You are required to use FS codes in preparing rental schedules, pass-through entities information, farms and farm rentals, passive loss limitation calculation, Schedule D-1, capital loss carryover, and municipal bond interest. All income and expenses included on the federal interview forms carry to the California return.
Automatic Transfers. Generally, additions and subtractions to federal taxable income are handled through entries on California interview forms. The following items from the federal return are handled automatically on the California return and do not require additional entries on state interview forms:
Interest on U.S. Obligations (if an income tax return is requested)
Municipal Bond Interest
Employment Credit Wage Reduction
Taxes Deducted on Federal Return
Charitable Contributions
State Tax Refunds
Federal Balance Sheet Information
Short-term Capital Gains or Losses
Long-term Capital Gains or Losses
Section 1231 Gains or Losses
Casualty Gains or Losses
Depreciation
Pass-through Entities' Income or Loss
Net Operating Loss Carryovers
Passive Income or Loss Information
State Common Data
The State Common Data forms provide a centralized location to create state returns and to enter data common to all states and cities. Following is a description of each series of input forms and how they interact with processing a California return.
State/City Generation Forms
A state or city return may simply be processed by selecting the states or cities you wish to include with your federal return on the State/City Generation worksheet under the Common State category. No additional entries on state/city input forms are required. This provides a centralized location to manage your single or multistate returns.
If you wish to delete a state or city from your return after you created and processed it using the State/City Generation forms, uncheck the applicable field on these forms and use the Delete State feature in the Edit menu.
General Information Forms
These forms are used to enter data common to all states and cities returns. They provide a centralized location and generic format to simplify entering state and city data. Not all state and city data are contained here. Fields which are unique or not shared by a group of entities is still located on unique state and city input forms.
When using these forms an entry is mandatory in the State/City Code field. Presence of data on this form will NOT create a state or city return. These may only be created in two ways:
Selecting states or cities on the State/City section of the Common Data worksheet, or
Presence of state/city level input forms.
You may designate data to apply to a particular state/city return or you can indicate for it to apply to all of the state/city returns present. To flag your entries to a particular state/city, enter the state/city code from the pick list in the State/City Code field. To apply your input to all of the states and cities present make an "ALL" entry in the State/City Code field.
There are 3 levels of default for the General Information input series.
The first level is to the Basic Data entered with the federal return. This applies only to selected fields. Specifically those followed with word "override" on the worksheet. For example, if no entries are made on General Information input series for date of incorporation, the states/cities will default to the incorporation date on the federal Basic Data worksheet.
The second level is to Common Data input with a state/city code of "ALL". "ALL" code means it applies to every state and city in the return, unless a unique state/city code is present. For example, if you make an entry for the incorporation date on the General Information section of the State/City Common Data worksheet which is different from the federal, all the states will default to the "ALL" coded date and ignore the federal date. However, if a General Information entry is also present with a different date and a state code of CA, then California will pick up the CA coded date and ignore the federal date and the General Information entry date coded "ALL".
The third level is to the General Information input with a specific state/city code. If both an "ALL" occurrence and a specific state/city entry is present, data must be present in a particular field of the unique state/city occurrence or the default to "ALL" entry for that field will still take place. For example, you have entered General Information form coded "ALL" which contains an entry for Telephone Number. You have also entered a General Information form coded CA and make only one entry to indicate that it is an initial return for California. The California program will pick up your initial return entry and also the telephone number from your "ALL" entry, since no telephone number was entered with the CA occurrence.
State Tax Payments
Use The State Tax Payments worksheet under the Payment/Penalty category to enter estimated tax payments, withheld amounts, and various other tax payments. Not all fields apply to all states. Once an entry of CA is made in this field, we will allow you to only land on those fields which are applicable to California. Presence of data on this form will NOT create a state return.
