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| they apply. However, this depends on your basis of accounting which you chose for your business. Your choice of accounting basis is the accrual basis and the cash basis or a hybrid of both. You usually choose the method the first year of operation by filing your first tax return and there you indicate which accounting basis you are using. If you want to change it later on, you would have to ask for special permission. Tax planning is a good tool for your taxpayer clients to use to save money on their taxes. It is also a good tool for you as a tax professional to start your tax season early. You can start as early as November every year. |
| One of the tax planning strategies is about knowing how net operating losses will work out for your business. A business would normally incur greater losses in the first years of operation. This is called a Net Operating Loss (NOL). You can either carry your NOL forward or carry it back to other tax years. You would normally incur a loss in your first years of operation and instead of reporting that you made a profit on your business, you would report that you have a loss. You can usually use part of the loss against your other income in the year when it occurred and carry the excess to another period when it is useful for you. California allows both NOL carryovers and NOL carry backs. California requires that you carryback your business loss to the second year before the year in which the loss was incurred, and then the excess to the first preceding year before the loss year. Furthermore, any loss that is not applied in those two years is therefore carried forward to the years after the year in which the loss occurred. There are limits to the carryback amounts depending on the year in which they occurred. For instance, if the loss occurred before January 1, 2015 the loss carryback cannot be more than 75%. However, if the loss occurred after January 1, 2015, the carryback can be 100%. Knowing about net operating loss carryovers and carrybacks is a good for your tax planning business. |
| Registered Domestic Partners (RDP) |
| Not too long ago, individuals were filing tax returns as single taxpayers although they were technically married. Then, individuals were filing tax returns for federal tax purposes as single and were filing as married filing jointly/RDP for California. According to the Franchise Tax Board code section 297, domestic partners “are two adults who have chosen to share one another’s lives in an intimate and committed relationship of mutual caring.” Both persons must file a Declaration of Domestic Partnership with the Secretary of State. Upon filing this partnership with the state of California, the individuals are given the same rights and responsibilities that are given to married individuals. Thus, with this new ruling, individuals of the same sex can now file joint tax returns just as married individual do. Federal now allows for individuals of the same sex to file jointly. However, with federal there are special requirements to establish the relationship like the state of California requirement to file a Declaration of Domestic Partnership with the Secretary of State. The requirements are usually established with the individual states or countries that allow same sex marriages. The new federal benefit for same sex couples is a result of many states allowing same sex couples to file tax returns as married individuals. Now both California and federal allow for same sex partners to file a joint tax return. |
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As with married couples things happen in the relationship that requires a change. Once the same sex couples decide that they no long want to file jointly, they must follow legal procedures to dissolve their partnership. They must file the appropriate paperwork with the California Secretary of State. So once the partnership is dissolved, the individuals go back to filing as single taxpayers for both California and the Internal Revenue Service. However, just like any marriage and divorce process, the individuals can start the same sex marriage process with another partner and start filing as married for both California and federal tax return purposes again. |
| Schedule CA (540), California Adjustments |
| For California tax purposes, you need to know when to use Schedule CA and when to make California adjustments on this schedule CA. Very important to remember that if both the state of California and federal coincide and |
| Copyright © 2014 [Hera's Income Tax School]. All Annual Federal Tax Refresher Course rights reserved. |
| Revised: 07/09/15 |
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