Download Instructions for Schedule CA (540) and more Study Guides, Projects, Research Law in PDF only on Docsity!
Schedule CA (540)/FTB 3885A/Schedule D Instructions 2000 Page 45
Instructions for Schedule CA (540)
These instructions are based on the Internal Revenue Code (IRC) as of January 1, 1998 and the California Revenue and Taxation Code (R&TC).
General Information
Differences Between California and Federal Law California legislation enacted in 1998 conforms California tax law to the Internal Revenue Code (IRC) as of January 1, 1998. However, there are continuing differences between California and federal tax law. California has not conformed to most of the changes made to the IRC by the federal Internal Revenue Service (IRS) Restructuring and Reform Act of 1998 (Public Law 105-206) and has not conformed to any of the changes made by the Tax and Trade Relief Extension Act of 1998 (Public Law 105-277), the Miscella- neous Trade and Technical Corrections Act of 1999 (Public Law 106-36), and the Ticket to Work and Work Incentives Improvement Act of 1999 (Public Law 106-170).
New Differences Between California and Federal Law for 2000:
- Education assistance. See the instructions for line 7. - Interest received in conjunction with the refund of the smog impact fee. See the instructions for line 8. - Reparation payments for individuals who were required to perform forced or slave labor during World War II. See the instructions for line 21f. - Indemnification pay for individuals erroneously convicted and incarcerated for a crime. See the instructions for line 21f.
California law is the same as federal law in the following areas:
IRC Section 179 expense deduction The maximum deduction amount is now $20,000.
Roth IRAs The contribution rules and distribution rules are the same.
Self-employed health insurance deduction The percentage for 2000 is 60%.
Purpose
Use this schedule to make adjustments to your federal adjusted gross income and to your federal itemized deductions using California law.
Part I – Specific Line Instructions
Column A — Federal Amounts
Line 7 through Line 21 – Enter on line 7 through line 21 the same amounts you entered on your federal Form 1040, line 7 through line 21 (or on your federal Form 1040A, line 7 through line 14b; or on your federal Form 1040EZ line 1, line 2, and line 3). Also enter the following if applicable:
- The total IRA distribution received on line 15(a); - The total pension or annuity distribution received on line 16(a); and - The total social security retirement benefit received on line 20(a).
Line 22 – Total Combine the amounts on line 7 through line 21.
Line 23 through Line 30 – Enter the same amounts you entered on your federal Form 1040, line 23 through line 30 (or your Form 1040A, line 16 and line 17).
Line 31a and Line 31b – Enter on line 31a the same amount you entered on your federal Form 1040, line 31a. Enter on line 31b the social security number and last name of the person to whom you paid alimony.
Line 32 – Add line 23 through line 31a. However, if you made any of the adjustments described in the instructions for federal Form 1040, line 32 or if you claimed the foreign housing deduction from federal Form 2555, Foreign Earned Income, or Form 2555-EZ, Foreign Earned Income Exclusion, enter the amount from Form 1040, line 32 on this line.
Line 33 – Total Subtract line 32 from line 22.
Column B and Column C — Subtractions and Additions Use these columns to enter subtractions and additions to the federal amounts in column A that are necessary because of differences between California and federal law. Enter all amounts as positive numbers unless instructed otherwise.
You may need one of the following FTB publications to complete column B and column C:
- 1001, Supplemental Guidelines to California Adjustments; - 1005, Pension and Annuity Guidelines; - 1031, Guidelines for Determining Resident Status; or - 1032, Tax Information for Military Personnel.
