The Marcum 2016 Year-End Tax Guide continues our tradition of providing timely tax guidance for the upcoming year.
New Employment Tax Credit
The New Employment Credit is a California income tax credit available to qualified employers for taxable years beginning on or after January 1, 2014, and before January 1, 2021. This credit is available for taxpayers that hire and pay qualified full-time employees in an elected economic development area or census tract.
Qualified Employee (meets any of the following conditions):
- Unemployed for six months or more, not having completed a degree or course of study.
- Unemployed for six months or more, and completed a degree or course of study more than 12 months prior to hire.
- Veteran, separated from armed forces within 12 months.
- Recipient of the federal Earned Income Credit in the previous taxable year.
- Current recipient of CalWORKS or county general assistance.
- Each qualified full-time hourly employee is paid wages for of at least 35 hours per week.
- Each qualified full-time employee who is a salaried employee was paid compensation during the year for full-time employment within the meaning of Section 515 of the Labor Code.
- Employer is engaged in trade or business within a designated geographic area.
- The qualified taxpayer has a net increase in its total number of full-time employees working in California when compared to its base year, both based on annual full-time equivalents.
The credit is based on 35% of qualified wages, or wages between 150% and 350% of minimum wage, and there is no cap on the total available credit or on the amount of credit available to a single employer. This credit can be carried forward for five years.
New California Motion Picture and Television Production Credit
This tax credit is for businesses in the film industry. This credit serves to reduce tax below the tentative minimum for
expenditures incurred for business film and television productions. The California Film Commission (CFC) will allocate
$330 million towards this program for 2016 and 2017. In order to claim the credit, qualified taxpayers must apply to the
California Film Commission.
- 25% of the qualified expenditures attributable to the production of either a television series that relocated to California in its first year of receiving a tax credit allocation or an independent film.
- 20% of the qualified expenditures attributable to the production of a qualified motion picture in California or a television series that relocated to California that is in its second or subsequent year of receiving a tax credit allocation.
Additional credits, not to exceed a total of 5% of qualified expenditures, may be allowed:
- 5% of qualified expenditures relating to music scoring or music track recording attributable to the production of a qualified motion picture in California.
- 5% of qualified expenditures relating to qualified visual effects attributable to the production of a qualified motion picture in California.
- 5% of qualified expenditures relating to original photography outside the "Los Angeles Zone."
Additionally, qualified taxpayers are able to sell credits attributable to an independent film to an unrelated party. In order to be eligible, the film must have a minimum budget of $1 million and a maximum budget of $10 million.
Community Development Financial Institutions Tax Credit Program
This program allows businesses to receive tax credits allocated by the Department of Insurance when they invest in Community Development Financial Institutions (CDFI). An investment can either be a deposit or a loan that does not earn interest, an equity investment, or an equity-like debt instrument. Each year, $10 million in tax credits are distributed to investors, supporting $50 million in community development investments. Under the program, investors receive a tax credit worth 20% of their investment in one of the COIN-certified CDFIs. Every $5 of private investment in certified CDFIs is eligible for $1 in state tax credits. This credit can be applied to the state personal income tax, corporation tax or insurer premium tax.
California Research Credit
The California Research Credit reduces income or franchise tax for companies that paid or incurred qualified research expenses while conducting qualified business deduction research in California. The qualified research must be undertaken to discover information which is technological in nature, and this information must be intended to develop a new or improved business component.
The business will receive 15% of the excess of current year research expenditures over a computed base amount. Any unused amount may carry forward to future years until none remains.
College Access Tax Credit
The College Access Tax Credit (CATC) is a credit available to individuals and business entities that contribute to the CATC Fund administered by the California Educational Facilities Authority (CEFA). The credit can be used to reduce tax below the tentative minimum beginning on or after January 1, 2014. The CATC is available until the taxable year of 2017. The credit is a percentage of the amount contributed each taxable year. The percentages for the following open tax years are:
- 60 percent for 2014.
- 55 percent for 2015.
