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Georgia Tells Taxpayers How to Coordinate Federal Tax Changes with Georgia Law

The Georgia Department of Revenue has released updates to state law to adapt to the new federal tax era. The new rules cover numerous subjects, including the 80% limitation on net operating losses (NOLs), consolidated returns, withholding on nonresident aliens, and the computation of individual net taxable income. Georgia’s lack of full conformity with the federal tax laws means the computation of Georgia income tax moving forward has gotten more complicated.

Differences with Federal Tax Law

Beginning in 2018, Georgia has adopted the increased Sec. 179 expensing deduction of $1 million with the $2.5 million purchase limitation. Georgia has not, however, adopted the deduction for qualified improvement property, the bonus depreciation rules, nor the increased first-year depreciation limit for passenger automobiles.

Regarding net operating losses, Georgia follows the new federal rule relating to no carryback and unlimited carryforward of net operating losses for losses incurred after 2017. Georgia also adopts the 80% limitation on the use of NOLs, with the state 80% limitation based on Georgia taxable net income.

Georgia has not adopted the Sec. 199A passthrough deduction of 20% of qualified business income deduction, nor the 30% limitation on net business interest.

More on Depreciation Differences

Depreciation must be computed one way for federal purposes and another way for Georgia purposes. Taxpayers should attach the current year IRS Form 4562 to the Georgia return. Federal depreciation should be added back to Georgia income by entering it on the “other addition” line of the return.

Depreciation for Georgia purposes must be computed using Georgia Form 4562.

Georgia Regulations

Several sets of DOR regulations, described below, explain how to compute and report Georgia tax under specific federal conformity rules.

C Corporations

Only federal C Corporations are allowed the Georgia exclusion for income from sources outside of the United States. Also, Georgia law does not provide deferral payment options like the installment payment options allowed for deemed repatriated offshore profits allowed under federal law.

Consolidated Returns

Georgia’s consolidated return rules provide examples for the claiming and assigning of tax credits. The regulations also explain how affiliated groups are to report consolidated return net operating loss deductions, how to apply NOL limitations, and illustrate transitional rules for NOL carryforwards for scenarios such as when a member leaves the group.

Withholding on Nonresident Entity Members

DOR’s passthrough regulations explain withholding on nonresident members of partnerships, S Corporations, and LLCs. The rules show tax computations under current Georgia law that reflect the lowered marginal tax rates and the 80% limitation for net operating loss carrybacks.

Individual Net Taxable Income

Rules for computing the net taxable income for individuals under Georgia’s federal conformity law address net operating losses. The new rules require all NOLs to be subject to 80% limitation for Georgia taxable income purposes. The 80 percent limitation is applied to Georgia taxable net income.

The computation of Georgia income tax for 2018 forward is subject to the highly technical regulations described above. Your Frazier & Deeter tax advisor can provide the expertise needed to comply with these complex rules and accurately report your Georgia income.

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