To order a publication or form, see the back cover of your tax booklet. Line 7 – Wages, Salaries, Tips, etc. Generally, you will not make any adjustments on this line. If you did not receive any of the following types of income, make no entry on this line in either column B or column C. Active duty military pay. Special rules apply to active duty military taxpayers. Get FTB Pub. 1032 for more information. Ride-sharing benefits or sick pay received under the Federal Insurance Contributions Act and Railroad Retirement Act. California excludes these items from income. Enter in column B the amount of these benefits included in the amount in column A. Income exempted by U.S. tax treaties (unless specifically exempt for state purposes also). If you excluded this income from your federal return, enter the excluded amount in column C. If you claimed foreign earned income or housing cost exclusion under IRC Section 911, see the instructions for line 21. Get FTB Pub. 1001 for more information. Exercising a California Qualified Stock Option (CQSO) does not result in compensation. To qualify: your earned income from the corporation granting the CQSO must be $40,000 or less; the market value of the options granted to you must be $100,000 or less; the total number of shares must be 1,000 or less; and, the corporation issuing the option must designate that the stock qualifies as a California qualified stock option at the time the option is granted. If you included in federal income an amount qualifying for this exclusion, enter that amount in column B. Employer-provided meals. California law has not conformed to the federal provision that allows employees to exclude (and employers to deduct) the value of meals solely because the meals were provided to more than 50% of the employees. Check with your employer if you think that this might apply to you. If it does, enter in column C the amount of these benefits that were excluded for federal tax purposes. Education assistance. Generally, California and federal law are the same regarding the exclusion from wages, up to $5,250, for employer-provided education assistance. However, included as qualified expenses for California purposes, are the expenses for an employee to take graduate level courses in pursuit of a law, business, medical, or other advanced academic or profes- sional degree. The graduate level courses must have begun on or after 1/1/00. Under federal law, graduate level courses do not qualify for the exclusion. Enter in column B the qualified expenses paid or incurred by your employer for you to take such graduate level courses. Line 8 – Taxable Interest Income If you did not receive any of the kinds of income listed below, do not make an entry on this line in either column B or column C. Enter in column B the interest you received from:
- U.S. saving bonds (except for interest from series EE U.S. savings bonds issued after 1989 that qualified for the Education Savings Bond Program exclusion); - U.S. Treasury bills, notes, and bonds; - Any other bonds or obligations of the United States and its territories; or - The state of California in conjunction with the refund of the smog impact fee if you were not allowed to deduct the smog impact fee when it was paid. Get FTB Pub. 1001 if you received interest income from the following sources: - Loans made in an enterprise zone (EZ); or - Items listed above passed through to you from S corporations, trusts, partnerships, and limited liability companies (LLCs). Do not make entries in either column B or column C for interest you earned on Federal National Mortgage Association (Fannie Mae) Bonds, Government National Mortgage Association (Ginnie Mae) Bonds, and Federal Home Loan Mortgage Corporations (FHLMC) securities. Enter in column C the interest you identified as tax-exempt interest on your federal Form 1040 (or Form 1040A), line 8b and which you received from: - Non-California state bonds; - Non-California municipal bonds issued by a county, city, town, or other local government unit; - Obligations of the District of Columbia issued after December 27, 1973; and - Non-California bonds if the interest was passed through to you from S corporations, trusts, partnerships, or LLCs.
Page 46 Schedule CA (540)/FTB 3885A/Schedule D Instructions 2000
Line 9 – Ordinary dividends Generally, you will not make an adjustment on this line. However, certain mutual funds are qualified to pay “exempt-interest dividends” if at least 50% of their assets consist of tax-exempt government obligations. The portion of the exempt-interest dividend that is tax-exempt for federal purposes will be shown on your annual statement from the mutual fund. The federal information will be correct for California if the exempt-interest dividends are from California state or local obligations. If the California exempt-interest dividend amount is more than the federal exempt-interest dividend amount, enter the difference in column B.
Get FTB Pub. 1001 if you received dividends from:
- Noncash patronage dividends from farmers’ cooperatives or mutual associations; - A federal S corporation that is a California C corporation; - A controlled foreign corporation; - Distributions of pre-1987 earnings from S corporations; - Undistributed capital gains for regulated investment company (RIC) shareholders; or - Distributed capital gain dividends.
Line 10 – State Tax Refund California does not tax the state income tax refund you received in 2000. Enter in column B the amount of state tax refund you entered in column A.
Line 11 – Alimony Received If you are a nonresident alien and received alimony that was not included in your federal income, enter the alimony on this line in column C. Otherwise, make no entry on this line.