- 50 percent for 2016.
- 50 percent for 2017.
The credit is claimed on the state income tax return. In order to apply for the credit, taxpayers must receive a certificate from CEFA.
Low Income Housing Credit
California allows a tax credit for construction or rehabilitation of low-income housing in California. The credit is equal to 30% of the amount invested and is claimed over four years. In order to receive this credit, a taxpayer must obtain an allocation from the Tax Credit Allocation Committee, and the rents must be maintained at low-income levels for 30 years.
California Competes Tax Credit
This is an income tax credit available to businesses that relocate to California. GO-Biz is responsible for negotiating tax credit agreements, and the California Competes Tax Credit Committee approves them. Businesses will commit to certain employment or project investment requirements, also referred to as "milestones," as part of the credit agreements. The amount of the credit will be based on the following factors:
- The number of jobs the business will create or retain in this state.
- The proposed or paid compensation by the business to its employees, including wages, benefits, and fringe benefits.
- The amount of investment by the business.
- The extent of unemployment or poverty where the business is located.
- The incentives available to the business in this state from the state, local government and other entities.
- The incentives available to the business in other states.
- The duration of the business' proposed project and the duration the business commits to remain in this state.
- The overall economic impact.
- The strategic importance of the business to the state, region, or locality.
- The opportunity for future growth and expansion in this state by the business.
- The extent to which the anticipated benefit to the state exceeds the projected benefit to the business from the tax credit.
GO-Biz will allocate credits based on the number of applicants. $200 million has been allocated for fiscal years 2015-16 through 2017-18
California Environmental Tax Credit
The California Environmental Tax Credit is available to small refineries in California that produce ultra-low sulfur diesel fuel for each taxable year until January 1, 2018. The environmental tax credit is equal to five cents ($0.05) for each gallon produced during the taxable year at any facility located in California. The credit for any taxable year with respect to the facility cannot exceed 25% of the qualified capital costs incurred by the small refiner, reduced by the aggregate credits for all prior taxable years.
Ultra-low sulfur diesel fuel is defined as:
- Diesel fuel with a sulfur content of 15 parts per million or less.
- Vehicular diesel fuel produced and sold by a small refiner on or after June 1, 2006.
Small refiner is any refiner that owns or operates a refinery in California that:
- Has had at all times since January 1, 1978, a crude oil capacity of not more than 55,000 barrels per stream day.
- Has not been at any time since September 1, 1988, owned or controlled by any refiner that at the same time owned or controlled refineries in California with a total combined crude oil capacity of more than 55,000 barrels per stream day.
- Has not been at any time since September 1, 1988, owned or controlled by any refiner that at the same time owned or controlled refineries in the United States with a total combined crude oil capacity of more than 137,500 barrels per stream day.
To qualify for this credit, a small refiner must request certification.
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Earned Income Tax Credit
This is a new refundable tax credit that financially helps California's working families and individuals. The credit is available to California households with adjusted gross incomes of less than $6,850 if there are no qualifying children; less than $9,880 if there is one qualifying child; or less than $13,870 if there are two or more qualifying children. Children must meet certain criteria to qualify.
Non- Refundable Renter's Credit
A nonrefundable renter's credit can be used to reduce income tax for renters who have a personal income tax liability. The credit is equal to $60 for a single or married renter filing separately or $120 for head of household, widow, married/ RDP filing jointly.
Child and Dependent Care Expenses Credit
This credit is allowed for certain household and dependent care expenses acquired during the year due to employment. In order to claim this credit, the taxpayer's adjusted gross income must be less than $100,000 and have expenses related to a qualifying individual which includes one of the following:
- A dependent of the taxpayer who is under 13 years old and for whom the taxpayer is entitled to a dependent exemption credit.
- The spouse of the taxpayer, if he or she is physically or mentally unable to care for him or herself.
- A dependent of the taxpayer who is physically or mentally unable to care for him or herself and for whom the taxpayer was entitled to a dependent exemption credit without regard to the gross income limitation.
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