• Alternative Business Calculation Deduction for New Jersey Gross Income Tax Available Starting in 2012
  • November 8, 2011 | Author: Robert C. Daleo
  • Law Firm: Riker Danzig Scherer Hyland & Perretti LLP - Morristown Office
  • The New Jersey Gross Income Tax subjects enumerated categories of income to tax. However, losses in one category may not be used to offset income in other categories.

    For tax years beginning on or after January 1, 2012, an alternative business calculation deduction will be included in the New Jersey Gross Income Tax Act in an effort to afford some relief to taxpayers with business losses. The amount of the new alternative business calculation deduction is determined by computing a taxpayer's "business increment." The amount of the deduction is limited to a maximum of 50% of the business increment and is phased in as follows:

    Taxable Year Beginning In

     

    % of Business Increment Deductible

    2012

     

    10%

    2013

     

    20%

    2014

     

    30%

    2015

     

    40%

    2016 and thereafter

     

    50%

    The "business increment" is:

    (1) "Regular business income," which is the sum of the following categories of gross income without any intercategory loss netting: (i) net profits from business; (ii) net gains or net income derived from rents, royalties, patents and copyrights; (iii) distributable share of partnership income; and (iv) net pro rata share of S corporation income; less

    (2) "Alternative business income or loss," which is the sum of (i) the four categories set forth in (1) above computed by allowing intercategory loss netting; plus (ii) any allowable "loss carryforward."

    When computing the business increment, the amount of alternative business income or loss cannot be less than zero. "Loss carryforward" is alternative business loss to the extent that it has not been utilized. Taxpayers may carryforward such losses during each of the 20 taxable years following the taxable year in which the loss was generated.