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									  2010 California Volunteer Manual
  General Information


        Income Adjustments
These are the adjustments available on the California Form 540/540A.
Refer to the Form 540 section for additional information and adjustments
available.


State Income Tax Adjustment                 Social security and equivalent tier 1
California does not tax state income        railroad retirement benefits require
tax refunds. Enter the amount of any        adjustment on the Schedule CA (540),
state income tax refund on Form             line 20.
1040, line 10. If your clients filed
Form 1040A or Form 1040EZ, enter 0          Tier 2 railroad retirement benefits
on this line.                               require adjustment on the Schedule
                                            CA (540), line 16.

Unemployment Compensation
Adjustment                                           For more information on
California does not tax unemployment                 tier 2 railroad retirement
compensation or paid family medical                  benefits, see page 22,
leave reported on federal Form(s)                    California Pension and
1099-G and shown on the federal                      Annuity Adjustment.
return. Enter the amount of taxable
unemployment compensation or paid           Enter the total taxable amounts of the
family medical leave on Form 1040,          income types above on your clients’
line 19.                                    federal return.

                                            TaxWise Tip:
Social Security Benefits, Tier I            If your client has a 1099R with
and II Railroad Retirement                  tier 1 or tier 2 income, make sure
Benefit Adjustments                         you “X” the “Railroad” box when
California does not tax:                    entering the Form 1099R to
                                            indicate the taxable income from
      Social security benefits and         this 1099R qualifies for
       equivalent tier 1 railroad           subtraction on the California
       retirement benefits on Form          Schedule CA.
       1040, line 20b.
      Tier 2 railroad retirement
       benefits on Form 1040,
       line 16b.




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    General Information

California Nontaxable Interest or               TaxWise Tip:
Dividend Income Adjustment                      On the federal Schedule B,
California does not tax interest                interest statement, enter a “+”
income from:                                    in the state adjustment column,
       United States savings bonds             for interest that needs to be added
       United States Treasury bills            to the state return. Place a "-"
       Any other bonds or                      in the column for interest that
         obligations of the United              is nontaxable to the state and
         States, U.S. territories, and          needs to be subtracted on the
         government agency                      state return.
         obligations specifically exempt
         by federal law                         California Distributions
                                                Although the taxing method of IRA
Add nontaxable interest amounts                 distributions is generally the same for
included on Form 1040, line 8a, and             California and federal calculations,
enter the total on your clients’ 540            there may be differences in the
(Schedule CA), line 8, column B.                taxable amount depending on the year
                                                the client made the contribution.
Interest from municipal or state
bonds from a state other than                   If your client or their spouse
California:                                     contributed to an IRA in 1975, or
Report this interest, taxable by                1982 through 1986, you may need
California but not by federal, on Form          to make an adjustment. California
Schedule CA (540). If you identify this         and federal deduction rules differed
type of interest income as tax-exempt           during these years. The client may
on your clients’ federal return, add it         owe less California tax on the
back on their state return. Enter the           distribution amount.
federal tax-exempt interest on line 8,
column C, Form Schedule CA (540).               Consider an IRA distribution fully
                                                taxable if your client took the full
Exempt-interest dividends from                  deduction at the time of the
mutual funds:                                   contribution. If the IRA contribution
Certain qualified mutual funds pay              was partially or fully nondeductible,
“exempt-interest dividends.” If at              then the nondeductible contribution is
least 50 percent of their assets consist        not taxed when your client begins
of tax-exempt government                        taking distributions.
obligations, including tax-exempt
government obligations of the state of          Since California law differs from
California and its municipalities,              federal law, complete the “IRA
that amount of dividend is exempt               Adjustment Worksheet” on page 21 to
from California tax. Find the tax-              determine California basis.
exempt portion of the dividend on
your clients’ annual statement. Enter
the California exempt-interest amount
that exceeds the federal exempt-
interest amount on Schedule CA
(540), line 8, column B.

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  General Information
1975:                                           January 1, 2002.
IRA deductions disallowed for
California. Federal allowed an                  Under the prior law, when your client
IRA deduction.                                  became a California resident, they
                                                received a stepped-up basis in their
1982 through 1986:                              IRA equal to their annual contributions
California and federal law differed. The        made while a nonresident, plus their
maximum federal individual deduction            IRA earnings while a nonresident. A
equaled $2,000. Active participants in          nonresident’s IRA basis was carried
qualified and government retirement             over until fully recovered. But now,
plans, and persons who contributed to           under the new law, they no longer
tax-sheltered annuities, qualified for          have this stepped-up basis.
the federal deduction. For California,
the maximum deduction equaled the               The law treats a former nonresident as
lesser of $1,500 or 15 percent of               if they were a resident for all prior
earned income with an additional                years for all items of deferred income,
deduction for a “nonworking spouse,”            which includes IRAs. Therefore, a
up to an overall limit of $1,750.               former nonresident claims a basis only
California disallowed all IRA                   for nondeductible contributions under
deductions if an individual was an              California law for a California resident.
active participant in a qualified or            This applies only to contributions
government retirement plan or                   made prior to 1987.
contributed to a tax-sheltered annuity.
                                                If your client became a California
1987 through present:                           resident prior to 2002 with an
California law conforms to the federal          unrecovered stepped-up basis
law. Therefore, if your clients made an         carryover for 2002, restate their IRA
IRA contribution during those years,            basis using the new law.
no adjustment is necessary.
                                                         For more information, see
California residents who were
                                                         FTB Pub. 1005, Pension and
formerly nonresidents:
                                                         Annuity Guidelines.
California law changed for taxable
years beginning on or after