Line 12 – Business Income or (Loss) 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. As a result, the recovery period or basis you use to figure California depreciation may be different from the amount used for federal purposes, and you may need to make an adjustment to your business income or loss. Adjustments are figured on form FTB 3885A, Depreciation and Amortization Adjustments, and are most commonly necessary because of the following:
- Before January 1, 1987, California did not allow depreciation under the federal accelerated cost recovery system. You must continue to figure California depreciation for those assets in the same manner as prior years. - On or after January 1, 1987, California provides special credits and accelerated write-offs that affect the California basis of qualifying assets. Refer to the bulleted list below.
Use form FTB 3801, Passive Activity Loss Limitation (PALS), to figure the total adjustment for line 12 if you have:
- One or more passive activities that produce a loss; or - One or more passive activities that produce a loss and any nonpassive activity reported on federal Schedule C.
Use form FTB 3885A to figure the total adjustment for line 12 if you have:
- Only nonpassive activities which produce either gains or losses (or combination of gains and losses); or - Passive activities that produce gains.
Get FTB Pub. 1001 for more information about:
Income related to:
- Business, trade, or profession carried on within California that is an integral part of a unitary business carried on both within and outside California; or - Pro-rata share of income received from a controlled foreign corporation by a U.S. shareholder.
Basis adjustments related to:
- Property acquired prior to becoming a California resident; - Sales or use tax credit for property used in an EZ, Local Agency Military Base Recovery Area (LAMBRA), or Targeted Tax Area (TTA), or former LARZ; - Reduced recovery periods for fruit-bearing grapevines replaced in a California vineyard on or after 1/1/92 as a result of phylloxera infestation; or on or after 1/1/97 as a result of Pierce’s disease; - Expenditures for tertiary injectants; - Property placed in service on an Indian reservation after 1/1/94 and before 12/31/03; - Amortization of pollution control facilities; - Discharge of real property business indebtedness; - Employer-paid child care center and services; - Employer-paid child care plan; - Vehicles used in an employer-sponsored ridesharing program; - An enhanced oil recovery system; - The cost of making a business accessible to disabled individuals; - Property for which you received an energy conservation subsidy from a public utility on or after 1/1/95 and before 1/1/97; or - Research and experimental expenditures. Business expense deductions related to: - Wages paid in an EZ, LAMBRA, Manufacturing Enhancement Area (MEA), or TTA; - Certain employer costs for employees who are also enrolled members of Indian tribes; - Abandonment or tax recoupment fees for open-space easements and timberland preserves; - Club dues or payments made to a club that restricts membership or the use of its services or facilities on the basis of age, sex, race, religion, color, ancestry, or national origin; - Lobbying expenses denied under IRC Section 162; - Business located in an EZ, LAMBRA, or TTA; - Research expense; - Employer wage expense for the Work Opportunity Credit and Welfare-to- Work Credit; - Pro-rata share of deductions received from a controlled foreign corporation by a U.S. shareholder; - Interest paid on indebtedness in connection with company-owned life insurance policies; - Premiums paid on life insurance policies, annuities or endowment contracts issued after 6/8/97 where the owner of the business is directly or indirectly a policy beneficiary; or - Meals provided to more than 50% (but less than 100%) of employees on the employment premises for the employer’s convenience. Line 13 – Capital Gain or (Loss) Generally, you will not make any adjustments on this line if you do not have any of the items listed below. Use Schedule D, California Capital Gain or Loss Adjustment, only if you have differences from: - Gain on the sale of qualified small business stock which qualifies for the gain exclusion under IRC Section 1202; - Basis amounts resulting from differences between California and federal law in prior years; - Gain or loss on stock and bond transactions; - Installment sale gain reported on form FTB 3805E, Installment Sale Income; - Gain on the sale of personal residence where depreciation was allowable; - Flow-through gain or loss from partnerships, fiduciaries, S corporations, or LLCs; or - Capital loss carryover from your 1999 California Schedule D. Get FTB Pub. 1001 for more information about: - Disposition of S corporation stock acquired before 1987; - Gain on sale or disposition of qualified assisted housing development to low-income residents or to specified entities maintaining housing for low- income residents; - Undistributed capital gain for regulated investment company (RIC) shareholders; - Gain or loss on the sale of property inherited before 1/1/87; or - Capital loss carrybacks. Line 14 – Other Gains or (Losses) Generally, you will not make any adjustments on this line. However, the California basis of your other assets may be different from the federal basis due to differences between California and federal law. Therefore, you may have to adjust the amount of other gains or losses. Get Schedule D-1, Sales of Business Property. Line 15 – Total IRA Distributions Generally, you will not make any adjustments on this line. However, there may be significant differences in the taxable amount of a distribution (including a distribution from conversion of a traditional IRA to a Roth IRA), depending on when you made your contributions to the IRA. Differences may also occur if you changed your residency status after you first began making contributions to your IRA or if your California IRA deductions were different from your federal deductions because of differences between California and federal self- employment income. If the taxable amount using California law is: - Less than the amount taxable under federal law, enter the difference in column B; or - More than the amount taxable under federal law, enter the difference in column C. Get FTB Pub. 1005 for more information and worksheets for figuring the adjustment to enter on this line, if any.
