What Form 100W (2020) Is For
Form 100W (2020), also referred to as Form 100W, is a California income tax return used by corporations that have made a Water's Edge Election to report franchise tax and corporation income tax for a specific tax year. The form applies Water's Edge Combined Reporting principles to determine California-sourced income, rather than worldwide reporting. This filing serves as the California Corporation Franchise return for eligible corporations that report income under Water's Edge rules rather than worldwide combined reporting.
When You’d Use Form 100W (2020)
Corporations use this form in defined situations where California Water's Edge reporting rules apply.
- Making a Water's Edge Election: A corporation files Form 100W (2020) when it creates or maintains a valid California Water's Edge Election for a unitary business operating in the state.
- Reporting as a Water's Edge group: The form is required when a Water's Edge group includes domestic entities while excluding most foreign corporations under California sourcing rules.
- Filing an original return: Corporations must file Form 100W (2020) as an original return when forming, restructuring, or beginning California filing obligations during the tax year.
- Confirming entity classification: The form is used when a corporation determines that Form 568 or Form 565 does not apply based on the entity type and filing status.
Key Rules or Details for Form 100W (2020)
Several filing rules govern how corporations must complete Form 100W (2020) for the 2020 tax year.
- Franchise Tax and Corporation Business Tax Calculation: Corporations must calculate franchise tax and Corporation Business Tax based on California taxable income derived from business activities and apportionment rules.
- Federal reconciliation adjustments: Amounts reported on a federal form must be adjusted using IRS adjustments when federal law does not conform to California income tax rules.
- Estimate payments and extensions: Corporations must properly apply estimated payments and payments made using the Payment for Automatic Extension for Corporations and Exempt Organizations.
- Tax Credit limitations and carryforwards: A tax credit, including the Research and Development Tax Credit, may be claimed subject to California limitations, and any unused amounts may be tracked as credit carryforwards.
- Separate evaluation of other credits: Credits such as the California Competes Tax Credit, low-income housing credit, and California Motion Picture and Television Production Credit may require separate eligibility analysis outside Form 100W reporting.
Step-by-Step (High Level) for Form 100W (2020)
Completing this form requires following a structured process to ensure accurate reporting and timely compliance.
- Confirm filing eligibility: The corporation must confirm that Form 100W (2020) is the correct income tax return and verify that Form 568 or Form 565 does not apply based on the entity’s classification.
- Gather required documentation: Taxpayers should collect the applicable federal form, including Form 1120, as well as prior-year tax return records and supporting schedules necessary to reconcile taxable income.
- Calculate taxable income: The corporation must compute taxable income by adjusting business income and current-year income using California's Water's Edge apportionment and sourcing rules.
- Apply payments and extensions: The corporation must apply estimated payments made during the tax year and any amounts paid using the Payment for Automatic Extension for Corporations and Exempt Organizations.
- Apply credits and finalize totals: Any allowable tax credit and credit carryforwards must be applied before determining the final corporation income tax owed.
- Prepare the return for submission: Taxpayers should verify identifying details, including the California corporation number, before submitting the completed return electronically.
Common Mistakes and How to Avoid Them
Several common errors can delay processing or result in additional income taxes if not corrected.
- Missing the Water's Edge Election: Corporations can avoid invalid elections by confirming that the Water's Edge Election is correctly filed with the original return.
- Incorrect reporting of estimated payments: Taxpayers should carefully verify that estimated payments and extension payments are entered accurately to prevent penalties and interest.
- Improper federal income adjustments: Corporations can reduce errors by ensuring that IRS adjustments are correctly applied when reconciling the federal form to California requirements.
- Misapplying Tax Credit amounts: Reviewing eligibility rules helps prevent overstating Tax Credit claims or incorrectly using Credit Carry Forwards.
- Including unrelated forms: Corporations should avoid attaching withholding or reporting forms such as Form 592, Form 592-B, or Form 593, which do not apply to Form 100W filings.
What Happens After You File Form 100W (2020)
After a corporation files the tax return, the California Franchise Tax Board reviews the submission for accuracy, completeness, and proper payment application. The agency may issue notices requesting clarification of taxable income, business income, estimated payments, or IRS adjustments derived from the federal form.
If discrepancies are identified, additional income taxes and interest may be assessed. When no issues are found, the return is processed, and the Water's Edge Election remains in effect for future tax years unless it is formally terminated.
FAQs
How, as a taxpayer, pursuant to a federal election, do I handle California adjustments under Form 100W?
A taxpayer, pursuant to a federal election, must apply California’s separate adjustment rules and ensure that federal items are modified to reflect state law, especially when federal provisions do not conform to California treatment.
What if a business entity conducts sole activities in California but holds real property in other states?
A business entity with sole activities in California must still evaluate out-of-state real property for apportionment purposes and include the property when calculating the apportionment percentage under California rules.
How should corporations treat independent contractors and eligible expenses under Division N of the Coronavirus Aid?
Corporations must report payments to independent contractors when required and treat eligible expenses funded through Division N programs in accordance with California’s rules for income inclusion or deduction.
What filing rules apply to political organizations using Form 100W?
Political organizations filing Form 100W must follow the same franchise tax and apportionment requirements that apply to other corporations and must report all taxable activities conducted within California.
How does Form 100W (2020) differ from other California tax returns?
CA Form 100W applies specifically to corporations using the Water’s Edge method, while other entities may be required to file different California tax returns based on structure and tax status.
Do Homestead Exemption rules apply to corporations filing Form 100W?
Homestead Exemption provisions and the Homestead Exemption Application apply to individual homeowners, but not to corporations filing Form 100W. These exemptions are unrelated to California corporation franchise tax reporting, and corporations should not include homestead-related forms or benefits when preparing a California corporation franchise return.
