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Common adjustments for California income tax: part one

California income tax is a large part of your tax bill, as you have doubtless noticed if you have started your return. California income tax is calculated similarly to federal income tax, but with a few extra rules.

In California, you are taxed on income from all sources, even those outside the state. For example, if you own a rental property outside the state that is generating income, that income will be taxed in California. To determine your taxable income in the state of California, you start with your federal taxable income.

Then there are a number of adjustments under the California tax code that you may need to make. For example, unemployment compensation is not taxable in the state. The same is true for Social Security income, which is helpful for retirees who rely on Social Security to make ends meet. As we discussed recently, Social Security disability benefits are also not taxable.

In addition, California has its own depreciation rates and lives. This can make a difference for your taxable income if you own equipment used for trade or business. Next week we'll talk about some additional adjustments that make California income tax unique.

If you have a question or concern about your taxes, don't try to puzzle it out on your own. Even a small error on your tax return can result in action by the IRS, including an IRS audit, tax litigation or even criminal charges. State and federal tax codes are extremely complicated and it helps to have someone by your side who can help you protect your finances and your future. Consider meeting with an experienced tax law attorney who can help you review your returns, answer your questions and help you get the best possible outcome.

Source: The Orange County Register, "Understanding California's tax codes," Patrick Harper, March 6, 2013

Our Bay Area law firm helps families and individuals with a range of tax issues, including IRS audits, tax litigation and business and professional deductions and asset depreciation.

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