Page 48 Schedule CA (540)/FTB 3885A/Schedule D Instructions 2000
appropriation paid by California to an individual who sustained pecuniary injury as a result of having been convicted of a crime for which the individual was found to be innocent if, in addition, the individual did not contribute to his or her arrest. Enter in column B the amount of appropriation included in the amount on line 21.
Line 22 – Total Add line 7 through line 21f in column B and column C. Enter the totals on line 22.
Line 23 through Line 30 – Do not enter adjustments on these lines. California law is the same as federal law.
Line 31a – Alimony Paid Enter the social security number and last name of the person to whom you paid alimony. Note: If you are a nonresident alien and did not deduct alimony on your federal return, enter the amount you paid in column C.
Line 32 – Add line 23 through line 31a in column B and column C. If you claimed the foreign housing deduction, include that amount in the total you enter in column B, line 32. Enter the amount and “Form 2555” or “Form 2555-EZ” on the dotted line next to line 32.
Line 33 – Total Subtract line 32 from line 22 in column B and column C.
Transfer the amount from line 33:
- Column B to Form 540, Side 1, line 14; and - Column C to Form 540, Side 1, line 16.
If you plan to itemize deductions, go to Part II.
Caution: If Schedule CA (540), line 33:
Column B is a negative number, do not transfer it to Form 540, line 14. Instead, transfer the amount as a positive number to Form 540, line 16; or
Column C is a negative number, do not transfer it to Form 540, line 16. Instead, transfer the amount as a positive number to Form 540, line 14.
Part II – Specific Line Instructions
Line 35 – Federal Itemized Deductions Enter the total amount of itemized deductions from your federal Schedule A, lines 4, 9, 14, 18, 19, 26, and 27. Important: If you did not itemize deductions on your federal tax return but will itemize deductions on your California tax return, first complete federal Schedule A. Then complete Schedule CA (540), Part II, line 35 through line 40.
Line 36 – State, Local, and Foreign Income Taxes Enter the state and local income tax from federal Schedule A, line 5 and only the portion relating to foreign income taxes from line 8. Include state disability insurance (SDI), limited partnership tax, and income or franchise tax paid by S corporations.
Line 38 – Other Adjustments
Adoption-Related Expenses. If you deducted adoption-related expenses on your federal Schedule A and are claiming the adoption cost credit for the same amounts on your Form 540, enter the amount of the adoption cost credit claimed as a negative number on line 38.
Mortgage Interest Credit. If you reduced your federal mortgage interest deduction by the amount of your mortgage interest credit (from federal Form 8396, Mortgage Interest Credit), increase your California itemized deductions by the same amount. Enter the amount of your federal mortgage interest credit as a positive number on line 38.
Nontaxable Income Expenses. If, on federal Schedule A, you claim expenses related to producing income taxed under federal law but not taxed by California, enter the amount as a negative number on line 38. You may claim expenses related to producing income taxed by California law but not taxed under federal law by entering the amount as a positive number on line 38.
Employee Business Expenses: If you completed federal Form 2106, Employee Business Expense (or Form 2106-EZ), also complete Form 2106 (or Form 2106-EZ, Unreimbursed Employee Business Expenses) using California amounts. Specific differences between California and federal law are shown below.
