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CA Tax Law Specialist practice questions

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Question 1California Personal Income Tax - Individuals

For California personal income tax purposes, which filing status may a registered domestic partner use when filing a state return?

  1. Single only, regardless of income
  2. Qualified surviving spouse automatically
  3. Head of household in every case
  4. Married/RDP filing jointly or separately Correct answer.

Explanation

California treats registered domestic partners as married for state income tax purposes, so they file as married/RDP filing jointly or married/RDP filing separately. They must generally report combined income and deductions on a joint state return. This state treatment applies even though federal filing status may differ.

Question 2California Personal Income Tax - Individuals

Which California agency administers personal income tax and processes individual returns?

  1. Department of Finance
  2. Employment Development Department
  3. State Board of Equalization
  4. Franchise Tax Board Correct answer.

Explanation

The Franchise Tax Board (FTB) administers California's Personal Income Tax Law and processes individual income tax returns. The Employment Development Department handles payroll and unemployment insurance matters. The State Board of Equalization administers certain other taxes, not the personal income tax.

Question 3California Personal Income Tax - Individuals

A California resident taxpayer's federal adjusted gross income is $60,000. California starts the state return with which figure?

  1. Federal adjusted gross income Correct answer.
  2. Federal taxable income after standard deduction
  3. California gross receipts from all sources
  4. Federal gross income before adjustments

Explanation

California begins the resident return with federal adjusted gross income and then applies California-specific adjustments and deductions. Federal itemized or standard deductions are not carried over directly. California has its own standard deduction and exemption credits applied later in the computation.

Question 4California Personal Income Tax - Individuals

Which item is generally added back on Schedule CA (540) for a California resident?

  1. Interest from California municipal bonds
  2. State income tax refund included in federal income
  3. Social Security benefits taxed federally
  4. Foreign earned income excluded federally Correct answer.

Explanation

California does not conform to the federal exclusion for foreign earned income, so excluded amounts are added back on Schedule CA. California municipal bond interest is already excluded federally and requires no addback. State tax refunds are generally not taxed by California when the tax was not deducted.

Question 5California Personal Income Tax - Individuals

A single California resident under age 65 has no dependents. Which standard deduction amount applies for a recent tax year?

  1. $13,850
  2. $2,000
  3. $11,080
  4. $5,540 Correct answer.

Explanation

California's standard deduction for a single filer is roughly half the married amount, historically $5,540 when the joint figure was $11,080. The amount is indexed and may change, so current-year figures should be confirmed. The $13,850 figure reflects a federal standard deduction, not the California amount.

Question 6California Personal Income Tax - Individuals

A taxpayer supports a qualifying child and pays more than half the cost of maintaining a home. Which filing status may the taxpayer claim if otherwise unmarried?

  1. Married filing separately
  2. Qualified surviving spouse
  3. Head of household Correct answer.
  4. Single with no adjustment

Explanation

Head of household status requires an unmarried or considered-unmarried taxpayer who paid more than half the household costs and supported a qualifying person. The qualifying child must live with the taxpayer for more than half the year. This status provides a larger standard deduction and different tax brackets.

Question 7California Personal Income Tax - Individuals

How does California treat a contribution to a traditional IRA for state purposes when the taxpayer is covered by a workplace retirement plan?

  1. California disallows all IRA deductions
  2. California always allows the full federal deduction
  3. California follows the federal active-participant limitation Correct answer.
  4. California allows a doubled deduction

Explanation

California conforms to the federal rules limiting deductions for traditional IRA contributions when the taxpayer or spouse is an active participant in a workplace plan. Income phase-out thresholds determine the allowable deduction. The state does not grant an unlimited or doubled deduction.

Question 8California Personal Income Tax - Individuals

A California resident receives $3,000 of interest from another state's municipal bonds. How is this treated on the California return?

  1. Taxable and added back to federal AGI Correct answer.
  2. Taxed only if the bonds mature in-state
  3. Subtracted as a California adjustment
  4. Exempt because municipal interest is always tax-free

Explanation

California exempts interest from its own municipal obligations but taxes interest from other states' municipal bonds. Because that interest is excluded from federal income, it must be added back on Schedule CA. The result is that out-of-state municipal interest is included in California taxable income.

