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Small Business

What Does Conformity Mean to the Small Business Owner?

October 2009 - California conformity to federal tax law is an area of interest for California taxpayers and small business owners. The complex rules or documentation procedures are a common source of tax complexity, and require more record keeping by taxpayers and small business owners. Conformity to certain federal tax provisions can reduce complexity by allowing taxpayers to use the same calculations for both their federal and state tax returns.

Many will agree with the notion that taxes should be simpler. Simpler tax law could reduce taxpayers' costs of complying with the tax system in terms of time, money, and mental anguish. The basic problem is that every year the disparity between California law and federal law grows.

This year, Assembly Bill (AB) 1580 was introduced to reduce the disparity between federal and state law. If AB 1580 is enacted, its aim to change California law to conform to most of the federal law changes made between January 1, 2005, and January 1, 2009. AB 1580 also identifies areas where we will not conform or where we would have a modified conformity. Though this bill has not yet been chaptered, it’s received much attention and could bring us just a little bit closer to reducing complexity for taxpayers and small business owners. For the latest on this bill, go to leginfo.ca.gov and search for 1580.

California has been out of conformity since 2005.  Without the passage of AB 1580, California will continue to be out of conformity resulting in increased state adjustments for taxpayers for the differences between federal and California tax law. In addition, AB1580 provides a number of benefits to provide some economic relief to California taxpayers, including active military personnel, safety workers, and seniors.

Back to October 2009 Tax News