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Lesson 1

  1. If the taxpayer received unemployment (also known as unemployment insurance), the American Rescue Plan
    (ARP) Act of 2021 reduced his or her Federal adjusted gross income (AGI) for 2020 tax return. This means he or
    she may now qualify to receive more money from all of the following California tax benefits except:
    A. California Earned Income Tax Credit (CalEITC)
    B. Young Child Tax Credit (YCTC)
    C. The Golden State Stimulus payment
    D. The Standard Deduction
  2. The State and Local Tax (SALT) cap workaround, resulting from AB 150, allows a taxpayer to pay pass-through
    income elective tax at the entity level. This qualifies which of the following businesses to avoid the $10,000 Federal
    cap on state and local tax deductions?
    A. Partnerships with members as individuals
    B. Entities that have a partnership as a partner
    C. Publicly traded company
    D. Self-employed taxpayers
  3. ABC Tech LLC is a partnership with two equal partners. The company has a qualified net income of $200,000. If
    both partners qualify and make the Pass-Through Entity (PTE) election, the partnership can pay a PTE elective
    tax of to the California Franchise Tax Board. Each partner will report $90,700 of net income (($200,000 – $18,600)
    X 50%) on their federal K-1. When the partners file their personal returns, their California returns will report
    $100,000 of net income from ABC Tech LLC and a tax credit of what amount against their individual California
    income tax?
    A. $0
    B. $5,000
    C. $9,300
    D. $10,000
  4. As a result of the Tax Cuts and Jobs Act, under Federal tax law the tax preparation fees deduction are suspended
    in tax year 2023. Therefore, under California tax law, a California taxpayer who itemizes his or her deductions and
    has an adjusted gross income (AGI) of $35,000, and no miscellaneous expenses other than tax preparation fees
    of $1,000, would be able to take a deduction of what amount on his or her California income tax return for tax year
    2023?
    A. $0
    B. $300
    C. $700
    D. $1,000
  5. Because of the Tax Cuts and Jobs Act, under Federal tax law the employee business expenses deduction are
    suspended in tax year 2023. However, California does not conform to the Federal suspension of all miscellaneous
    itemized deductions. Therefore, under California tax law valid employee business expenses that are deductible
    on the California income tax return for tax year 2023 include all of the following except:
    A. Expenses paid or incurred during the taxpayer’s tax year
    B. Expenses required to carry on a trade or business
    C. Expenses that are reimbursed by the taxpayer’s employer
    D. Expenses that are ordinary and necessary
    Examination Questions – 15 Hour California Tax Law
    © 2024 Golden State Tax Training Institute, Inc. EX-3
  6. Hannah is a California taxpayer. She is retired and receives a pension payment of $1,000 during 2022, and then in
    2023 receives a letter from the pension administrator informing her that an internal audit of the pension computer
    system revealed that the administrator made a mistake and overpaid the $1,000 benefit in 2022. As such, they
    now want Hannah to repay (the $1,000 overpayment) by writing a check back to the pension plan in 2023. Under
    Section 1341, Claim of Right, Hannah is entitled to claim a deduction for what amount of the overpayment on her
    California income tax return for tax year 2023?
    A. $500
    B. $600
    C. $1,000
    D. $3,000
  7. For tax year 2023, which of the following allowable itemized deductions is subject to a reduction of 6% based on
    the taxpayer’s adjusted gross income (AGI) stated on his or her California income tax return?
    A. Legal fees
    B. Medical expenses
    C. Investment interest
    D. Wagering losses
  8. Investment expenses are the taxpayer’s allowed deductions directly connected with the production of investment
    income. With regards to the Tax Cuts and Jobs Act, investment expenses that a taxpayer can deduct on his or
    her California income tax return for tax year 2023 include all of the following except:
    A. Investment interest expense
    B. Depreciation allowed on assets that produce investment income
    C. Depletion allowed on assets that produce investment income
    D. Software or online services used to manage the taxpayer’s investments
  9. For tax year 2023, the Tax Cuts and Jobs Act provisions have what effect on the overall limitation on itemized
    deductions on the taxpayer’s California income tax return?
    A. The total amount of most otherwise allowable itemized deductions is limited for all taxpayers
    B. California will provide its own indexed-for-inflation limitation amounts for certain upper-income taxpayers
    C. The threshold amount will not include single taxpayers
    D. The otherwise allowable itemized deductions will not be reduced by more than 75% by reason of the
    overall limit on itemized deductions
  10. California tax law conforms to which of the following Tax Cuts and Jobs Act (TCJA) tax provisions?
    A. Deduction for Pass-Through Income
    B. Section 199A Deduction
    C. California Achieving a Better Life Experience (ABLE) Program
    D. Suspension of all miscellaneous itemized deductions that are subject to the 2% floor
  11. Which of the following is incorrect regarding Timeliness Penalty Abatement for California income tax purposes?
    A. The abatement is once-in-a-lifetime abatement
    B. The abatement is applicable for taxable years beginning on or after January 1, 2022
    C. The abatement is applicable to fiduciaries, estates, or trust
    D. The abatement is a one-time cancellation of an individual taxpayer’s penalty for filing or paying his or her
    taxes late
  12. The taxpayer’s California Net Operating Loss (NOL) is generally calculated the same as the Federal. However,
    which of the following differs between the Federal and California calculation?
    A. Allowable amounts
    B. Carryback period
    C. Carryforward period
    D. All of the above
  13. For which of the following tax years did California suspend the net operating loss (NOL) carryover deduction?
    A. 2020
    B. 2021
    C. 2022
    D. A and B
    Examination Questions – 15 Hour California Tax Law
    © 2024 Golden State Tax Training Institute, Inc. EX-4
  14. All of the following are true regarding California licensed cannabis businesses except:
    A. A licensed cannabis business files income tax returns just like other businesses
    B. Licensed cannabis businesses may deduct cost of goods sold, but may not deduct other business
    expenses, such as rent and wages
    C. California allows individuals and other taxpayers operating under the personal income tax law to claim
    credits and deductions of business expenses paid or incurred during the taxable year in conducting
    commercial cannabis activity
    D. Cannabis businesses operating under required state licenses can choose any form of valid business
    structure for their business
  15. Jacob and Mekayla did not have health coverage during 2023. They are married, filing jointly taxpayers with one
    child and a gross household income of $150,000. Neither Jacob nor Mekayla qualifies for an exemption from the
    requirement to have coverage and the $57,994 is the state filing threshold for a married couple, both under 65
    years old with one dependent for the 2023 tax year. Therefore, when they file their California income tax return
    they will pay an Individual Shared Responsibility Penalty for what amount?
    A. $0
    B. $1,500.25
    C. $2,250.00
    D. $2,300.15
  16. A taxpayer uses which of the following forms to make adjustments to his or her Federal adjusted gross income
    and to his or her Federal itemized deductions?
    A. Schedule P
    B. Schedule S
    C. Schedule CA
    D. Schedule D
  17. Emma reduced her Federal mortgage interest deduction by $400 (the amount of her interest credit from Federal
    Form 8396 – Mortgage Interest Credit). Therefore, she should increase her California itemized deductions by what
    amount on Schedule CA (540)?
    A. $0
    B. $100
    C. $200
    D. $400
  18. California does not conform to the amendments in the Federal Coronavirus Aid, Relief, and Economic Security
    (CARES) Act made to Internal Revenue Code (IRC) Section 461(l) by eliminating the excess business loss
    limitation of noncorporate taxpayers. A taxpayer should Complete FTB Form 3461 – California Limitation on
    Business Losses if he or she is a single, noncorporate taxpayer and his or her net losses from all of his or her
    trades or businesses are more than what amount in 2023?
    A. $289,000
    B. $309,000
    C. $578,000
    D. $628,000
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Certainly, let’s go through the multiple-choice questions regarding California tax law.

