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Lev, Tax Advisor
Category: Tax
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Experience:  Taxes, Immigration, Labor Relations
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Schedule CA540 adjustments.

Resolved Question:

CA State tax has a schedule for adjustments CA540, which should be used if there are differences between Fed and CA income or deductions. I have an IRA deduction and a student loan deduction on my Federal return, but the CA540 asks for the AGI from line 37 of 1040, so do I need to subtract the IRA adjustment on line 14 and add the interest adjustment back on line 16 or are they considered not a difference?

Submitted: 7 years ago.
Category: Tax
Expert:  Lev replied 7 years ago.

On the CA540 you will enter -

Line 13 - Enter federal adjusted gross income from Form 1040, line 37

Line 14 - California adjustments – from Schedule CA (540), line 37, column B -

Line 16 - California adjustments - from Schedule CA (540), line 37, column C

You will do adjustments only if there is additional CA taxable income or some income that taxable on the federal return is not taxable in CA.

In most situations you do not need to do any adjustments - but should read instructions for each specific item. -

Customer: replied 7 years ago.

I understand what lines to put it on and I don't have any difference in income, the question is whether or not the IRA deduction or the student loan interest deduction are considered a difference since they were already included in the 1040 line 37 AGI.

Expert:  Lev replied 7 years ago.

For the student loan interest deduction - see page 6 instructions -

Line 33 (Student Loan Interest Deduction) - California conforms to federal law regarding student loan interest deduction except for a spouse/RDP of a non-California domiciled military taxpayer residing in a community property state. Use the Student Loan Interest Deduction Worksheet on this page to compute the amount to enter on line 33. For more information, get FTB Pub. 1032.

For IRA deductions - see page 5:

Line 32 (IRA Deduction) - If you are an active duty military service member domiciled outside of California, you may have an adjustment. See line 36.

California does not conform to the federal increase to the indexing of AGI requirements for IRAs. The phase-out for California remains at:

• Single or Head of Household - $50,000 - $ 60,000

• Married/RDP filing jointly or qualifying Widow(er) - $80,000 - $100,000

Individual not active, spouse/RDP participant. $150,000 - $160,000

Federal amounts have increased to:

• Single or Head of Household - $53,000 - $ 63,000

Married filing jointly/qualifying Widow(er) - $85,000 - $105,000

• Individual not active, spouse participant - $159,000 - $169,000

Compute your federal IRA deduction following the federal instructions using the federal IRA worksheet. Compute your California IRA deduction using the federal IRA worksheet using California phase-out amounts instead of federal amounts. Enter as an adjustment in column B, the difference between the amounts determined for the federal IRA deduction and the California IRA deduction.

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