A. Accounting
periods. An individual shall use the same taxable year for Virginia income tax
purposes as is used for federal income tax purposes.
B. Change of accounting periods.
1. If an individual's taxable year is changed
for federal income tax purposes, his taxable year for Virginia tax purposes
shall be similarly changed.
2. If a
change in an individual's taxable year results in a taxable period of less than
twelve months, other than as the result of the taxpayer's death or termination
of the taxable year under the provisions of § 58.1-313 of the Code of
Virginia, such individual's Virginia taxable income shall be prorated as
follows:
a. FAGI for the short taxable year
(as computed prior to annualizing income for federal purposes) shall be
adjusted by the additions, subtractions, and modifications set forth in
23VAC10-110-140 through
23VAC10-110-144 attributable to
the short taxable year, with the exception of the standard deduction and
personal exemptions which shall be prorated by multiplying such deduction and
exemptions by the ratio of months in the short taxable year to 12 months. The
result will be Virginia taxable income calculated as for a normal taxable
year.
b. A tentative tax shall then
be calculated based upon the annualized Virginia taxable income.
c. The actual tax shall be the tentative tax
calculated pursuant to subdivision b above multiplied by the ratio of months in
the short taxable year to 12 months.
The following example illustrates the computation of the
tax:
Example 1: Taxpayer A, a single individual has FAGI for short
taxable year 1983 of $20,000, claims one exemption, and utilizes the standard
deduction. Taxpayer also has $1,000 in interest income from U.S. obligations
which is exempt from federal but not state tax, and $2,000 of his FAGI
represents interest on U.S. Treasury obligations. He changed his taxable year,
pursuant to IRC § 442, to a 10 month period ending October 31, 1983. His
Virginia tax for the short taxable year is computed as follows:
| FAGI |
20,000.00 |
| Plus: |
Taxable interest |
1,000.00 |
| 21,000.00 |
| Less: |
Exempt interest |
2,000.00 |
| Prorated personal exemption (600 x 10/12) |
500.00 |
| Standard deduction (2,000 x 10/12) |
1,666.00 |
| Taxable income |
16,834.00 |
| Annualized Virginia taxable income (16,834 x 12/10)
|
20,200.80 |
| Tentative tax (on $20,200.80) |
941.55 |
| Actual tax (941.55 x 10/12) |
784.30 |
C. Accounting methods. Since Virginia taxable
income is defined as FAGI with certain additions, subtractions and
modifications, Virginia taxable income will always be based upon the same
accounting methods as federal adjusted gross income. Therefore any adjustments
to a taxpayer's method of accounting will be made to FAGI and any separate
adjustments required in the computation of Virginia taxable income will reflect
the method used in determining FAGI.
D. Change of accounting methods. If a
taxpayer's method of accounting is changed for federal income tax purposes, his
method of accounting for Virginia tax purposes must be similarly changed. Since
Virginia taxable income is based upon FAGI, any accounting adjustments for
federal purposes for any taxable year shall also apply to the computation of
Virginia taxable income.
Notes
23 Va. Admin. Code §
10-110-230
Derived from
VR630-2-340; adopted September 19, 1984; revised eff. January 1, 1985 with
retroactive effect according to Va. Code § 58-48.6 (recodified as Section
58.1-203 ).
Statutory Authority
§§ 58.1-203 and 58.1-340 of the Code of Virginia.