Question 9California Personal Income Tax - Individuals

Which credit is available to a California taxpayer based on the number of qualifying dependents, subject to income limits?

  1. Renter's credit
  2. Solar energy credit
  3. Exemption credit for dependents Correct answer.
  4. Joint custody head of household credit

Explanation

California provides an exemption credit for the taxpayer, spouse, and each qualifying dependent, subject to adjusted gross income phase-out. The renter's credit is a separate credit with its own eligibility rules. The joint custody head of household credit applies only to certain unmarried co-parents.

Question 10California Personal Income Tax - Individuals

A taxpayer's California adjusted gross income exceeds the threshold for the exemption credit phase-out. What is the effect?

  1. The credit is reduced by a percentage of excess AGI Correct answer.
  2. The credit is unaffected by income
  3. The credit converts to a deduction
  4. The credit doubles to offset the higher tax

Explanation

California reduces the personal, dependent, and similar exemption credits when adjusted gross income exceeds specified thresholds. The reduction is computed as a percentage of the excess income above the threshold. Once income is high enough, the credit can be eliminated entirely.

Question 11California Personal Income Tax - Individuals

Which California credit is designed to assist lower-income working families with qualifying children?

  1. College access credit
  2. Child and dependent care credit
  3. Nonrefundable renter's credit
  4. California Earned Income Tax Credit Correct answer.

Explanation

The California Earned Income Tax Credit is a refundable credit for low-income working taxpayers, with larger benefits for those with qualifying children. It is coordinated with but separate from the federal earned income credit. Eligibility depends on earned income and California AGI limits.

Question 12California Personal Income Tax - Individuals

For California purposes, how is a distribution from a Health Savings Account that was used for qualified medical expenses treated?

  1. Added back as a state adjustment
  2. Fully taxable as ordinary income
  3. Subject to a 10% California penalty
  4. Excluded from income, consistent with federal treatment Correct answer.

Explanation

California generally conforms to federal treatment of Health Savings Account distributions used for qualified medical expenses, so those amounts are excluded from income. California does not conform to all federal HSA deduction rules, but qualified distributions remain tax-free. Nonqualified distributions are includible and may face additional tax.

Question 13California Personal Income Tax - Individuals

A California resident sold stock held for two years at a gain. How is the gain characterized for California purposes?

  1. Ordinary income taxed at the top rate
  2. Taxed only at the federal level
  3. Long-term capital gain eligible for preferential treatment Correct answer.
  4. Exempt from California tax

Explanation

California taxes capital gains as ordinary income for rate purposes but distinguishes long-term from short-term holding periods on the return. Long-term gains from property held more than one year are reported as long-term. California does not offer a separate reduced capital gains rate, though the character affects certain computations.

Question 14California Personal Income Tax - Individuals

Which basis rule generally applies to property received as a gift for California income tax purposes?

  1. Fair market value on the date of gift
  2. Basis increased by the annual exclusion
  3. Carryover basis from the donor Correct answer.
  4. Zero basis in all cases

Explanation

California follows the federal carryover basis rule for gifted property, so the recipient generally takes the donor's adjusted basis. A dual basis rule applies when the property's value has declined, using fair market value for loss purposes. The annual gift exclusion does not affect basis.

Question 15California Personal Income Tax - Individuals

A California resident taxpayer receives a distribution from a California-qualified retirement plan. How is the distribution generally taxed by California?

  1. Exempt because California has no retirement tax
  2. Taxable to the extent federally taxable Correct answer.
  3. Taxed at a flat 5% rate
  4. Taxed only if the taxpayer is under 59 1/2

Explanation

California generally taxes distributions from qualified retirement plans to the same extent they are taxable for federal purposes. The state follows the federal exclusion ratio for after-tax contributions. Distributions are reported as ordinary income on the California return.

Question 16California Personal Income Tax - Individuals

A taxpayer claims the California renter's credit. Which condition is generally required?

