Bulletin Number
VTB 05-1
Tax Type
Income Tax
Description
Important Information Regarding 2004 Virginia Income Tax Returns
Topic
Basis of Tax
Date Issued
03-07-2005
TAX BULLETIN 05-1
Virginia Department of Taxation
March 7, 2005
Virginia Department of Taxation
March 7, 2005
IMPORTANT INFORMATION REGARDING
2004 VIRGINIA INCOME TAX RETURNS
VIRGINIA INCOME TAX FIXED-DATE CONFORMITY ADVANCED TO JANUARY 7, 2005
2004 VIRGINIA INCOME TAX RETURNS
VIRGINIA INCOME TAX FIXED-DATE CONFORMITY ADVANCED TO JANUARY 7, 2005
Under emergency legislation passed by the 2005 General Assembly and signed by Governor Warner, Virginia’s fixed-date of conformity to the terms of the Internal Revenue Code has been advanced from December 31, 2003 to January 7, 2005. Among other changes, this will allow contributions made for tsunami relief in January 2005 and claimed by taxpayers on their 2004 federal income tax returns to flow through to the taxpayers’ Virginia returns. However, Virginia will continue to disallow any bonus depreciation allowed for certain assets under federal income taxation and any 5 year carry-back of net operating losses (“NOL”) allowed for NOLs generated in either taxable year 2001 or 2002. This notice is intended to provide taxpayers with directions on how to reconcile this legislation on their 2004 Virginia income tax returns.
Effective for taxable years beginning on and after January 1, 2004, Virginia’s fixed-date of conformity to the terms of the Internal Revenue Code is advanced from December 31, 2003, to January 7, 2005, with two exceptions. Virginia will continue to disallow any bonus depreciation allowed for certain assets under federal income taxation and any 5 year carry-back of net operating losses (“NOL”) allowed for NOLs generated in either taxable year 2001 or 2002. However, Virginia will conform to all other previously enacted provisions under federal income tax law.
VIRGINIA INCOME TAX
Since 1972, Virginia has conformed to federal income tax law. Whenever federal income tax law changed, the changes automatically affected Virginia income taxes, unless otherwise exempted. In 2003, a provision was enacted that fixed Virginia’s conformity to Internal Revenue Code terminology to the Internal Revenue Code as it existed on December 31, 2002. In 2004, legislation was enacted to advance the conformity date to December 31, 2003. Because of changes in federal law contained in the Working Families Tax Relief Act of 2004, the American Jobs Creation Act of 2004, and the Indian Ocean Tsunami Relief Act, some taxpayers would have had to make adjustments to their federal adjusted gross income or federal taxable income through the fixed-date conformity adjustments on the 2004 income tax return. This bulletin will instruct taxpayers about which fixed-date conformity adjustments are still necessary for their 2004 income tax returns, if applicable.
Special Instructions for Taxpayers
Taxpayers Who Have Not Yet Filed
Taxpayers Who Have Not Yet Filed
Individuals
Individuals who have a special, fixed-date conformity adjustment for bonus depreciation are still required to make the corresponding adjustments described on Pages 16 through 18 of the Instructions for Form 760. In addition, if the federal bonus depreciation has an effect on any other item included in federal adjusted gross income, an adjustment must still be made as either an addition (refer to Line B of Page 17) or as a subtraction (refer to Line B of Page 18) on Form 760. Individuals who are required to make a fixed date conformity adjustment may use the worksheet provided on Page 11 of the Form 760 Instructions to assist them in calculating the amount of the adjustment. The worksheet should not be filed with the Virginia return.
Itemized Deduction for State and Local Sales Taxes
For 2004 and 2005, the American Jobs Creation Act of 2004 allows taxpayers to deduct either their state income taxes or their sales tax payments as an itemized deduction on their federal income tax return. Taxpayers who elect to deduct sales tax payments on the federal return are not required to reduce their itemized deduction by the amount of the sales tax payments on the Virginia income tax return, as they must do with the state income tax payments. Taxpayers should be aware that the decision regarding which deduction to use on the federal return cannot be changed on the Virginia return.
Educator Expense Deduction and Clean-Fuel Vehicle Credit
Among the other provisions of the Working Families Relief Act of 2004 are an extension of the $250 deduction allowed to teachers for certain classroom expenses and an extension of the enhanced deduction for certain computer contributions. Individuals are not required to make any adjustments to their Virginia return if they claim these federal deductions.
In addition, individuals who have not yet filed their income tax returns should disregard the $150 limitation for the Clean-Fuel Vehicle Credit located on Page 2 of the Schedule CR. The limit for the federal deduction was extended to $2,000 during 2004, as opposed to phasing down to $1,500. Because Virginia’s credit is 10% of the federal deduction, the Clean-Fuel Vehicle Credit is limited to $200 for taxable year 2004.
