California Problem 1 Jack and Norma Jones_2016 Tax Year

Based on the 1040 and the information provided below, please prepare 2016 California Return for Jack & Norma Jones. Refer to the CA Form 540 Instructions, Week 9 supplemental lectures for mechanics of the 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 $170,000 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 2016. Their wage amounts are the same for federal and California. Norma has also received $11,000 in unemployment compensation from the state of California.

Jack has had $40,000 of Federal income taxes withheld from his paychecks and $15,000 California income taxes withheld from his paychecks. Norma had $5,000 Federal income tax and $2,500 California income tax withheld from her Al’s Supermarket paycheck. There were no taxes withheld on her unemployment compensation.

They have sold some stocks during the year – see Schedule D. 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 2016, they filed their joint 2015 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, Marla 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 have reviewed the Federal forms and have already concluded (and may assume) 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 $4,217.

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