1. If the taxpayer received unemployment (also known as unemployment insurance), the American Rescue Plan  (ARP) Act of 2021 reduced his or her Federal adjusted gross income (AGI) for 2020 tax return. This means he or  she may now qualify to receive more money from all of the following California tax benefits except:

  • D. The Standard Deduction

    • The standard deduction is a fixed amount that taxpayers can choose to deduct instead of itemizing their deductions. It is not directly affected by the reduction in AGI due to the exclusion of unemployment benefits under the ARP.

2. The State and Local Tax (SALT) cap workaround, resulting from AB 150, allows a taxpayer to pay pass-through  income elective tax at the entity level. This qualifies which of the following businesses to avoid the $10,000 Federal  cap on state and local tax deductions?

  • A. Partnerships with members as individuals

    • AB 150 allows partnerships with individual members to pay a state-level tax, effectively circumventing the federal SALT deduction cap.

Full Answer Section

 

 

 

 

3. ABC Tech LLC is a partnership with two equal partners. The company has a qualified net income of $200,000. If  both partners qualify and make the Pass-Through Entity (PTE) election, the partnership can pay a PTE elective  tax of to the California Franchise Tax Board. Each partner will report $90,700 of net income (($200,000 – $18,600)  X 50%) on their federal K-1. When the partners file their personal returns, their California returns will report  $100,000 of net income from ABC Tech LLC and a tax credit of what amount against their individual California  income tax?

  • C. $9,300

    • The PTE tax paid by the partnership is a tax credit for the partners on their individual California income tax returns.
      • PTE Tax Credit = (Qualified Net Income * PTE Tax Rate) / Number of Partners
      • PTE Tax Credit = ($200,000 * 9.3%) / 2 = $9,300

4. As a result of the Tax Cuts and Jobs Act, under Federal tax law the tax preparation fees deduction are suspended  in tax year 2023. Therefore, under California tax law, a California taxpayer who itemizes his or her deductions and  has an adjusted gross income (AGI) of $35,000, and no miscellaneous expenses other than tax preparation fees  of $1,000, would be able to take a deduction of what amount on his or her California income tax return for tax year  2023?

