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| distribution due to basis differences. Compare the benefits of investing in a Roth IRA and the benefits of investing in a traditional individual retirement account and choose the one the gives you the greater tax benefit. |
| Railroad retirement benefits |
| Usually filing a tax return is not required if your only income for the tax year is only from Social Security benefits or Railroad Retirement benefits. Not always though and you must know the maximum amounts in order to avoid any errors when reporting your social security or railroad retirement benefits. Your Social Security or railroad retirement benefits may be taxable if you have other income and your income goes over a certain amount or the base amount for your filing status. Social Security and railroad retirement benefits can only be taxable for federal though, not California. These also include Annuities or Pensions by the Railroad Retirement board or any payments by the Railroad Retirement Board. If after calculating your Social security or railroad retirement benefits and any amount is taxable for federal and thus included in federal income, you must make an adjustment to reverse it on your California tax return. Do this on California Schedule CA of Form 540 or Form 540NR, line 16, column B. Social security and railroad retirement benefits are never included in your income for California tax purposes. |
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Pension plan – small business tax credit for new retirement plan expenses |
| If you are a small business, you can enjoy the benefits of starting a pension plan for your employees. By doing so, you will be able to take a small business tax credit for your new retirement plan expenses. Federal tax law allows you to claim a tax credit for the ordinary and necessary costs of starting a business retirement plan. If you qualify you can use Form 8881 to claim the Credit for Small Employer Pension Plan Startup Costs. You would qualify for this credit if you had 100 or fewer employees who received at least $5,000 from you for the preceding year. The federal credit is 50% of you ordinary and necessary eligible startup costs. The maximum amount of the credit is $500. California does not have a credit like this. The federal deduction is reduced by the amount of the credit. Therefore, you must enter the amount of the income tax credit on Schedule CA of Form 540 or Form 540NR, line 12, line 17, or line 18, column B to reverse it on your California tax return. Any deductions against gross income for that federal allows and for which California does not conform to, need to be excluded from California gross income. |
| Canadian Registered Retirement Savings Plans (RRSP) |
| There are some U.S. taxpayers who hold interest in two popular Canadian retirement plans to get favorable U.S. tax treatment and therefore save money on their federal tax return. In 2014, the Internal Revenue Service eliminated the special annual reporting requirements that taxpayers with Canadian retirement plans. The two most popular Canadian retirement plans are the Canadian Registered Retirement Savings Plan (RRSP0 and the Registered Retirement Income Fund (RRIF). With the new tax change, many Americans and Canadians with these retirement plans can now automatically qualify for tax deferral in a similar manner that is available to participants in U.S. individual retirement accounts (IRAs) and 401(k) plans. American citizens and resident aliens can continue to enjoy the special tax treatments as long as they continue to be tax compliant and continue to include any distributions as income on their U.S. tax returns. This is not to say that the tax treatment is the same as those with IRAs, just similar. Federal tax law allows taxpayers to defer taxation on their RRSP earnings until the time of distribution. These provisions do not apply for California tax purposes. Therefore, California residents with RRSP earnings must include these earnings in their taxable income in the year earned. Include these earnings from RRSP distributions on Schedule CA of Form 540 or Form 540NR, line 8, line 9, or line 13, column C. |
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Group term life insurance |
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| Revised: 07/09/15 |
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