  1. The taxpayer must be over 65
  2. The taxpayer must own the home
  3. The taxpayer must itemize deductions
  4. The taxpayer must have rented a principal residence for at least half the year Correct answer.

Explanation

The renter's credit requires that the taxpayer rent a principal residence in California for at least six months of the year and meet income limits. The credit is nonrefundable and modest in amount. Homeownership disqualifies the taxpayer from this particular credit.

Question 17California Personal Income Tax - Individuals

How does California treat a dependent care assistance program benefit excluded from federal income?

  1. California allows double the exclusion
  2. California taxes the full benefit
  3. California generally follows the federal exclusion Correct answer.
  4. California disallows the exclusion only for self-employed taxpayers

Explanation

California generally conforms to the federal exclusion for employer-provided dependent care assistance up to the statutory limit. Amounts above the federal limit are included in income. The state does not double the exclusion or single out self-employed filers for disallowance.

Question 18California Personal Income Tax - Individuals

A California taxpayer pays alimony under a divorce agreement executed in 2018. How is the payment treated for California purposes?

  1. Nondeductible by the payer and nontaxable to the recipient
  2. Taxable to the recipient but not deductible by the payer
  3. Deductible by the payer and taxable to the recipient Correct answer.
  4. Deductible only if the recipient is a California resident

Explanation

California has not conformed to the federal repeal of the alimony deduction for agreements executed before 2019, so pre-2019 agreements generally follow the old rules. Payments are deductible by the payer and included in the recipient's California income. The federal treatment for these agreements differs after tax reform.

Question 19California Personal Income Tax - Individuals

A taxpayer with substantial California taxable income is subject to the mental health services tax. What rate and threshold generally apply?

  1. 5% on taxable income above $500,000
  2. 0.5% on income above $250,000
  3. 1% on taxable income above $1,000,000 Correct answer.
  4. 2% on all taxable income

Explanation

California imposes a 1% mental health services tax on the portion of taxable income exceeding $1,000,000 for all filing statuses. The tax applies in addition to regular graduated rates. It is reported on the individual return as an additional tax.

Question 20California Personal Income Tax - Individuals

How does California treat a loss from a passive activity for an individual taxpayer?

  1. Fully deductible against wages
  2. Converted to a capital loss
  3. Suspended and carried forward under federal passive loss rules Correct answer.
  4. Deductible only against California-source wages

Explanation

California conforms to the federal passive activity loss rules, so losses are generally suspended when they exceed passive income and carried forward. The losses become deductible when the taxpayer has passive income or disposes of the activity. Wages are not passive income and cannot absorb the loss.

Question 21California Personal Income Tax - Individuals

A California resident taxpayer operates a sole proprietorship. Which form is used to report the business income on the California return?

  1. Schedule C attached to Form 540 Correct answer.
  2. Form 568
  3. Schedule CA (540) only
  4. Form 100

Explanation

A California resident sole proprietor reports business income on Schedule C, which flows to the Form 540. Schedule CA adjusts federal amounts for California differences but does not replace the business schedule. Form 100 is a corporate return and Form 568 is for limited liability companies.

Question 22California Personal Income Tax - Individuals

A California taxpayer receives unemployment compensation. How is it treated for California income tax purposes?

  1. Taxable only above $10,000
  2. Fully exempt from California tax
  3. Taxable as ordinary income Correct answer.
  4. Subject to a flat 2% rate

Explanation

California taxes unemployment compensation as ordinary income, unlike some states that exempt it. The amounts are reported on the California return and included in adjusted gross income. No special flat rate applies to these benefits.

Question 23California Personal Income Tax - Individuals

Which circumstance generally allows a taxpayer to claim a California credit for taxes paid to another state?

  1. The taxpayer paid tax to another state on income also taxed by California Correct answer.
  2. The taxpayer paid federal income tax
  3. The taxpayer paid property tax to another state
  4. The taxpayer paid sales tax in another state

Explanation

California allows a credit for net income taxes paid to another state on income that is also subject to California tax. The credit prevents double taxation of the same income. Property, sales, and federal income taxes do not qualify for this credit.

