California Return for Jack & Norma Jones
Based on the Form 1040 with supportive forms and the information provided below, please prepare 2017 California Return for Jack & Norma Jones. They reside at 15 Maple Street in San Jose, CA 95134. Refer to the CA Form 540 Instructions, Week 9 supplemental lectures for the mechanics of CA Individual Tax Forms.
Jack Jones was born May 1, 1967 and works as an engineer at ABC Technology, his taxable wages (after 401k deductions, etc.) is $130,000 per year. His wife Norma Jones (born June 2, 1969) was a bookkeeper for Al’s Supermarket – she earned $35,000 during the first 9 months of the year and then was laid off for the rest of 2017. Their wage amounts are the same for federal and California. Norma has also received $11,000 in unemployment compensation from the state of California.
In 2017 Jack and Norma were covered by a healthcare plan offered through Jack’s company.
Jack has had $28,200 of Federal income taxes withheld from his paychecks and $10,000 California income taxes withheld from his paychecks. Norma had $1,800 Federal income tax and $1,000 California income tax withheld from her Al’s Supermarket paycheck. There were no taxes withheld on her unemployment compensation.
They have sold 100 shares of ABC Technology stocks during the year for $62,000 that they acquired in 2003 for $50,000. Note that everything they sold is long-term capital gains. You should assume that the cost basis for California purposes is the same as for Federal purposes. None of the stocks sold are qualified small business stock.
They received $400 of qualified dividend income from their ABC Technology stock. They also received interest income of $156 from Wells Fargo Bank. Norma is originally from Las Vegas, NV and a few years ago her parents gave her some City of Las Vegas municipal bonds which she still owns. She received $600 of interest income from these bonds which is tax exempt for Federal income tax purposes.
They have children but they finished college and have moved out – Jack and Norma do not support them.
They have owned their own home in San Jose since 1992, have mortgage interest of $9,800, and property taxes of $4,000. They own two cars and the deductible part of their DMV fees is $130. In April 2017, they filed their joint 2016 California income tax return and paid $1000 tax due to California.
Here is a list of their cash donations to various organizations:
- Saint Mary’s (Roman Catholic Church) $2,000
- Second Harvest Food Bank $500
- Santa Clara University (Fundraising Campaign) $1,000
- Make-A-Wish Foundation $100
With time on her hands, Norma has prepared and filed their joint federal Form 1040 but she has hired you to prepare the California Form 540 (and any required schedules).
You need to prepare a California Form 540 and a California Schedule CA540. If required, you should also prepare a California Schedule D540 (hint: read the directions). You may assume there is NO Federal or California AMT to consider.
Please note that I recommend using California fill-in PDF forms and not use tax software for this HW. Another option is to prepare 1040 first in tax software before you prepare California forms. This will take more time though. But it is up to you.
1. Review Jones’ Form 1040
2. Download fill-in California Form 540 and Schedule 540(CA) and Form Instructions.
3. Start with 540(CA) to identify Federal/California differences
4. Move to Form 540 – line 13 is Federal AGI $188,556
5. Use 540 Instructions, CA (540) to complete Form 540
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