Year-End Tax Planning Tips for California Business Owners

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Dec 01, 2022, 14:19 ET

/PRNewswire/ -- California business owners and residents may find 2022 year-end tax planning more challenging due to the state's complex tax and regulatory environment.

Jonathan Weinberg , a Principal in Withum's State and Local Tax (SALT) practice, examines three areas for Californians to consider for the 2022 tax filing year.

Explore Withum's Year-End Tax Planning Resource Center for 2022 tax filing strategies.

California Nonresident Tax Considerations

COVID-19 accelerated remote work trends, causing individuals and business owners to evaluate where they live and operate across the country, especially in a high-tax state like California. California is responding to this taxpayer and business exodus by auditing individuals, looking for those who broke their California domicile and are now nonresidents.

According to Weinberg, "Individuals and businesses moving out of California who fail to plan for an audit are planning to fail when audited." Work with your accountant to ensure you have undeniable proof of residency, or you may be seen by the state as a resident and taxed accordingly.

Paycheck Protection Program and Employee Retention Credit Scams

In October, the IRS warned taxpayers to beware of PPP and ERC scams promising sensationalized savings. The IRS has subsequently started aggressively auditing PPP and ERC claims. "It's imperative businesses understand the qualifications to not fall victim to these scams," said Weinberg. He warned that scam victims will have to repay the credit with interest and may have to pay penalties. "In some cases, taxpayers who filed ineligible claims face criminal liability."

PTET Election

Many states enacted Pass-Through Entity Taxes (PTET) to work around the $10K SALT deduction cap. However, California's PTET is more complex than other states because California does not allow pass-through entity owners a refund for excess PTET paid by the entity. Instead, owners receive a five-year carryforward, and any credit remaining after five years is forfeited. Taxpayers must be precise in their tax planning to avoid forfeiting PTET credits.

Withum's Year-End Tax Planning Resource Center provides additional year-end tax planning strategies and guidance for businesses and individuals.

About Withum

Established in 1974, Withum is a national top-ranking public accounting firm providing advisory, tax and audit services to businesses and individuals on a local-to-global scale. Headquartered in Princeton, NJ, Withum has a presence in major financial centers across the country. Withum is an independent member of HLB, the global advisory and accounting network. For more information, visit www.withum.com.

SOURCE Withum