Tax Updates for the Back-to-School Season

We have two quick tax updates for you as we get ready for the back-to-school season:

The IRS and the California Franchise Tax Board extended the tax filing and payment deadlines this year for most of California due to the winter storms late last year and early this year. The new filing and payment deadlines for both 2022 individual and business tax returns is now October 16. 

Many of the counties in the state were affected by the severe rain and mudslides; residents and businesses within those counties are all eligible for this extension. You can check here for the list of affected counties. Note that the postponed deadline does not apply to residents of Lassen County.

The original deadlines have all passed, but if you are eligible for the extension, you do not need to do anything; the extension is automatically given. This not only applies to tax returns, but it also allows residents to make contributions to their IRAs and health savings accounts, and extends the deadline for 2022 fourth quarter tax payments and tax payments for each quarter in 2023 until October 16.

Business owners should also be aware of CA AB150 – also called the Pass-Through Entity elective Tax. This bill was signed into law in September 2021 and is in effect until January 1, 2026.

This bill allows eligible businesses to pay an elective 9.3% tax to California on a portion of their share of the company, which would then lower the company’s tax liability on their federal tax return. Then the company would also receive a tax credit on their state return for the same amount as the elective taxes paid.

The types of entities that are eligible to pay this elective tax includes S corporations, general partnerships, limited or limited liability partnerships, and limited liability companies that are taxed as partnerships.

As noted on the California Franchise Tax Board website:

To qualify to make this election, the pass-through entity’s owners must consist solely of individuals, fiduciaries, trusts, estates or entities taxable as corporations. The pass-through entity cannot have a partnership as an owner, cannot be a publicly traded partnership, and the pass-through entity cannot be permitted or required to be in a combined reporting group.

Contact us at Root Tax if you have any questions about the extended tax deadline or AB 150.

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