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  • Peter F Cicciari EA

California


California Conformity/Nonconformity to CAA ProvisionsCAA provisionConformity/NonconformityCalifornia treatmentPPP loan forgiveness exclusion from CODConformity2 (however, see next entry)No adjustment requiredNo expense reduction for expenses paid with PPP loan amounts forgivenNonconformity3Although the forgiveness is not COD income, taxpayers must reduce expenses paid with forgiven loan amounts (see “FTB working on guidance for reporting PPP forgiveness” below). This will most likely require a manual override adjustment. Legislation has been introduced (AB 281) to conform California law to the federal law allowing the deduction of expenses paid with forgiven PPP debtExclusion of Economic Impact PaymentsConformityNo adjustment requiredIncreased unemployment benefits extendedNonconformity4California does not tax UI benefits100% business meal deduction for meals provided by a restaurant for purchases paid or incurred after 2020 and before 2023Nonconformity. California never conformed to the TCJA repeal of the entertainment deduction and continues to limit business meals to 50%5Adjustment requiredExtends CARES Act charitable contribution above-the-line deduction and increase of charitable deduction limits to apply to cash contributions made in 2021Nonconformity6Adjustments required. No above-the-line deduction on the California return for taxpayers claiming standard deduction. Taxpayers who itemize must adjust the Schedule A deduction to reflect California’s lower charitable contribution limitsPermanent expansion of employer assistance education program exclusion to include employee’s student loan payments made by employerNonconformityIncreased wages adjustment required. Employees may also claim an interest deduction on their California return because the payment is included in taxable incomeExpansion of teachers’ expense above-the-line deduction for purchases of personal protective equipment, cleaning supplies, etc.Nonconformity. California has never conformed to the teachers’ expense above-the-line deduction7Increase AGI and miscellaneous itemized deductions subject to 2%Repeal of above-the-line deduction for qualified tuition and fees, effective beginning with 2021 tax yearConformity. California has never conformed to the deduction for tuition and fees8Because the federal repeal does not apply until 2021 return, an adjustment is still required on 2020 California return7.5% medical expense deduction threshold made permanentConformity. California never conformed to the scheduled increase to 10%9No adjustment requiredExtension of qualified principal residence COD exclusionNonconformity10Adjustment may be required. (Remember, taxpayers may still qualify for an insolvency exclusion on their California return)Five-year extension of IRC §181 film and television cost expensingNonconformity11California costs are capitalized and depreciatedPermanent extension of IRC §179D energy efficient commercial buildings deductionNonconformity12California costs are capitalized and depreciated

Retirement provisions that allow:

  • Taxpayers to make penalty-free withdrawals from money purchase pension plans for COVID-19–related expenses;

  • Partial plan termination reprieves;

  • Penalty-free withdrawals of up to $100,000 for qualified disaster distributions; and

  • Recontribution of retirement plan withdrawals for home purchases that couldn’t be completed due to disasters

Conformity13No adjustments requiredIncreased retirement plan loan limitations for disaster victimsNonconformity14 (Note: California did conform to increased loan limitation treatment on COVID-19–related loans)Loan amounts in excess of $50,000 treated as taxable distributionEarned Income Credit amendments allowing taxpayers to elect to base their credit on 2019 rather than 2020 earned income

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