Non-Standard Tax Periods, Subsequent Change of Accounting Period, and Personal and Dependency Exemption Deductions

PURPOSE: This rule addresses changes in tax periods, short tax periods, 52-53 week tax periods, and the determination of the amount of an individual taxpayer’s allowable personal and dependency exemption deductions. (1) If a taxpayer’s taxable year is changed for federal income tax purposes, the Missouri taxable year will automatically be changed. No application for change of accounting period for Missouri income tax purposes will be required. If a short taxable period for federal income tax purposes results from a change in the taxpayer’s accounting period, the taxpayer also shall file a Missouri income tax return for that short taxable period. (2) If there is a short taxable period, Missouri taxable income shall be computed on the basis of the short taxable period for which the return is made and in accordance with the statutory provisions of sections 143.011 to 143.996, RSMo, applicable to the determination of Missouri taxable income generally, except that the amount of deductions allowed by sections 143.151 and 143.161, RSMo, shall be reduced to the amount which bears the same ratio to the full amount for those deductions as the number of months in the short taxable period bears to twelve (12) months. (3) Pursuant to section 143.151, RSMo, a resident shall generally be allowed a personal exemption deduction of two thousand one hundred dollars ($2,100) for such resident and two thousand one hundred dollars ($2,100) for such resident’s spouse if the resident is entitled to a deduction for such personal exemptions for federal income tax purposes. A resident with a Missouri adjusted gross income of less than twenty thousand dollars ($20,000) shall generally be allowed an additional deduction of five hundred dollars ($500) for such resident and an additional five hundred dollars ($500) for such resident’s spouse if the resident is entitled to a deduction for such personal exemptions for federal income tax purposes, and the spouse’s Missouri adjusted gross income is less than twenty thousand dollars ($20,000). None of the deductions described in sections 143.151, RSMo, or in subsections 1 or 3 of section 143.161, RSMo, shall be allowed for a given tax period if the exemption amount as defined under 26 U.S.C. section 151 is zero (0) for that tax period. (4) A resident who qualifies as an unmarried head of household or as a surviving spouse for federal income tax purposes may generally deduct an additional one thousand four hundred dollars ($1,400) pursuant to section 143.161.2, RSMo. This additional deduction for a taxpayer who qualifies as an unmarried head of household or a surviving spouse is not dependent on the taxpayer’s eligibility for a dependency exemption deduction under section 143.161.1, RSMo. (5) Example: Tom Taxpayer, a resident individual, has been filing his federal and Missouri income tax returns on the basis of a fiscal year ending September 30. He changes to a calendar year basis and files a federal income tax return for the short taxable period October 1 to December 31. He qualifies as a surviving spouse for federal income tax purposes. For his short taxable period, the exemption amount defined under 26 U.S.C. section 151 is zero (0). He has no federal income tax liability for the tax year. His federal adjusted gross income (FAGI) for the short taxable period is as follows: Salary $3,000 United States bond interest $ 40 Savings bank interest $ 60 FAGI $3,100 His Missouri taxable income is as follows: FAGI $3,100 Less modification for United States bond interest $ (40) Missouri adjusted gross income $3,060 Federal itemized deduction $(250) (note that no federal standard deduction is allowable for short-period returns resulting from a change in tax period; no Missouri modifications to the itemized deduction are applicable in this example) Surviving Spouse Additional Exemption Deduction ($1,400 × 3/12)= $(350) Missouri taxable income $2,460 (6) A taxpayer which, for federal income tax purposes, has elected to use a taxable year that varies from 52 to 53 weeks is referred to by this rule as “52-53 Week Taxpayer.” A 52-53 Week Taxpayer shall determine the effective date or the applicability of any provision of sections 143.011 to 143.996, RSMo, that is expressed in terms of taxable years beginning, including, or ending with reference to a specified date which is the first or last day of a month by treating the taxpayer’s 52-53 week taxable year as though it begins on the first day of the calendar month beginning nearest to the first day of such taxable year, or as though it ends with the last day of the calendar month ending nearest to the last day of such taxable year, as the case may be. See 26 U.S.C. section 441. The terms “tax year” and “taxable year” are generally used interchangeably for Missouri income tax purposes. (A) Example: ABC Corporation is a 52-53 Week Taxpayer that has a tax year ending December 28, 2024. A new Missouri income tax deduction is created within sections 143.011 to 143.996, RSMo, and the new deduction expressly applies to all tax years ending on or after December 31, 2024. A new mandatory Missouri corporate income tax apportionment method is created, and expressly applies to all tax years ending on or after December 31, 2024. ABC Corporation is eligible for the new deduction, and must use the new mandatory corporate income tax apportionment method, for its 52-53 week taxable year ending December 28, 2024. (B) Example: XYZ Corporation is a 52-53 Week Taxpayer that has a tax year beginning December 29, 2024. Pursuant to a change in law, a Missouri income tax subtraction that XYZ Corporation previously qualified for expressly no longer applies for any tax year beginning on or after January 1, 2025. XYZ Corporation is not eligible for this tax subtraction for its 52-53 week taxable year beginning December 29, 2024. A new statute, which became law on August 28, 2024, increases the corporate income tax rate by one percent (1%), and expressly applies to all tax years beginning on or after January 1, 2025. The new increased corporate income tax rate applies to the entirety of XYZ Corporation’s tax year beginning December 29, 2024. Note that Missouri’s income tax law contains no statute directly corresponding to 26 U.S.C. section 15. AUTHORITY: sections 143.271 and 143.961, RSMo 2016.* Regulation 1.271-2 was originally filed March 8, 1974, effective March 18, 1974. Amended: Filed Dec. 28, 2023, effective July 30, 2024. *Original authority: 143.271, RSMo 1972, and 143.961, RSMo 1972.