California Tax Topic 2 - California Taxable Income

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Please use California 540/540A Booklet to complete the this topic.

Prepare a California Form 540A return for James Mulugeta.

James, age 33, and is not married and has no children.

He received the following in 2008:

James owed Sears & Roebuck (Department store) $1,600. He fell behind on the bill and could not pay. Sears offered to cancel $700 of the debt to have James settle the debt. James paid only $900 and the rest was forgiven.

He paid rent at a government owned building that is exempt from tax.

Get all their basic information from the following W2, including income information.

1. Look at the Form 540A you prepared for James Mulugeta. What is the amount on Form 540A, Line 19?

A. $ 13,290.
B. $ 16,093.
C. $ 15,513. 
D. $ 16,323.

2. Look at the Form 540A you prepared for James Mulugeta. What is the amount on Form 540A, Line 66?

A. $ 106.
B. $ 50.
C. $ 81. 
C. $ 62.

3. Round cents to the nearest whole dollar. For example, round $50.50 up to $51 or round $25.49 down to $25. If you do not round, FTB (California) will

A. Process your return more quickly and accurately.
B. Round for you.
C. Disregard the cents. 
D. Not process your return.

4. Generally you will not make any adjustments on line 14f (Form 540A). You should not make an adjustment solely because the pension was earned in another state. Federal and State laws require California residents to pay state income tax on all taxable pensions, regardless of where they were earned.

True False

5. Registered Domestic Partners (RDP) who file a California tax return

A. Can file as married/RDP filing jointly.
B. Combine their individual AGIs from their federal tax returns filed with the IRS.
C. Can file as married/RDP filing jointly if they previously filed jointly. 
D. All of the above.

6. California taxes interest earned from:

A. United States savings bonds.
B. United States Treasury bills, notes, and bonds.
C. Bonds or obligations of United States territories, and government agency obligations specifically exempted by federal law. 
D. Interest from municipal or state bonds from a state other than California.

7. Greg and Mona (file MFJ) won $10,000 from the California Lottery in 2008. Their wages from work include $12,000 from Mona's job and $18,000 from Greg's job. What is their total income that they will have to pay taxes on?

A. $30,000 just wages.
B. $40,000 wages and lottery winnings.
C. $10,000 just lottery winnings. 
D. None of the above. 

8. Allan received the following income in tax year 2008.

 How much will he report on his California state return as taxable income?

A. $ 19,000.
B. $ 19,029.
C. $ 20,129. 
D. None of the above.

9. Enter the amount of any state income tax refund shown on your federal form 1040, line 10. If you filed Form 1040A or Form 1040EZ in 2007, enter -0-.

True False

10. Enter the total of any employment compensation and/or paid family leave insurance benefits reported on federal Form (s) 1099-G and show on your federal return. These types of income are taxed by California.

True False

11. Certain mutual funds are qualified to pay "exempt-interest dividends" if at least 50% of their assets consists of tax-exempt government obligations.

True False

12. Same-sex married couples (SSMCs) or RDPs who file a California tax return as married/RDP filing jointly and have no SSMC adjustments or RDP adjustment between federal and California, combine their individual AGIs from their federal tax returns filed with the Internal Revenue Service (IRS). SSMC adjustments and RDP adjustments include

A. Dependent care assistance.
B. Rental real estate passive loss.
C. Sale of residence. 
D. Any of the above.

13. If there are no differences between your federal and California income or deductions, complete Schedule CA (540).

True False

14. Do not make an adjustment to California income if you received

A. Sick pay received under the Federal Insurance Contributions Act and Railroad Retirement Act.
B. Ridesharing fringe benefits.
C. Compensation from exercising a California Qualified Stock Option (CQSO). 
D. None of the above.

15. California taxes long and short term capital gains as regular income. No special rate for long term capital gains exists. However, the California basis of assets may be different from federal basis due to differences between California and federal laws. If there are differences, calculate the amount on

A. Schedule G-1.
B. Schedule D (540).
C. Schedule CA (540). 
D. Schedule P (540).

16. Adjustments to federal business income or loss you reported in column A generally are necessary because of the difference between California and federal law relating to depreciation methods, special credits, and accelerated write-offs.

True False

17. For California, you may have to pay an additional tax if you received a taxable distribution from a qualified retirement plan before reaching age 59 1/2 and it was not rolled over into another qualified plan.

True False

18. Like as for federal, you include as California taxable income grants paid to low-income individuals to construct or retrofit buildings to make them more energy efficient.

True False

19. If you receive U.S. Social Security benefits or equivalent Tier 1 railroad retirement benefits, you need to complete the worksheet to calculate the California taxable amount.

True False

20. This interest is taxed by California

A. Interest from Federal National Mortgage Association (Fannie Mae) bonds.
B. Government National Mortgage Association (Ginnie Mae) bonds.
C. Federal Home Loan Mortgage Corporation (FHLMC) securities. 
D. Any of the above.