Administrative Code

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Virginia Administrative Code
Title 23. Taxation
Agency 10. Department of Taxation
Chapter 110. Individual Income Tax
6/30/2022

23VAC10-110-230. Accounting.

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.

Statutory Authority

§§ 58.1-203 and 58.1-340 of the Code of Virginia.

Historical Notes

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).

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