Ftb Pub. 1005 - Pension And Annuity Guidelines - Franchise Tax Board (Page 6 of 8) in pdf

Multiply the SEP deduction (from Schedule CA

Deduction

(540NR), column D) by the ratio of California

Self-employment income

Beginning with taxable year 1996, your allowable

source self-employment income to total self-

from Schedule CA

California Keogh deduction is generally the same

(540NR), column E

x Schedule CA (540NR),

employment income. Enter this figure on Sched-

as your federal Keogh deduction.

line 29, column D

ule CA (540NR), column E.

Self-employment income

Form 540NR filers after 12/31/95. Compute the

from Schedule CA

Self-employment income

(540NR), column D

Schedule CA (540NR), column E amount by mul-

from Schedule CA

tiplying the federal Keogh deduction by a ratio of

(540NR), column E

x Schedule CA (540NR),

Distribution

California source self-employment income to total

line 29, column D

Self-employment income

self-employment income.

Nonresidents of California after 12/31/95. Cali-

from Schedule CA

(540NR), column D

fornia does not impose tax on retirement income,

Self-employment income

including income from a Keogh plan, received by

from Schedule CA

Distribution

a nonresident after 12/31/95.

(540NR), column E

x Schedule CA (540NR),

line 29, column D

Self-employment income

Residents of California. The taxable amount of

Nonresidents of California after 12/31/95:

from Schedule CA

your Keogh distribution for California will be dif-

California does not impose tax on retirement

(540NR), column D

ferent from the federal taxable amount if you

income, including income from a SEP, received

have a California basis to recover.

Example 7 — You are a part-year resident of

by a nonresident after 12/31/95.

California. Your total self-employment income for

California Basis. Your California basis is the

Residents of California:

the year is $300,000, and the amount to be

amount of contributions you made for which you

The distribution of a SEP is treated the same as

reported on Schedule CA (540NR), line 12,

were not allowed a deduction on your California

the distribution of an IRA. Your distribution is first

return. You may not have been allowed a deduc-

column E, is $100,000. Your Keogh deduction for

considered a nontaxable return of your California

federal purposes is $15,000. Your Keogh deduc-

tion of the full amount of your contributions

basis. Once your California basis is recovered,

because the maximum California Keogh deduc-

tion to be reported on Schedule CA (540NR),

your distribution will be reported the same as

line 29, column E is computed as follows:

tion was less than the federal deduction prior to

federal.

1987.

$100,000

x $15,000 = $5,000

Use Worksheet I – Part A on page 8 to compute

Recovery of California Basis. Your Keogh dis-

$300,000

your pre-1987 California basis. Then use

tribution is first considered to be a nontaxable

Report $5,000 on Schedule CA (540NR), line 29,

Worksheet I – Part B to compute your adjustment

return of your California basis. Therefore, when

column E.

to federal AGI and your remaining pre-1987 Cali-

you receive your distribution, none of the distribu-

fornia basis. Use Worksheet II as a summary of

Prior to 1/1/96, there may have been a difference

tion will be taxed until you have recovered your

your California basis and its recovery.

in the amount of the Keogh deduction you

California basis. Once you have recovered your

claimed if there was a difference between your

California Basis. Your California basis is the

California basis, your distribution must be

federal self-employment income and your Califor-

amount of your SEP contributions that were not

reported the same as for federal purposes.

nia self-employment income (residents, part-year

allowed as a deduction on your California return

If you have received a distribution and you have

residents or nonresidents of California).

and any contributions and earnings attributable to

a California basis, you must make an adjustment

periods of nonresidency.

Form 540NR filers prior to 1/1/96. Your Keogh

on Schedule CA (540 or 540NR) to reduce your

deduction on Schedule CA (540NR), column E is

federal AGI to the correct taxable amount for

F Self-Employed Retirement

based upon the percentage of self-employment

California. Your Schedule CA (540 or 540NR)

income from Schedule CA (540NR), column E to

adjustment is the lesser of your:

Plans (KEOGHs)

•

total self-employment income computed accord-

Pre-1987 California basis; or

•

ing to California law on Schedule CA (540NR),

The California treatment of Keoghs is generally

Keogh distribution included in federal AGI.

column D.

the same as the federal treatment. For informa-

Use Worksheet I – Part A on page 8 to compute

Multiply the Keogh deduction (from Schedule CA

tion on the federal treatment of Keoghs, refer to

your pre-1987 California basis. Then use

(540NR), column D) by the ratio of California

federal Pub. 560, Retirement Plans for Small

Worksheet I – Part B to compute your adjustment

source self-employment income to total self-

Business.

to federal AGI and your remaining pre-1987 Cali-

employment income. Enter this figure on Sched-

fornia basis. Use Worksheet II as a summary of

ule CA (540NR), column E.

your California basis and its recovery.

Example 8 –

In 1998, you received a Keogh distribution of $15,000. In 1997, you also received a Keogh distribution of $15,000. Your Keogh contributions were

made in 1979 through 1983. The total contributions were $37,500. Your total California deductions were $12,500.

Determination: You would complete Worksheet I as follows.

Worksheet I — Part A Pre-1987 California Basis

Example 8

(If you have already computed your California basis as of 12/31/97; skip to Part B.)

$ 37,500

Enter your total federal deductions claimed prior to 1987 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

12,500

Enter your total California deductions claimed prior to 1987 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 25,000

Total California basis. Subtract line 2 from line 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

15,000

Enter your California basis recovered in prior years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

California basis as of 12/31/97. Subtract line 4 from line 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 10,000

Worksheet I — Part B Adjustment to Federal AGI and Remaining Pre-1987 California Basis

Example 8

$ 15,000

Enter your taxable distribution from your Federal Form 1040, line 15b (or line 16b), Form 1040A, line 10b (or line 11b)

. . . . . . . .

$ 10,000

Enter your California basis as of 12/31/97 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Enter the smaller of line 1 or line 2. Enter this amount on Schedule CA, (540 or 540NR), line 15b or line 16b, column B

$ 10,000

or Form 540A, Side 2, Part I, line 5 or line 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Remaining California basis as of 12/31/98. Subtract line 3 from line 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Only $5,000 ($15,000 – $10,000) of the distribution is taxable by California in 1998. Your adjustment to federal AGI is $10,000. Your California basis has now been

fully recovered. When you receive a distribution in later years, the amount of the distribution taxable for federal purposes will also be the amount taxable by California.

No adjustment to federal AGI will be necessary.

Page 6

FTB Pub. 1005 (REV. 1998)