This course is designed for California tax professionals who have already completed 10-hours of federal tax law; 2 hours of ethics; and 3 hours of updates. This online self-study course is approved by the California Tax Education Council (2080-CE-0004) and fulfills the 5-hours of California Tax Law requirement. The course is not complete until the student hours have been reported to CTEC.
Topics include California income, business income, an overview of 540 Schedule CA, itemized deductions what do you add or subtract from the federal income, and other taxes.
At the end of this course, the student will be able to do the following:
- Understand how California taxes “worldwide income”.
- Know when military income is taxable.
- Define an income subtraction on 540 Schedule CA.
- Describe an income that is an addition on 540 Schedule CA.
- Explain the difference between California and Federal business income.
No Federal hours
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Chapter 1: Filing Status, Dependents, and Deductions
California did not conform to most of the federal Tax Cuts and Jobs Act changes. Subsequently, as a California tax preparer, you will need to make sure your software allows for the personal exemptions as required to complete the California state return.
As you have already seen, filing statuses can get very complicated at the Federal level. Unfortunately, it gets even more complicated when you include filing statuses at the state level as well. As previously stated, state law governs many aspects of the filing, like whether a taxpayer is married or legally separated under a divorce or separate maintenance decree. It is important for California tax preparers to know their state’s laws to prepare their clients’ returns as accurately and professionally as possible.
Chapter 2: Income and the 540 Schedule CA
Although California does not conform to certain provisions of the Internal Revenue Code, it does conform in the following ways:
- The “general rule.”
- The “simplified general rule,” or the “safe harbor method.”
- IRA rollovers.
- Roth IRAs.
- Archer MSAs.
- Coverdell ESAs.
- Current-year IRA deductions.
- Lump-sum credits received by federal employees.
Chapter 3: Adjustments to Income
In this chapter, you will learn what adjustments need to be made to California income and where to enter it on 540 Schedule CA. You will first review a few items from Part I, Section A, Income. Then, you will review Part I, section B, Adjustments to Income. The chapter will conclude by presenting a few items from Part II, Adjustments to Federal Itemized Deductions.
Chapter 4: Depreciation and Amortization
California law has not always conformed to federal law regarding depreciation methods, special credits, or accelerated write-offs. In general, California law conforms to the Internal Revenue Code as of January 1, 2015; however, recovery periods and basis on which depreciation is calculated may be different from the amounts used for federal purposes. Reportable differences occur if the asset was placed in service at the following times:
Before January 1, 1987: California disallowed depreciation under the federal Accelerated Cost Recovery System (ACRS). Continue to calculate California depreciation in the same manner as in prior years for those assets.
On or after January 1, 1987: California provides special credits and accelerated write-offs that affect the California basis for qualifying assets. California does not conform to all the changes to federal law enacted in 1993. Therefore, the California basis or recovery period may be different for some assets.
For more information regarding California and federal law that will be provided here, visit the FTB website and search for the term “conformity”.
Chapter 5: Capital Gains and Loss
California law complies with federal law regarding capital gains and losses and requires no adjustments to complete the state return. If the California basis of the taxpayer’s assets differs from the federal, adjustments would be required using the California Schedule D. The capital gains tax rates are the same for both California and federal law. The amount of capital loss limitation for California taxpayers is also the same as the federal limitation.
Chapter 6: Extensions and Amendments
If taxpayers are unable to file their California individual tax return by the due date, they may be able to qualify for an automatic six-month extension of time to file by electronically filing or mailing Form 3519 to the FTB. If the taxpayer has filed a return and realizes that a mistake was made, he or she would have to file an amended return using Schedule X.
Chapter 7: Electronic Filing
California conforms to the federal guidelines regarding electronic filing and the importance of safeguarding the taxpayer’s personal identification information. However, California has systems in place to perform these duties at the state level, and it is important for California tax professionals to know them and how they are different. For more information, see California Revenue & Taxation Code Sections 18621.9 and 19170.
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