Discussion:CA Form 3805Z - Trade or business income limitation
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Discussion Forum Index --> Advanced Tax Questions --> CA Form 3805Z - Trade or business income limitation
Discussion Forum Index --> Tax Questions --> CA Form 3805Z - Trade or business income limitation
| 28 June 2012 | |
Facts:
Question - For purposes of determining the "trade or business" from the EZ as reported on CA Form 3805Z, Page 2, Schedule Z, Line 1,
I know this looks like an exam question but it isn't. There is a company that solely processes tax credits for businesses that is telling me that I should use $115K for wages and $60K for the pass-thru income. Reporting these amounts allows my client to claim more EZ credits against their CA income tax. It does not seem right that I should report amounts that are higher than the amounts being reported as taxable. | |
| 28 June 2012 | |
| The elected deferrals are non-taxable, but are still wages. | |
| 28 June 2012 | |
| I guess that makes sense. If the taxpayer instead made a Trad IRA contribution, then I would not reduce his wages reported on the 3805Z by that contribution.
What about the UPE reduction to the LLC pass-through income? Do we ignore that when reporting the LLC income on the 3805Z? | |
| 28 June 2012 | |
| I'm inclined to say that UPE increases the basis (see this tread for example), so you shouldn't take it into the account on 3805Z, but I'm not entirely sure. | |
| 28 June 2012 | |
| According to that thread UPE has no effect on basis. It's a reduction and increase at the same time.
Regardless, I am not sure what basis has to do with the question. It seems that if the partner is reporting add'l expenses on their 1040 related to income earned in an EZ, then that reduction should also apply when reporting trade or business income on the EZ. | |
| 28 June 2012 | |
| Follow up question on the wages. If the taxpayer is making elective pre-tax contributions to a cafeteria plan, do we also add these back to wages reported on the CA Form 3805Z? | |
| 29 June 2012 | |
| Gross wage:
Legislative analysts on SB939 used: The credit is based on the lesser of the actual hourly wage paid or 150 percent of the current minimum hourly wage (under special circumstances for the Long Beach enterprise zone, the maximum is 202 percent of the minimum wage). | |
| 29 June 2012 | |
| Weiss, the schedule Wiles refers to calculates the tax on net income from the EZ, which is the amount of tax that can be offset by EZ credits (limited to the total tax liability shown on the return). You're right about the amount of compensation taken into account in calculating the credit itself, but that's irrelevant to Wiles's question. | |
| 7 July 2012 | |
| This is what my FTB friend says:
Wages earned in the zone would be taken straight from the W-2. The wages need to be paid by an S corporation or under very limited circumstances an LLC (treated as a partnership). Unreimbursed business expense are a deduction from EZ business income (EDAM 2545 Example).
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| 11 July 2012 | |
| Thank you, Katie, for checking into this. I had also spoke with someone in the EZ Credit department at the FTB. They just called me back and said that the UPE deduction would NOT reduce the EZ business income since it is not an expense of the EZ business. It is a personal expense of the partner.
Thank you for the link above. The fine print on the example in Sec 2545 states that the $5,000 deduction was a separately stated item on the K-1. It seems that if it does not show up on the K-1, then you ignore it. | |