Question 24California Personal Income Tax - Individuals

A California taxpayer uses the accrual method for business income. Which principle governs the timing of income recognition for California purposes?

  1. Income is recognized when the right to receive it becomes fixed Correct answer.
  2. Income is recognized when received in cash
  3. Income is recognized only when collected after year-end
  4. Income is recognized when invoiced and paid

Explanation

Under the accrual method, income is recognized when all events have occurred that fix the right to receive it and the amount can be determined with reasonable accuracy. Cash receipt is not required. This matches the federal accrual principle that California generally follows.

Question 25California Personal Income Tax - Individuals

A California taxpayer makes an estimated tax payment. What is the general consequence of underpayment?

  1. The taxpayer loses the exemption credit
  2. The taxpayer must file Form 100
  3. The taxpayer owes an underpayment penalty Correct answer.
  4. The taxpayer's return is automatically audited

Explanation

California imposes an underpayment penalty when required estimated tax payments are not made in sufficient amounts or on time. The penalty is computed based on the shortfall and the period of underpayment. Filing a return does not eliminate the penalty for missed installments.

Question 26California Personal Income Tax - Individuals

A single California taxpayer with no dependents has California gross income of $22,000 and is not claimed as a dependent by anyone else. Which filing requirement applies?

  1. The taxpayer must file only when claiming the renter's credit.
  2. The taxpayer may file only if California withholding was taken from wages.
  3. The taxpayer must file a California return because gross income exceeds the filing threshold for a single filer.
  4. The taxpayer is exempt from filing because gross income is below the threshold for a single filer. Correct answer.

Explanation

California requires a return only when gross income exceeds the filing threshold set for the taxpayer's filing status, and the threshold for a single filer without dependents is above $22,000. Because the taxpayer is not a dependent and has no special filing trigger, no return is required.

Question 27California Personal Income Tax - Individuals

A California resident pays $4,000 of mortgage interest on a qualified residence and has itemized deductions well above the standard deduction. How is the interest treated on the California return?

  1. It is deductible as an adjustment to gross income rather than as an itemized deduction.
  2. It is deductible only against California wages on the wage and withholding line.
  3. It is not deductible because California disallows all mortgage interest.
  4. It is deductible as an itemized deduction, subject to California's own limits on acquisition debt. Correct answer.

Explanation

California allows qualified residence interest as an itemized deduction, applying its own conformity rules and debt limits rather than simply mirroring federal amounts. A taxpayer who itemizes may therefore deduct the allowable portion on Schedule CA.

Question 28California Personal Income Tax - Individuals

A California taxpayer who is 70 years old and blind, and is not claimed as a dependent, claims the standard deduction. Which statement describes the California standard deduction?

  1. The standard deduction is increased for age and for blindness, with an additional amount for each condition. Correct answer.
  2. The standard deduction is a single flat amount that does not vary with age or blindness.
  3. The standard deduction is doubled for blindness but not for age.
  4. The standard deduction is replaced by the itemized deduction once the taxpayer turns 65.

Explanation

California's standard deduction includes an extra amount for taxpayers who are 65 or older and an additional extra amount for blindness, and the additions can stack. Filing status sets the base amount, and these personal conditions increase it.

Question 29California Personal Income Tax - Individuals

A California resident taxpayer has wages subject to California withholding and no other income. Which form does the taxpayer generally use to file the California individual income tax return?

  1. Form 540NR
  2. Form 100
  3. Form 568
  4. Form 540 Correct answer.

Explanation

California resident individuals file Form 540, the resident income tax return. Part-year residents and nonresidents use Form 540NR, while Forms 100 and 568 are business entity returns.

Question 30California Personal Income Tax - Individuals

A California taxpayer receives $1,200 of gambling winnings from a casino and has $2,000 of gambling losses. The taxpayer itemizes deductions. What amount may be claimed for California purposes?

  1. The winnings are taxable and losses are deductible only up to the winnings, so $1,200 of losses may offset the winnings. Correct answer.
  2. The $1,200 of winnings is excluded and the losses are ignored.
  3. The $2,000 of losses may be deducted in full against all income.
  4. Neither the winnings nor the losses are recognized for California purposes.

