What’s new for filing 2019 tax returns February 2020 Tax News

Health Care Mandate

Effective January 1, 2020, the Minimum Essential Coverage Individual Mandate requires Californians to:

  • Obtain and maintain qualifying health insurance coverage.
  • Qualify for an exemption if they choose to go without coverage.
  • Face a financial penalty if they do not qualify for an exemption.

For information about health coverage options and financial help, visit coveredca.com.

For information about the penalty, visit ftb.ca.gov/healthmandate.

Voluntary Contributions

For taxable years beginning on or after January 1, 2019, you may contribute to the Suicide Prevention Voluntary Tax Contribution Fund.

Loophole Closure and Small Business and Working Families Tax Relief Act of 2019

The Tax Cuts and Jobs Act (TCJA) signed into law on December 22, 2017, made changes to the Internal Revenue Code (IRC). California Revenue and Taxation Code (R&TC) does not conform to all of the changes. In general, for taxable years beginning on or after January 1, 2019, California conforms, with modifications, to the following TCJA provisions:

  • California Achieving a Better Life Experience (ABLE) Program
  • Federal Deposit Insurance Corporation (FDIC) Premiums
  • Excess employee compensation
  • Student loan discharged on account of death or disability
  • Excess business loss

Young Child Tax Credit

For taxable years beginning on or after January 1, 2019, the refundable Young Child Tax Credit (YCTC) is available to taxpayers who:

  • Qualify for the California Earned Income Tax Credit (EITC)
  • Have at least one qualifying child who is younger than six years old as of the last day of the taxable year

The maximum amount of credit allowable for a qualified taxpayer is $1,000. The credit amount phases out as earned income exceeds the "threshold amount" of $25,000, and completely phases out at $30,000.
For more information, visit the instructions for line 76 of Form 540, California Resident Income Tax Return and get form FTB 3514, California Earned Income Tax Credit.

Alimony

California law does not conform to changes made by the TCJA to federal law regarding alimony and separate maintenance payments made under any divorce or separation agreement executed after December 31, 2018, or executed on or before December 31, 2018, and modified after that date (If the modification expressly provides that the amendments apply).

Visit Schedule CA (540) specific line instructions for more information.

Like-Kind Exchanges

The TCJA amended IRC Section 1031 limiting the nonrecognition of gain or loss on like-kind exchanges to real property held for productive use or investment. California conforms, with modifications, to this change under the TCJA for exchanges completed after January 10, 2019.
However, for California purposes, with regard to individuals, this limitation only applies to:

  • A taxpayer who is a head of household, a surviving spouse, or spouse filing a joint return with adjusted gross income (AGI) of $500,000 or more for the taxable year in which the exchange begins.
  • Any other taxpayer filing an individual return with AGI of $250,000 or more for the taxable year in which the exchange begins. Get Schedule D-1, Sales of Business Property, for more information.

Student Loan Discharged Due to Closure of a For-Profit School

California law allows an income exclusion for an eligible individual who is granted a discharge of a student loan under specified conditions. California law now also allows an exclusion from income for a discharge of student loans occurring on or after January 1, 2019, and before January 1, 2024, for individuals who attended a:

  • Brightwood College school
  • Location of The Art Institute of California

Visit the California Schedule CA (540) instructions for additional information.

Charitable Contribution and Business Expense Deduction Disallowance

For taxable years beginning on or after January 1, 2014, California law disallows a:
Charitable contribution deduction to an educational organization that is:

  • a postsecondary institution
  • to the Key Worldwide Foundation

Deduction for a business expense related to a payment to:

  • The Edge College and Career Network, LLC
  • a taxpayer who meets specific conditions, including that they are named in any of several specified criminal complaints

For taxable years 2014 through 2018, file an amended Form 540 and Schedule X to report the correct amount of charitable contribution and business expense deductions.
Visit the California Schedule CA (540) instructions for additional information.

Net Operating Loss (NOL) Carrybacks

For taxable years beginning on or after January 1, 2019, with limited exceptions, net operating loss carrybacks are not allowed.

Deployed Military Exemption

For taxable years beginning on or after January 1, 2020, and before January 1, 2030 a corporation or LLC shall not be subject to the minimum franchise tax or annual tax if all of the following apply:

  • The corporation or LLC is a small business
  • Solely a deployed member of the United States Armed Forces owns the corporation or LLC
  • The owner is deployed during the taxable year
  • The corporation or LLC operates at a loss or ceases operation

Extension Due Date Change

For taxable years beginning on or after January 1, 2019, the extension period for filing a C corporation tax return has changed from six months to seven months. Get FTB Notice 2019-07 for more information.

IRC Section 338 Election

For taxable years beginning on or after July 1, 2019, California requires taxpayers to use their federal IRC Section 338 election treatment for certain stock purchases treated as asset acquisitions.  If the taxpayer made, or has not made an election under IRC Section 338, the taxpayer shall make the same election, or not make the election for California tax purposes.

Small Business Method of Accounting Election

For taxable years beginning on or after January 1, 2019, California conforms to certain provisions of the TCJA relating to changes to accounting methods for small businesses.
A small business may elect to apply one or more of the California Small Business Method of Accounting provisions to taxable years beginning on or after January 1, 2018, and before January 1, 2019. Taxpayers make the election by providing the following information to us:

  • Include a statement with their original or amended California tax return stating the taxpayers’ intent to make a Small Business Method of Accounting election(s).
  • On the top of the first page of the original or amended tax return, print “AB 91 - Small Business Method of Accounting Election” in black or blue ink.
Mail returns to:
Franchise Tax Board
Po Box 942840
Sacramento, CA 94257-0500

Technical Termination of a Partnership

For taxable years beginning on or after January 1, 2019, California conforms to the TCJA repeal of the termination of a partnership by the sale or exchange of 50 percent or more of the total interest in a partnership within a 12 month period.
A partnership may elect to have the repeal of the technical termination apply for taxable years beginning after December 31, 2017, and before January 1, 2019. Taxpayers make the R&TC Section 17859(d)(1) election by providing the following information to us:

  • Include a statement with their original or amended California tax return stating the taxpayers’ intent to make an election under R&TC Section 17859(d)(1).
  • On the top of the first page of the original or amended tax return, print “AB 91 – R&TC Section 17859(d)(1) Election” in black or blue ink.
Mail returns to:
Franchise Tax Board
PO Box 1570
Rancho Cordova CA 95741-1570

Pass-Through Entity Annual Withholding Return

For taxable years beginning on or after January 1, 2020, a pass-through entity that has:

  • Paid withholding on behalf of a nonresident owner
  • Been withheld upon

Must use Form 592-PTE, Pass-Through Entity Annual Withholding Return, to report the total withholding. For more information, get Form 592-PTE.

Payment Voucher for Pass-Through Entity Withholding

For taxable years beginning on or after January 1, 2020, a pass-through entity must use Form 592-Q, Payment Voucher for Pass-Through Entity Withholding, to remit the withholding payments. For more information, get Form 592-Q.

Real Estate Withholding Statement

Effective January 1, 2020, the real estate withholding forms and instructions have been consolidated into one new Form 593, Real Estate Withholding Statement. For more information, get Form 593.

Assignment of Credit

For taxable years beginning on or after January 1, 2019, the following forms and instructions have been consolidated into one form FTB 3544, Assignment of Credit:

  • FTB 3544, Election to Assign Credit within Combined Reporting Group
  • FTB 3544A, List of Assigned Credit Received and/or Claimed by Assignee