  • A. $0

    • While California does not always conform to all federal tax changes, in this case, it appears California also suspends the deduction for tax preparation fees for tax year 2023.

5. Because of the Tax Cuts and Jobs Act, under Federal tax law the employee business expenses deduction are suspended in tax year 2023. However, California does not conform to the Federal suspension of all miscellaneous  itemized deductions. Therefore, under California tax law valid employee business expenses that are deductible  on the California income tax return for tax year 2023 include all of the following except:

  • C. Expenses that are reimbursed by the taxpayer’s employer

    • If an expense is reimbursed by the employer, it is not considered a deductible business expense for the employee.

6. Hannah is a California taxpayer. She is retired and receives a pension payment of $1,000 during 2022, and then in  2023 receives a letter from the pension administrator informing her that an internal audit of the pension computer  system revealed that the administrator made a mistake and overpaid the $1,000 benefit in 2022. As such, they  now want Hannah to repay (the $1,000 overpayment) by writing a check back to the pension plan in 2023. Under  Section 1341, Claim of Right, Hannah is entitled to claim a deduction for what amount of the overpayment on her  California income tax return for tax year 2023?

  • C. $1,000

    • Section 1341 allows a taxpayer to claim a deduction for the amount of income included in gross income in a prior year that was later determined to be includible in gross income in the current year.

7. For tax year 2023, which of the following allowable itemized deductions is subject to a reduction of 6% based on  the taxpayer’s adjusted gross income (AGI) stated on his or her California income tax return?

  • B. Medical expenses

    • Medical expenses are subject to an AGI-based limitation in California.

8. Investment expenses are the taxpayer’s allowed deductions directly connected with the production of investment  income. With regards to the Tax Cuts and Jobs Act, investment expenses that a taxpayer can deduct on his or  her California income tax return for tax year 2023 include all of the following except:

  • D. Software or online services used to manage the taxpayer’s investments

    • While these expenses might be related to investments, they are generally not considered deductible investment expenses under California tax law.

9. For tax year 2023, the Tax Cuts and Jobs Act provisions have what effect on the overall limitation on itemized  deductions on the taxpayer’s California income tax return?

  • B. California will provide its own indexed-for-inflation limitation amounts for certain upper-income taxpayers

    • California maintains its own limitations on itemized deductions for high-income taxpayers.

10. California tax law conforms to which of the following Tax Cuts and Jobs Act (TCJA) tax provisions?

  • C. California Achieving a Better Life Experience (ABLE) Program

    • California generally conforms to the federal tax treatment of ABLE accounts.

11. Which of the following is incorrect regarding Timeliness Penalty Abatement for California income tax purposes?

  • C. The abatement is applicable to fiduciaries, estates, or trust

    • The Timeliness Penalty Abatement is generally not applicable to fiduciaries, estates, or trusts.

12. The taxpayer’s California Net Operating Loss (NOL) is generally calculated the same as the Federal. However,  which of the following differs between the Federal and California calculation?

  • D. All of the above
    • There can be differences in allowable amounts, carryback periods, and carryforward periods between federal and California NOL calculations.

13. For which of the following tax years did California suspend the net operating loss (NOL) carryover deduction?

  • D. A and B
    • California suspended NOL carryover deductions for both 2020 and 2021.

14. All of the following are true regarding California licensed cannabis businesses except:

  • B. Licensed cannabis businesses may deduct cost of goods sold, but may not deduct other business  expenses, such as rent and wages

    • While there were some restrictions in the past, licensed cannabis businesses can generally deduct most business expenses, including rent and wages, under current California law.

15. Jacob and Mekayla did not have health coverage during 2023. They are married, filing jointly taxpayers with one  child and a gross household income of $150,000. Neither Jacob nor Mekayla qualifies for an exemption from the  requirement to have coverage and the $57,994 is the state filing threshold for a married couple, both under 65  years old with one dependent for the 2023 tax year. Therefore, when they file their California income tax return  they will pay an Individual Shared Responsibility Penalty for what amount?

  • C. $2,250.00
    • The penalty for not having health insurance is generally $2,250 per adult and $1,125 per child, up to a maximum of $6,750 per family.

16. A taxpayer uses which of the following forms to make adjustments to his or her Federal adjusted gross income  and to his or her Federal itemized deductions?

  • C. Schedule CA

    • Schedule CA is used to make adjustments to federal income for California tax purposes.

17. Emma reduced her Federal mortgage interest deduction by $400 (the amount of her interest credit from Federal  Form 8396 – Mortgage Interest Credit). Therefore, she should increase her California itemized deductions by what  amount on Schedule CA (540)?

  • D. $400

    • The reduction in the federal mortgage interest deduction should be added back to California itemized deductions.

**18. California does not conform to the amendments in the Federal Coronavirus Aid, Relief, and Economic Security  (CARES) Act made to Internal Revenue Code (IRC) Section 46

 

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