- Assets placed in service before 1/1/87: Figure expenses based on California law; and - Federal employees on temporary duty status: California does not conform to the federal provision that expanded temporary duties to include prosecutive duties, in addition to investigative duties. Therefore, travel expenses paid or incurred in connection with temporary duty status (exceeding one year), involving the prosecution (or support of the prosecution) of a federal crime, should not be included when completing Form 2106 (or Form 2106-EZ) using California amounts.
Compare line 10 on both Forms 2106 (or line 6 if using Forms 2106-EZ). If the federal amount is larger, enter the difference as a negative number on line 38. If the California amount is larger, enter the difference as a positive number on line 38. Investment Interest Expense. Your California deduction for investment interest expense may be different from your federal deduction. You must use form FTB 3526, Investment Interest Expense Deduction, to figure the amount to enter on line 38. Gambling Losses. California Lottery losses are not deductible for California. Enter the amount of California Lottery losses shown on federal Schedule A as a negative number on line 38. Federal Estate Tax. Federal estate tax paid on income in respect of a decedent is not deductible for California. Enter the amount of federal estate tax shown on federal Schedule A as a negative number on line 38. Generation Skipping Transfer Tax. Tax paid on generation skipping transfers is not deductible under California law. Enter the amount of expenses shown on federal Schedule A as a negative number on line 38. Contribution of Appreciated Stock to a Private Foundation. For contributions made during 2000, enter the difference between the fair market value of the stock and the California basis as a negative number on line 38. State Legislator’s Travel Expenses. Under California law, deductible travel expenses for state legislators include only those incurred while away from their place of residence overnight. Figure the difference between the amount allowed using federal law and the amount allowed using California law. Enter the difference as a negative number on line 38. Charitable Contribution Carryover Deduction. If you are deducting a prior year charitable contribution carryover, and the California carryover is larger than the federal carryover, enter the additional amount as a positive number on line 38. Casualty and Theft Losses for Income-producing Property. California law does not conform to the federal provision that allows taking the full deduction if a casualty or a theft loss occurs for income-producing property. For California purposes, the deduction is considered to be a miscellaneous itemized deduction and is subject to the 2% of AGI floor. If you included a casualty or theft loss from income-producing property on federal Schedule A, line 27, and if:
- Schedule A, line 26 is more than zero, then no adjustment is necessary; or - Schedule A, line 26 is zero, then; 1. Enter the total of the amounts on your federal Schedule A, line 26 and line 27 here............................. 1__________ 2. Reduce Schedule A, line 27 by the amount of the casualty and theft loss deduction and enter the result here....... 2__________ 3. Recalculate Schedule A, line 20 through line 26 by including the casualty and theft loss deduction and enter here........................................ 3__________ 4. Add line 2 and line 3. Enter the result here............. 4__________ 5. Subtract line 4 from line 1 and include it as a negative number on line 38. Line 40 – California Itemized Deductions Is the amount on Form 540, line 13 more than the amount shown below for your filing status? Single or married filing separate.............................. $124, Married filing joint or qualifying widow(er)...................... $248, Head of household......................................... $186, NO Transfer the amount from line 39 to line 40. Do not complete the worksheet. YES Complete the Itemized Deductions Worksheet. Itemized Deductions Worksheet
- Amount from Schedule CA (540), line 39............... 1 ________
- Using California amounts, add the amounts on federal Schedule A, line 4, line 13, and line 19 plus any gambling losses included on line 27........................... 2 ________
- Subtract line 2 from line 1........................... 3 ________ Note: If -0-, stop. Enter the amount from line 1 on Schedule CA (540), line 40.
- Multiply line 3 by 80%.............................. 4 ________
- Amount from Form 540, line 13....................... 5 ________
- Enter the amount shown above for your filing status...... 6 ________
- Subtract line 6 from line 5........................... 7 ________ Note: If -0- or less, stop. Enter the amount from line 1 on Schedule CA (540), line 40.
- Multiply line 7 by 6% (.06)........................... 8 ________
- Compare line 4 and line 8. Enter the smaller amount here.. 9 ________
- Total itemized deductions. Subtract line 9 from line 1. Enter here and on Schedule CA (540), line 40............ 10 ________