Charitable Contributions for Tsunami Relief
Under the Indian Ocean Tsunami Relief Act, taxpayers who made charitable contributions for tsunami relief during January of 2005 are allowed to deduct that amount on their 2004 federal income tax return. Individuals who elect this federal deduction will not be required to make an adjustment on their Virginia return.
Part-Year or Nonresident Individuals
For individuals who must file either a Form 760PY Part-Year Resident Individual Income Tax Return or a Form 763 Nonresident Individual Income Tax Return, the changes explained for individuals apply. The corresponding fixed-date conformity instructions for part year residents are located on Pages 14 and 15 of the Form 760PY Instructions. The corresponding fixed-date conformity instructions for nonresidents are located on Pages 11, 12, and 15 of the Form 763 Instructions.
Corporations
Corporations that have not yet filed their income tax returns should only make special, fixed-date conformity adjustments relating to the bonus depreciation. Adjustments relating to the bonus depreciation are entered on Lines 2a and 4a of Form 500 and explained on Pages 4 and 5 of the Form 500 Instructions. In addition, if the federal bonus depreciation has an effect on any other item included in federal taxable income, an adjustment is still required to be made as either an addition on Line 2b or as a subtraction on Line 4b of Form 500.
Pass-Through Entities and Fiduciaries
For pass-through entities filing Form 502, adjustments relating to the bonus depreciation are described on Page 5 of the Form 502 Instructions. The adjustments relating to bonus depreciation are entered on Lines 8 and 14 of Form 502. In addition, if the federal bonus depreciation has an effect on any other item included in federal taxable income, an adjustment is still required to be made as either an addition on Line 9 or a subtraction on Line 15 of Form 502.
Fiduciaries who have a special, fixed-date conformity adjustment for bonus depreciation are still required to make the corresponding adjustments that are described on Page 8 of the Instructions for Form 770. In addition, if the federal bonus depreciation has an effect on any other item included in federal taxable income, an adjustment is still required to be made as either an addition (refer to Line 3 of Page 9 of the 770 Instructions) or as a subtraction (refer to Line 8 of Page 9 of the 770 Instructions).
Treatment of the 5-Year Net Operating Loss Carryback
The treatment of any 5-year net operating loss carryback is not affected by the legislation advancing Virginia’s conformity date. All taxpayers should follow the instructions given in Virginia Tax Bulletin 03-1 regarding any necessary adjustment for a 5-year net operating loss carryback.
Taxpayers Who Have Already Filed
Individuals
Individuals who have already filed a 2004 individual income tax return with a fixed-date conformity adjustment that is not now required should file an amended 2004 Virginia individual income tax return. Amended individual income tax returns are filed using the 2004 Form 760 by filling in the oval at the top of Page 1 to indicate that the return is an amended return. Taxpayers should fill out the form completely and disregard those fixed-date conformity additions and subtractions explained above. Also, any taxpayer filing an amended return should follow the special instructions for amended returns on Page 25 of the Form 760 Instructions.
Part-Year or Nonresident Individuals
For nonresidents, instructions for filing an amended return are found on Page 3 of the Form 763 Instructions. Instructions for part-year residents filing an amended return are found on Page 4 of the Form 760PY Instructions.
Corporations
Corporations that have already filed a 2004 corporation income tax return with a fixed-date conformity adjustment that is not now required should file an amended 2004 Virginia corporation income tax return.
For Form 500 filers, amended returns are filed using Form 500X, the Amended Virginia Corporation Income Tax Return. Corporate income taxpayers should follow the instructions for Form 500X and recompute the proper fixed-date conformity adjustment, if any, and report the corrected amount as a change in Net Virginia Modifications on Line 2, Column B.
Pass-Through Entities and Fiduciaries
For pass-through entities filing Form 502, amended returns are filed using the Form 502 by checking the amended return box located at the top of Page 1 to the left of the name and address section. Taxpayers should fill out the form completely as if it were the original return and recompute the proper fixed-date conformity adjustments explained above.
Fiduciaries that have already filed a 2004 individual income tax return with a fixed-date conformity adjustment that is not now required should file an amended 2004 Virginia fiduciary income tax return. Amended fiduciary income tax returns are filed using the 2004 Form 770 by checking the amended return box located at the top of Page 1 above the Office Use Only box. Taxpayers should fill out the form completely as if it were the original return and recompute the proper fixed-date conformity adjustments. Also, any taxpayer filing an amended return should follow the special instructions for amended returns on Page 2 of the Form 770 Instructions.
If you have any additional questions, please contact us at (804) 367-8031 for individual income tax questions or (804) 367-8037 for corporate income tax questions, or visit our website at http://www.tax.virginia.gov.
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