What Form 100W (2018) Is For
Form 100W (2018) is a California income tax return used by qualified corporations that elect the Water’s Edge method to report business income and calculate franchise tax under California law. This California form determines taxable income sourced to California, rather than worldwide combined reporting, and works in conjunction with a federal form, such as Form 1120. It applies to specific business entity structures subject to California income taxes and Water’s Edge group rules.
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When You Would Use Form 100W (2018)
Corporations use Form 100W (2018) when specific filing conditions under California law apply.
- Electing the Water’s Edge Election: A qualified corporation files Form 100W (2018) when it formally chooses the Water’s Edge method instead of worldwide combined reporting for the applicable tax year.
- Reporting current-year income to California: Corporations use this form to report current-year income, gross receipts, and the California tax base derived from business income subject to state sourcing rules.
- Filing a group return: A common parent may submit a group return using Form 100W (2018) for a Water’s Edge group that meets IRC section 957 ownership and control requirements.
- Meeting franchise tax obligations: The form satisfies California franchise tax filing requirements for corporations that are not required to file Form 100, Form 565, or Form 568.
Corporations that have missed filing deadlines can learn more about addressing unfiled C-corporation returns with expert assistance.
Key Rules or Details for the 2018 Tax Year
Several vital rules apply when completing Form 100W (2018) for the 2018 tax year.
- Water’s Edge method requirements: The Water’s Edge election limits the inclusion of foreign affiliates and governs how foreign dividends and subpart F income are treated under California law.
- Federal and state nonconformity rules: California requires adjustments to amounts reported on federal forms, such as Form 1120, because specific Internal Revenue Code provisions do not apply to California income taxes.
- Tax Credit limitations: Credits such as the California Competes Tax Credit, California Motion Picture and Television Production Credit, and Low-Income Housing Credit are subject to California-specific restrictions.
- Entity classification rules: Corporations must confirm they are not required to file a Partnership Return of Income, Limited Liability Company Return of Income, Form 565, or Form 568 based on their business entity status.
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Step-by-Step (High Level)
Filing Form 100W (2018) involves several structured steps to ensure accurate California tax return reporting.
- Confirm eligibility and entity status: The corporation must verify it qualifies to file Form 100W (2018) and confirm it is not required to file Form 100, Form 565, Form 568, or a Limited Liability Company Return of Income.
- Gather federal and California records: Taxpayers should collect the following federal forms: Form 1120, Schedule A, Form 3885L, Form 3554, and Form 3832, as well as documentation related to foreign dividends and subpart F income.
- Calculate California taxable income: The corporation must adjust worldwide amounts using the Water’s Edge method to determine taxable income, gross receipts, and the California tax base.
- Apply Tax Credits and Payments: Eligible tax credits are applied, and estimated payments, payment options, or extension amounts are reconciled against the total franchise tax owed.
- File the return electronically: The completed California form is submitted to the Franchise Tax Board using approved electronic filing systems before ending the filing session.
Common Mistakes and How to Avoid Them
Errors in preparing Form 100W (2018) can result in delays, penalties, or additional review by the Franchise Tax Board.
- Filing the incorrect entity return: Corporations should confirm their classification with the California Secretary of State to avoid mistakenly filing Form 100W instead of Form 568, Form 565, or a Partnership Return of Income.
- Missing extension payments: Taxpayers can avoid penalties by submitting the payment for Automatic Extension for Corporations and Exempt Organizations on time.
- Incorrect foreign income inclusion: Reviewing IRC section 957 helps ensure subpart F income and foreign dividends are reported correctly under California law.
- Overstating credits or deductions: Corporations should verify limitations on credits, such as the California Competes Tax Credit and the low-income housing credit, to reduce audit risk and concerns about tax avoidance.
What Happens After You File
After Form 100W (2018) is filed, the California Franchise Tax Board reviews the California tax return to verify taxable income, franchise tax calculations, and supporting schedules. The agency may request clarification related to gross receipts, withholding reported on Form 592, Form 592-B, or Form 593, or discrepancies involving use tax returns.
Notices may also address estimated payments, payment options, or issues related to the Water’s Edge election. If no problems are identified, the return is accepted, and the election continues unless terminated in a future year.
For personalized assistance with Form 100W (2018) or any corporate tax matter, contact our tax professionals today.
FAQs
What is the purpose of Form 100W (2018)?
The form is used by C corporations that elect Water's Edge filing to report California income for taxable years and calculate tax liabilities under California's corporate tax code.
How long does the Water's Edge Election remain effective?
The election remains effective for 84 months and continues after that period unless the corporation files a termination with a new return or receives a notice of nonrenewal.
What happens if a common parent makes the election for the Water’s Edge group?
A common parent may bind the entire Water's Edge group to the election if the parent has control of stock, and all members must follow the filing method for the applicable tax year.
How does California handle worldwide tax reporting when the election ends?
When the Water's Edge Election ends, the corporation must follow worldwide tax reporting rules unless a new election is submitted for a future tax year.
What happens if estimated payments are incorrect?
Underpayment of estimated payments may result in penalties or interest assessed by the Franchise Tax Board.
