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| (DPAD) for federal tax purposes. However, for California tax purpose this deduction is not possible since California has not conformed to federal tax law in regard to this deduction. Enter any amounts of the DPAD that you may have from your federal tax return on your California Schedule CA, line 35, column B to reverse the deduction for California tax purposes. |
| Annual tax paid by a limited partnership |
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A partnership is easier to create and get started than many of the other business organizations available to business owners. A partnership issues a K-1 form to its partners to report the income that pertains to each. Schedule K-1 is similar to Form W-2 or more like a Form 1099-Misc to report miscellaneous income for nonemployees. One individual alone cannot be a partnership. In order for a partnership to be a partnership, there has to be at least two individuals partaking in this type of business risk. The partnership is an entity that passes through income to the owners. The owners of the partnership include their share of income on their individual tax returns. When a partnership is a limited partnership and it pays its annual tax, federal tax law allows for a deduction. If you have such a deduction on your federal tax return, you need to exclude it for California tax purposes. Do this by entering the deduction amount on your California tax return Schedule CA, line 39. California specifically disallows a deduction for annual tax paid by a limited partnership. |
| Franchise tax or income taxes paid by an S corporation |
| The same thing goes for benefits of setting up an S corporation if you are able to meet the requirements for S corporation status. An S corporation is technically a corporation but it operates more like a partnership. The income from the S corporation passes through to its shareholders in the same manner in which it passes through to the owners of a partnership. You must pass certain qualification in order to be considered an S corporation. Not only must you meet certain qualifications to be an S corporation, but you must also maintain your qualifications. If you fall short of the qualifications, your corporation will revert to a C corporation and you will lose your S corporation status. You entire tax situation and set will change as a result of failure to maintain your S corporation status. If you have a franchise tax or income tax incurred in your S corporation, you can deduct them as a deduction on your federal tax return. California does not conform to such benefit and specifically disallows the deduction. You must reverse the deduction on your California Schedule CA, line 39 to adjust this disagreement between federal and California. |
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State, local, and foreign income taxes paid |
| Some people pay taxes and don’t even know it. Their employer deducts a certain amount from their check and these amounts are distributed to the different tax agencies such as California withholding, local tax SDI, federal and social security taxes. Other individuals or businesses which transact business overseas, will probably have paid some form of foreign tax to the foreign government. You can deduct payments you make for deductible taxes on your federal tax return. A deductible tax is one that you are responsible to pay and one that you actually paid. You can deduct state, local and foreign taxes, real estate taxes, taxes paid for personal property and general sales taxes that you paid for in the year. You can also deduct estimated taxes paid. If you have any amounts which for these types of taxes on your federal tax return, you need to make an adjustment on your California tax return. You must include these amounts on your California tax return to exclude them because California does not allow a deduction for any of these taxes, not even for taxes paid for State Disability Insurance (SDI). Just like you cannot your federal tax withholding on your federal tax return, you cannot deduct any state taxes paid on your California tax return. So it is not really that California does not conform to federal, it is just that these are usually taxes withheld at the California level. If you have any of these taxes on your federal tax return for which you qualified to take a deduction, enter them on your California Schedule CA, line 39 to reverse the deduction from your California tax |
| Copyright © 2014 [Hera's Income Tax School]. All Annual Federal Tax Refresher Course rights reserved. |
| Revised: 07/09/15 |
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