California “mock return” Problem : Ron and Susan Lee_2016 Tax Year

Ron & Susan Lee filed their MFJ Federal Return Form 1040 for 2016: (I attached the pdf below)

Using the information provided in the Lee’s1040 and below please prepare California 2016 return for Ron and Susan Lee.

Ron Lee was born May 31, 1949 and worked as an engineer at Burk Corporation, his taxable wages (after 401k deductions, etc.) is $38,500 for 2016 (he retired in March 2016). His wife Susan (born July 25, 1950) is an office manager for Five Star Systems – she earned $122,000 during the year. Their wage amounts are the same for federal and California. Ron received $24,500 in gross social security payments from the federal government.

Ron has had $11,000 of Federal income taxes withheld from his paychecks and $4,500 California income taxes withheld from his paychecks. Susan had $31,200 Federal income tax and $13,750 California income tax withheld from her paycheck. Ron had $2,500 of federal income taxes withheld on his social security payments.

They have sold some stocks during the year – see Schedule D. You may 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 $1,500 of qualified dividend income from their Oracle Corporation stock. They also received interest income of $1,190 from B of A Bank.

In April 2016, the Lee’s filed their 2015 California income tax return and received a $905 tax refund from the state of California. They itemized their deductions in 2015.

They have children but they have graduated from college and moved out – they provide no support.

They have owned their own home in San Jose since 1987, their mortgage is all paid off, and they have property taxes of $5,800. They own two cars and the deductible part of their DMV fees is $155.

Here is a list of the Chang’s cash donations to various organizations:

Saint Joseph’s Church $2,000

San Jose Mercury News Book Drive $500

San Jose State University (Fundraising Campaign) $2,000

American Red Cross $2,500

Make-A-Wish Foundation $500

With time on his hands, Patrick has prepared and filed the family Form 1040 but he has hired you to prepare the California Form 540 (and any required schedules). You have reviewed the Federal forms and have already concluded they are correct.

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.

Check figure: Form 540, Line 94 Overpaid Tax is $6,440.