Did you know 9 states do not require residents to pay a personal income tax? Folks that live in Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming, are exempt from this bill. Furthermore, 7 other states simply enforce a flat tax rate. So what's the moral to the story? People who live in these states are able to buy more stuff because they pay less tax.
But for the rest of us, residential income tax is a necessary evil, one that takes a serious bite out of our disposable income. And while the forms are designed to collect the same data, they're all constructed differently. What follows is a breakdown of Form 540, the California Individual Income Tax Return. If you don't live in California, not to worry, we'll be tackling the other 34 states soon enough.
Let's face it, there's a lot to love about California. You've got blue skies (mostly), perfect weather (San Diego), and the Raiders. You also have a residential tax form that's a snap to complete. I'm telling you, this thing is so easy you'll be done with it in an hour. So I'm giving it a 7 of 10 on my user-friendly scale, which is one of the highest in the country. So what are you waiting for, Schwarzenegger to run for President?
Begin by filling in your name, address, Social Security number, and filing status at the top of the form. If someone else can claim you, fill in the bubble on Line 6. Simple enough?
Write the appropriate number for personal, blind, senior, and dependent exemptions. Then multiply those amounts by $98 and put the total on the applicable lines. Then add Lines 7 through 10 to get your total exemption amount, which goes on Lines 11 and 32.
Enter your wages/salaries from your W-2 on Line 12. Then record your federal adjusted gross income, (you can find it on Line 37 of your 1040 or 1040A forms or Line 21 from your 1040EZ) on Line 13. On Line 14 enter your California adjustment; just be sure to include a Schedule CA if changes need to be made.
If those state-specific adjustments are negative, subtract Line 14 from Line 13 and record the balance on Line 15. But if they're positive, enter the amount on Line 16, before adding Lines 15 and 16, to get your total California adjusted gross income, which goes on Line 17.
Now listen up! You will only itemize your deductions if you expect them to be greater than the standard California deduction of $3,637. If you're married filing jointly, you get to deduct $7,274. You'll also need to include Schedule CA if you have to itemize. When ready, subtract Line 18 from Line 17 to get your taxable income, which goes on Line 19.
Lines 20 through 30 appear to be missing in action, in other words they're not on this form. Where are they? Perhaps they've been abducted by aliens. This phenomenon will happen 2 or 3 times during your return, so don't sweat it.
Look up the tax table in the instruction booklet to figure how much tax you owe and enter the amount on Line 31. Earlier you filled in your exemption credits, which now comes into play. Simply subtract Line 32 from Line 31 and put the balance on Line 33. If you owe any additional tax, record that amount on Line 34. Now add Lines 33 and 34 to reveal your total tax, which goes on Line 35. Carry forward that amount to Line 36.
Carry forward the amount from Line 35 to Line 36 before working through all the special credits on Lines 40 through 48. If the dreaded alternative minimum tax, mental health services tax, or any other taxes apply, enter those amounts on Lines 61 through 64. Again, pay no attention to the missing lines, they're probably on an island somewhere.
On Line 71 enter your withholdings, on Line 72 any estimated tax payments, and on Lines 73 and 74 any real estate or other excess withholdings. Just check page 13 of the booklet if you're unsure about any of these numbers. If you have children(or other dependents), you may be eligible for a credit based on your expenses; again look up page 13 for help. Then add lines 71, 72, 73, and 74 and enter the amount on Line 75.
If Line 75 is more than Line 64, you've overpaid, enter the difference on Line 91 to see how much. Line 92 is the amount of Line 91 you want applied to your next year's tax, while Line 93 is the difference between the two. If Line 75 is less than Line 64, you still have a tax liability; just enter the difference on Line 94. If a use tax applies, record it on Line 95.
If you'd like to contribute a portion of your refund to charities that benefit children, wildlife, people with cancer, or the military, fill in the amount next to the appropriate code number. Now add your total contributions with that sum going on Line 110.
Add Lines 94, 95, and 110 to reveal the total amount you owe which goes on Line 111. If ugly stuff like interest, late, or underpayment fees apply, be sure to work through Lines 112 through 114 before sending your payment to a PO box in Sacramento. Can you imagine the amount of cash that flows through that little ol' post office box?
If you're due a refund, subtract Lines 95 and 110 from Line 93, the balance of which goes on Line 115. To get your money as fast as possible, be sure to include your bank's check and routing numbers on the following lines. All that's left is to sign, date, and record your phone number at the bottom of the form. If you needed a tax pro to help you, they will do the same.
Despite it's size, the California form was cake to move through. Frankly, the toughest thing about this doc is trying to figure out where the missing lines went. But if you are able to accept that alien abduction is real and it does happen, you'll be able to move through this form with speed and accuracy. And maybe someday ET will reunite those missing lines with the rest of Form 540.