FIB Form 3516, Request for Copy of Tax Return, to receive copies at no charge. This form will also need to be clearly marked a.s above) with the name of the disaster in red capital letters. For more details, sec I'I B Publication 1034 on disaster losses and how to claim a state tax deduction.

Legislation Effective in 20K

More California Competes Credits to be Awarded

For ihe 2014 15 fiscal year, die Governor's Office of Business and Economic Development (GO-Bizj is awarding $ 151.1 million in income tax credits to in-state businesses that will continue or expand their California operations and to out-of-state businesses that move into California. The California Competes Tax Credit is available to any size company in any industry operating at any location within the state.

GO-Biz will hold two more application periods to award credits: Jan. 5 Feb. 2 ($75 million is available! and March 9 April 6 ($30 million is available . Of the credits granted, 25 percent must go to small businesses with less than S2 million in prior-year sales. Originally, the credit could not reduce regular tax below tentative minimum lax; however, this bill corrected this oversight and the credit can now reduce regular lax below tentative minimum tax.

Reporting Requirement for Like-kind Exchanges of California Property

Individuals and businesses will need to comply with new reporting requirements on like-kind exchanges, starting with exchanges that occur in taxable years beginning on or after Jan. 1. 2014. California now requires taxpayers that defer gain or loss under IRC Sec. 1031 through the exchange of California property and acquiring out-of-state property to file an annual information return to report the exchange to FEB.

The FEB has finalized Form 3.840, California Like-kindExchanges, to meet this new reporting requirement. The Ibrrn must be filed in the year in which the like-kind exchange is completed and in each subsequent year that the gain or loss is deferred, regardless of whether the seller or exchanging party has any other California filing requirement.

Taxpayers must attach FIB Form 3840 to their California lax return and file it by the return's due date. Taxpayers without a California fifing requirement must still file FTB Form 3840 by the return clue dale as if the taxpayer did have a California filing requirement.

If the annual form is not filed, the FEB may recognize the deferred gain and issue an assessment..

College Access Tax Credit

For tax years beginning in 2014 16, individuals and businesses may claim an income tax credit for cash contributions made to the College Access Tax Credit Fund. For 2014, 2015 and 2016, the credit is equal to 60 percent, 55 percent or 50 percent of the amount contributed, respectively. The total allotted credits are capped at $500 million per calendar year.

Direct Deposit Refund into ScholarShare College Savings Trust

Individuals can request that their California tax refund be deposited directly into the stale's ScholarShare College Savings Plan. 'This option is available on lax returns filed in 2015 or later.

Mandatory E-Filing for Business Entity Returns

For tax years beginning on or after Jan. 1, 2014, any business entity dial files an original or amended tax return prepared using tax preparation software is required to electronical! file their return with the FIB unless they obtain a waiver.

Business entities ma' submit waiver requests prior to or up to 15 days after filing their return. Eligible business entities include those:

* That are subject to technology constraints;

* For which compliance would result in undue financial burden: or

* That are subject to other circumstances that constitute reasonable cause and not willful neglect.

To ease the transition to e-liling, the FTB plans to make the following available on its website iwwiv.Jlkca.goi in mid-December: Frequently asked questions about mandatory business entity e-filing;

* An e-file tutorial to help preparers set up and manage their e-file office processes;

* links to Other business e-file information; and

* An online waiver request process.

Nonqualified Foreign LLCs Now Subject to Contract Voidability and Check-the-Box Regulations

Foreign nonqualified LLCs are now subject lo the same contract voidability terms thai apply to foreign nonqualified corporations. This legislation also requires that the FTB's regulations related to the classification of a business entity be consistent with the federal regulations in effect as of May 1, 2014.

Check-off Option for Contributions to Designated Charitable Funds

Various bills enact or extend existing voluntary contribution options thai give individuals the choice to fund charitable organizations or check-off funds) through an automatic deduction of a portion of their income. These organizations include:

AB 1561, California Firefighters' Memorial Fund & California Peace Officer Memorial Foundation Fund;

* AB I 765, Habitat for Humanity Fund;

* SB 782, California Sexual Violence Victim Services Fund: and SB 997. California Senior Legislature Fund.

The FTB cannot add a new check-off fund until another voluntary contribution fund is removed from the forms.

Legislation Effective in 2015 or After

Employment Credit for New U.S. Air Force Advanced Strategic Aircraft Program

California will allow a tax credit for qualified taxpayers that hire certain employees to manufacture certain property for the I nked States Air Force for tax years beginning in 2015 29. The credit is capped at S25 million for each year through 2019. $28 million for years 2020 24 ancl S31 million for 2025 29.

New Motion Picture Credit

For tax years beginning in 2016 and later. California will offer the New Motion Picture Credit. The credit is equal to an applicable percentage (20 percent or 25 percent of qualified expenditures attributable to the production of a qualified motion picture in California. However, qualified expenditures used to compute the existing motion picture credit cannot be used to compute the new credit. Credits will be allocated by the California Film Commission on or alter July I, 2015, and before Jul 1. 2020.

The aggregate amount of credits that may be allocated by the commission in any fiscal year can be as high as $330 million per year through the 2019 20 fiscal year.

For tax years I icginning on or after Jan. 1. 2016, the taxpayer may sell to an unrelated party any awarded credit that is attributable to an independent film. In addition, the credit can reduce regular tax below tentative minimum tax.

Use Tax Will Now Be First Priority for Taxes Paid on FTB State Tax Returns

Starting in tax year 2015, the FTB will first apply available tax payments or credits to satisfy any self-reported use tax before applying payments or credits to outstanding income taxes, penalties or interest owed to the FTB.

Dependent Tax Identification Number Required on Returns

For tax years beginning in 2015 and later, individuals will be required to provide a taxpayer identification number (TIN) for each dependent they claim for the dependent exemption credit. If a I IN is not provided for a claimed dependent, the dependent exemption credit will be adjusted as a math error. A taxpayer would have the right to subsequently provide the TIN and receive a credit or refund as long a.s ii is provided prior to the expiration of the statute of...