Taxes Paid Based on Income and/or Not Based on Income: If you have identified yourself as a Cash Basis taxpayer, your entries in the columns for Taxes Based on Income and/or Not Based On Income will be carried to the Taxes and Licenses deduction line on page 1 of the federal return. We identify you as Cash Basis taxpayer if your accounting method is identified as cash on the Miscellaneous Information section of the Basic Data worksheet, and the State Tax Accrual option has NOT been selected on the Processing Option section of the Basic Data worksheet. Your entries here will also be used by California in arriving at the applicable state tax deductions and/or add backs to federal income. Any entries on the Taxes and Licenses section of the Business worksheet will be in addition to your entries in these fields. You may override this treatment of the detailed state and city tax payments for all states in your return by making an entry in the field entitled Suppress Carrying of Detailed State/City Tax Payments for Cash Basis Taxpayers on the Processing Options section of the Return Option worksheet. or by selecting the same option in the Return Configuration Set. You may also suppress this treatment on a state by state basis by making an entry in the field entitled Suppress Carrying of This State's Tax Payments on the State Tax Payments Worksheet.
If you are an Accrual Basis taxpayer, your entries in the columns for Taxes Based on Income and/or Not Based On Income will NOT be carried to the Taxes and Licenses deduction line on page 1 of the federal return or used to determine any state add backs or tax deductions. We identify you as an Accrual Basis taxpayer if your accounting method is identified as accrual on the Miscellaneous Information section of the Basic Data worksheet, or the State Tax Accrual option has been selected on the Processing Option section of the Basic Data worksheet.
State Estimated Tax Forms
Enter the estimated tax information for California on the Estimates and Application of Overpayment worksheet under the Payment/Penalty category. Enter CA in the field entitled State Code. This is a required entry. No assumption to the state code is made by the program. An entry in the State Code field is mandatory. Not all fields apply to all states. We will allow you to only land on those fields which are applicable to your entry in the State Code field. Presence of data on this form will NOT create a state return.
Penalty Forms
Use these forms to enter penalty information for California. Late interest and penalty information is entered on the State/City Interest and Penalty worksheet and underpayment of estimated tax data is entered in the State / City Underpayment Penalty worksheet under the Payment/Penalty category.
U.S. Obligations
Interest on obligations of the United States (entered on Federal Income/Deductions Category, Interest section automatically carries to California Form 100 as a deduction from federal taxable income ONLY if you requested an income tax return be prepared on California General Worksheet, Options section, "Minimum tax code is set to '3' - "Not subject to min tax -income tax filer".
Municipal Bond Interest
California includes municipal bond interest in California income for corporations subject to the franchise tax. Interest on state and local obligations from states including California automatically carries to California Form 100 as an addition to federal taxable
Be sure to indicate the source of municipal bond interest. Enter the source of interest in the "State" box on the Federal Income/Deductions Category, Interest section. The interest is considered to have originated in the state entered on federal Federal General Category, Basic Data Worksheet, General Section for the automatic state return IF:
the "State" field on the Federal Income/Deductions Category, Interest section is blank, or
the 2-digit code portion of the Account Number is either 00 or a number not assigned to a state.
Use Interview Form CA3 to override this automatic carry.
Tax Accrual
State taxes carry to the federal return at your option; they do not carry automatically. California taxes computed on the California return carry to page 1 of the federal return if you enter a "1" in the "State and City Tax Accrual Option" field in the Federal General Category, Return Options Worksheet, Calculation Options section. This entry also accrues the tax to the appropriate sections of the federal balance sheet. If State Tax Accrual Option 3 is selected, state taxes carry to the rental schedule instead of page 1 of the federal return.
If you choose State Tax Accrual Option 2, state taxes computed on the California return carry to page 1 of the federal return but do not accrue to the federal balance sheet. If required, the system automatically makes a Schedule M-1 book/tax adjustment. If you choose State Tax Accrual Option 4, state taxes carry to the rental schedule instead of page 1 of the federal return.
If you do not choose a State Tax Accrual Option, state taxes computed on the California return neither carry to the federal return nor accrue to the balance sheet.
