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April 1, 2009 > California tax law changes for 2008 returns

California tax law changes for 2008 returns

Submitted By Greenstein, Rogoff, Olsen & Co., LLP

There are several changes in the California tax law that may affect income tax returns prepared in 2009. These changes are effective for tax years beginning on or after January 1, 2008.

Suspended Net Operating Loss
For taxable years beginning 2008 and 2009, California has suspended the Net Operating Loss Carryover Deduction for companies with taxable income greater than $500,000. If taxable income is less than $500,000 or has disaster loss carryovers, the NOL suspension rules do not apply. Corporations may continue to compute and carry over NOL during the suspension period.

Business Tax Credits
Business tax credits will only be available to offset 50 percent of the California tax liability (e.g. R&D credit, Enterprise Zone and Low Income Housing Credits).

Prepayment of LLC Fee
An LLC must prepay its LLC fee by June 15. You can penalty proof yourself by paying in last year's fee by June 15.

Example: A calendar year LLC must estimate its 2009 gross receipts by June 15, 2009, and pay the LLC based on this estimate or pay in the 2008 LLC fee to avoid any penalty. The penalty is 10 percent of the amount of any underpayment.

California 2009 Estimated Tax Changes
Taxpayers with California estimated tax payments of $20,000 or more or a projected 2009 tax liability of $80,000 or more are required to submit payments to the Franchise Tax Board electronically. This is for tax years beginning after January 1, 2009, so the fourth-quarter estimate of 2008 and extension payments for 2008 are exempt. Once you meet this threshold, all current and future payments must be submitted electronically even if you do not meet these minimum thresholds in the current year. Failure to submit electronically will subject you to a 1 percent penalty of the amount.

Payments can be made electronically using the web pay option at under the individuals tab pay tax.

You can also pay by credit card, however, this will result in an additional charge of 2.5 percent of the amount.

This is effective for all payments made after December 31, 2008.

For all California taxpayers, the percent of estimated taxes that needs to be paid in has also changed:

Prior law indicated that you could pay in four equal installments (e.g. 25 percent)
New law says you must pay in the following percentages:
30 percent 1st & 2nd quarter
20 percent 3rd & 4th quarters

California taxpayers who have or are projected to have adjusted gross income of $1 million or more (or $500,000 for married filing separately) cannot use the 110 percent safe harbor for prior years. Therefore, these taxpayers must use 90 percent of current year tax.

For more information, visit or call (877) CPA-2006.

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