Highlights, or more appropriately, lowlights from the new California budget bill signed 85 days late

The LLC fee (based on the gross receipts received by the LLC) you will owe for 2009 year will be due early; an interesting gimmick state legislators are using to try to balance the state budget, which will likely unbalance yours. The fee for 2009 will now be required to be paid on June 15, 2009 as an estimate. Before this change, the fee would have been due April 15, 2010 after the year end to which it applies. This will mean that you will have two LLC fees to pay in 2009; the one from 2008 will be due April 15, 2009. For those who are operating on a tight cash flow budget, this may be a painful change. It does not increase the total tax due but it does accelerate when it is due by ten months and creates a doubling effect in 2009. Plan ahead for this cash need.

California NOL deductions are suspended for 2008 and 2009. This has been done by the state in the past and may affect many taxpayers who are suffering through a difficult 2008 year and had a difficult 2007 year. The net operating losses incurred last year and this year will not reduce income taxes due for what is hoped to be a more successful 2009 year. The losses will be available for a 20 year carryover, however.

Estimated income tax payments are going to be accelerated in 2009. The first two estimates (April and June 2009) for individuals and corporations will be 30% of the total amount due rather than the normal 25%. This provision survived the last minute negotiations with the governor but the attempt to increase withholding tables on salaries did not.

Individual taxpayers whose income exceeds $1 million may no longer use the 110% of prior year as a safe harbor as a basis for making protected estimated tax payments. This means that they will have to pay in 90% of the current year as an estimate to avoid penalties. More planning and forecasting will be required to make sure this amount is covered by estimated tax payments which, by the way, have been increased in the first part of the year to 30% as mentioned in item 3 above.

Business credits, and there are several different kinds, are limited to 50% of tax liability for 2008 and 2009. This may have a dramatic impact on those who have had large credits in the past that have more than offset their entire state tax amount.