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    General Information


    Below is an example of how to figure a California Basis
    (Part B of the IRA Adjustment Worksheet)
                                                                                                         This is the
                                                                                                          first yr
                                                                                                            that
                                                                                                           money
Part B - California Basis
                                                                                                            was
(If your clients have already computed their California basis as of 12/31/09, skip to Part C.)           withdrawn
                                                                                                         from this
   1.   Enter total California basis as determined from the information above                               IRA
        or from your clients’ records.                                                         900
                                                                                           1. _______
                                                                                                          account

   2.   Enter your clients’ California basis recovered in prior years.                           0
                                                                                           2. ________
   3.   California basis as of 12/31/09. Subtract line 2 from line 1.                          900
                                                                                           3. _______
                                                                                                            Total
                                                                                                          amount
                                                                                                         withdrawn
Part C – Form Schedule CA (540), line 15, Adjustment and Remaining
                                                                                                          during
        California Basis
                                                                                                           2010.
   1.   Enter your clients’ taxable distribution from their Form 1040A, line 10b; or
        Form 1040, line 15b.                                               .                   500
                                                                                           1. _______
   2.   Enter your clients’ California basis as of 12/31/09 (line 3 from above).               900
                                                                                           2. _______
   3.   Enter the smaller of line 1 or line 2. Enter this amount on Form 540A, line 13e;                  $400 is
        or Schedule CA (540), line 15b.                                                        500
                                                                                           3. _______       the
                                                                                                         California
   4.   Remaining California basis as of 12/31/10. Subtract line 3 from line 2.                400
                                                                                           4. _______    Basis for
                                                                                                         next year.




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  General Information
   Use This IRA Adjustment Worksheet to Calculate Your Clients’
   IRA California Basis


   IRA Adjustment Worksheet
   Part A - Contributions and Deductions by Year
   Your clients must be able to provide information to complete the chart in order for you to
   determine whether an adjustment is necessary. If your clients do not have this necessary
   information, no adjustment can be made.

           Year           Contributions            Federal Deductions             State Deductions
           1975
           1982
           1983
           1984
           1985
           1986
           Total
                                (A)                         (B)                           (C)

   If your clients can provide the necessary information, subtract total California Deductions (C) from
   total Federal Deductions (B). This amount is your clients’ California basis. If there is no difference
   between B and C, there is no adjustment on Form 540A, line 13e; or Schedule CA (540), line 15.

   Part B - California Basis
   (If your clients have already computed their California basis as of 12/31/08, skip to
   Part C.)

   1. Enter total California basis as determined from the information above
        or from your clients’ records.                             1. _______
   2. Enter your clients’ California basis recovered in prior years. 2. _______
   3. California basis as of 12/31/09. Subtract line 2 from line 1. 3. _______
   Part C – Form 540A, line 13e; or Schedule CA (540), line 15, Adjustment and Remaining
          California Basis

   1. Enter your clients’ taxable distribution from their Form 1040A, line 10b; or
       Form 1040, line 15b.                                        .                     1. _______
   2. Enter your clients’ California basis as of 12/31/09 (line 3 from above).           2. _______
   3. Enter the smaller of line 1 or line 2. Enter this amount on Form 540A, line 13e;
       or Schedule CA (540), line 15.                                                    3. _______
   4. Remaining California basis as of 12/31/10. Subtract line 3 from line 2.            4. _______




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    General Information

California Pension and Annuity                      Elect a different treatment for
Adjustments                                         2010 Roth IRA conversion for
California and federal laws generally               federal and state.
treat pension and annuity income the
same. However, if any of the following
apply, your client may have an                Roth IRA adjustments are made on
adjustment on the California return:          Schedule CA (540), line 15, Columns
                                              B or C. Pension adjustments are made
      They receive a federal Form            on Schedule CA (540), line 16,
       RRB 1099-R for tier 2 railroad         Columns B or C, as appropriate.
       retirement benefits and you
       included all or part of these          For more information, see the Form
       benefits as taxable income on          540 section.
       the federal return.

      They received a retirement
       annuity between July 1, 1986
       and January 1, 1987 and
       elected to use the three-year
       rule for California purposes.
        The federal taxable amount is
        less than the California
        taxable amount.

      They receive federally
       nontaxable foreign social
       security income.




       Standard and Itemized Deductions


Your clients decide whether to itemize        If your clients are married/RDP and
their deductions or to take the state         filing separate returns, the client and
standard deduction. Use the method            their spouse must either both itemize
that gives your clients the larger            their deductions or both take the
deduction. Your clients may itemize           standard deduction.
for state, federal, or both.

Clients over age 65, who take the
federal standard deduction, may
receive a greater state deduction if
they itemize.



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