California Tax Accrual Option. If you elected a State/City Tax Accrual Option on the Federal General Category, Return Options Worksheet, Calculation Options section, you may choose to have California tax carried to federal Schedule M-1 (rather than to either Form 1120, page 1, or the rental schedule) by marking the appropriate field on California General Worksheet, Options section. If elected, California tax also accrues to the balance sheet. You may also choose to suppress your state tax accrual option for California by your entry on Common State Worksheet, State/City Generation section.
Taxes Deducted on Federal Return
Taxes entered on Federal Income/Deductions Category, Business Worksheet, Deductions section, automatically carry to Schedule A.
If using the federal reconciliation method, taxes deducted on the federal return will carry to Schedule F. If using the California method, only taxes deductible for California purposes will be carried to Schedule F. When using the California method, Interview Form CA12 may be used to override Schedule F.
Michigan Business Tax and Michigan Single Business Tax. The Michigan Single Business tax was replaced by the Michigan Business tax starting with tax years beginning 01/01/2008. To date, the California Franchise Tax Board (FTB) has not issued a determination or ruling concerning how they will treat the Michigan Business tax. Until a ruling is issued by the FTB, the program will treat Michigan Business tax the same as the Michigan Single Business tax.
For California purposes, Michigan Single Business Tax (SBT) is deductible. The Franchise Tax Board has accepted a 1997 decision made by the California State Board of Equalization regarding its deductibility. No longer is Michigan SBT deductibility based on labor cost of sales. Michigan SBT should be entered on federal input as a "state taxes based on income." To override this computed amount enter your amount on the California Income and Deductions, Deductions, "City/local income tax" field.
State and City Tax Refunds
Refund amounts entered will be automatically deducted from the applicable state and city returns.
Michigan Single Business Tax Refund. For California purposes, the Michigan Single Business Tax (SBT) refund is includible in income. The Michigan SBT refund should be entered on the federal input under "state tax refunds based on income." To override the computed amount enter your amount of tax refunds to be included in income on California Income and Deductions Worksheet, Various Overrides section.
Employment Credit Wage Reduction
The system will reduce wages and salaries on the California return by the federal employment credit wage reduction. To override the computed adjustment make an entry on California Income and Deductions Worksheet, Deductions from Income section in the "Adjustment Due to Employment Tax Credit - Override" field. When processing using the California method, the amount carried to Schedule F will be the amount deductible for California purposes. California Other Worksheet, California Method Returns section - Deductions is available to override Schedule F when using the California method.
Contributions
The contribution deduction for California is calculated from your entries on federal input. A statement is prepared supporting the computation of the California contribution deduction.
To override the automatic calculation, make an entry on California Income and Deductions Worksheet, Deductions from Income section in the "California Contribution Deduction - Override" box.
If processing using the California method, the amount shown on Schedule F will be the amount deductible for California and no deduction will be shown on page 1. When using the California method, California Other Worksheet, California Method Returns section - Deductions is available to override the contribution deduction.
Payment Voucher for Automatic Extensions
California does not require the filing of an extension if the return is filed within seven months of the due date, but it does require the payment of any tax due by the due date.
To calculate the tax due and prepare the California Form 3539, enter "CA" Federal Other Category, Extensions Worksheet, State Extension section in the "State Code" field. The calculated amounts may be overridden by making entries in the applicable fields the federal extension input.
Passive Activity Losses
The system will adjust California passive activity losses, when necessary, from information entered on federal interview forms (see the federal instruction guide for further details). Selected overrides are available on California interview forms. Alternative Minimum Tax (AMT) and Adjusted Current Earnings (ACE) versions of Form 3802 are also produced.
Interest Rate Overrides
Federal Penalties Worksheet, Interest Rate Overrides section is available for overriding rates which apply to the calculation of late payment interest and underpayment penalty. See the federal instruction guide for further information.
California Minimum Franchise Tax
California does not permit a deduction for the California minimum franchise tax. Because California does not permit a deduction for this tax the correct method to enter it is to treat it as though it was a tax based on income and enter it on the federal input as a "State Taxes Based on Income."