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: Compiling Taxpayers Information
The California tax return does not follow the federal return line-by-line, as established by the following:
- California subtracts the exemption amount from the tax owed.
- California did not conform to the TCJA with respect to not being able to claim an exemption for dependents.
- California begins by gathering the taxpayer’s and spouse’s personal information.
- If the couple’s status is a registered domestic partner (RDP) or same sex married couple (SSMC), you will enter the spouse’s information on Form 540.
The information needed to complete the state return is:
- First and last name as found on SSN or ITIN.
- Address (including city, state, and zip).
- Date of birth.
- Prior name (if the taxpayer or spouse filed a prior California return with a different last name).
California does not conform to most of the federal Tax Cuts and Jobs Act changes. A tax practitioner needs to understand state tax law to make sure that the taxpayer is receiving all the credits and paying the correct amount of tax.
Chapter 2: Income
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: Tax Credits and Payments
Although a variety of California tax credits are available to help the taxpayer reduce their tax liability, California does not conform to all the credits that can be claimed on the federal return. This chapter will cover FTB Form 540, lines 40-48. California refers to this section as “Special Credits”. A tax preparer is responsible for ensuring (to the best of his or her knowledge) that the taxpayer is filing a true and accurate return by asking the client detailed questions and doing as much research as necessary.
Chapter 4: 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 5: Other Taxes and Taxpayer Penalties
The Franchise Tax Board (FTB) is the agency responsible for collecting state personal income taxes in California. The revenues FTB collects are placed in the state’s general fund to help pay for items, such as roads, parks, law enforcement, and schools. California’s state income tax system is based on the principle of voluntary compliance. Voluntary compliance is a system of taxation that relies on individual citizens to properly report their income, calculate their tax liability, and file their tax returns timely.
State personal income tax, like federal income tax, is a tax imposed on wages, tips, interest, dividends, pensions, capital gains, and other types of income. First imposed in 1936, state personal income tax is the largest single source of revenue in California. Personal income tax is based on the amount of taxable income that people receive annually. Taxable income is less than total income, due to tax deductions.
This lesson is a brief overview of other California taxes that a taxpayer might pay as well as the types of penalties a taxpayer may pay and why.
Chapter 6: Business Income
This chapter will present the differences between the way federal tax law treats business income and the way California tax law treats it. This includes self-employment income, rental income, self-employment tax, withholding issues for self-employed nonresidents, common law employees, statutory employees, and contractors.