Explanation

Gambling winnings are taxable income, and gambling losses may be claimed as an itemized deduction only to the extent of gambling winnings. The excess $800 of losses is therefore not deductible.

Question 31California Personal Income Tax - Individuals

A California taxpayer sells a principal residence that she owned and used for six of the last eight years. She meets the ownership and use tests and has not excluded gain on another home in the prior two years. What is the maximum gain she may exclude for California purposes?

  1. $125,000 regardless of filing status.
  2. $500,000 for any filing status.
  3. No exclusion is allowed because she did not live there for all eight years.
  4. $250,000 for a single filer and $500,000 for a married couple filing jointly. Correct answer.

Explanation

California conforms to the federal exclusion of up to $250,000 of gain for a single filer and $500,000 for a married couple filing jointly who meet the ownership and use tests. The tests require two of the last five years, so six of eight years satisfies them.

Question 32California Personal Income Tax - Individuals

A California resident taxpayer receives $5,000 of Social Security benefits and has modest other income, so none of the benefits are taxable federally. How does California treat the benefits?

  1. California taxes half of the benefits regardless of federal treatment.
  2. California excludes the Social Security benefits from taxable income. Correct answer.
  3. California taxes the benefits only if the taxpayer is over 65.
  4. California taxes the full $5,000 of benefits.

Explanation

California does not tax Social Security benefits and does not conform to the federal formula that makes a portion taxable at higher income levels. The benefits are therefore excluded for state purposes even when part is federally taxable.

Question 33California Personal Income Tax - Individuals

A California taxpayer pays $3,000 of interest on a student loan and has income below the phase-out range. How is the interest treated on the California return?

  1. It is allowed as a deduction in the same manner as for federal purposes, subject to California's conformity. Correct answer.
  2. It is deductible only for loans used at California institutions.
  3. It is deductible only if the taxpayer itemizes deductions.
  4. It is never deductible for California purposes.

Explanation

California conforms to the federal student loan interest deduction, which is an adjustment to income subject to income phase-outs. The deduction is available whether the taxpayer itemizes or claims the standard deduction, and the school's location is irrelevant.

Question 34California Personal Income Tax - Individuals

A California taxpayer with two qualifying children has earned income of $28,000 and California earned income tax credit-eligible income within the limit. Which statement best describes the California Earned Income Tax Credit?

  1. It is available only to taxpayers with no qualifying children.
  2. It is a nonrefundable credit that may only reduce tax to zero.
  3. It is available only to taxpayers who itemize deductions.
  4. It is a refundable credit that requires earned income and limits based on California earned income. Correct answer.

Explanation

The California Earned Income Tax Credit is refundable, so it can produce a refund beyond tax owed, and it requires earned income within specified limits. Qualifying children can increase the credit amount.

Question 35California Personal Income Tax - Individuals

A California taxpayer's employer provided $3,000 of employer-paid educational assistance that qualified for federal exclusion under the applicable rules. How is the benefit treated for California purposes?

  1. California excludes the amount only for graduate-level courses.
  2. California taxes half of the excluded amount.
  3. California conforms to the federal exclusion, so the amount is not taxable. Correct answer.
  4. California taxes the full amount because it does not recognize educational assistance.

Explanation

California conforms to the federal exclusion for qualifying employer-provided educational assistance within the statutory limit. The excluded amount is therefore not reported as California wages.

Question 36California Personal Income Tax - Individuals

A California resident taxpayer receives $10,000 of dividends from a domestic corporation and $2,000 of interest from U.S. Treasury bonds. Which statement is correct for California purposes?

  1. The dividends are exempt and the Treasury interest is taxable.
  2. The Treasury interest is exempt but the dividends are taxable. Correct answer.
  3. Both amounts are taxable at the same rate.
  4. Both amounts are exempt because they are federally connected.

Explanation

California exempts interest on U.S. Treasury obligations from state income tax, though the amount is still reported for information purposes. Corporate dividends, by contrast, are taxable to California residents.

Question 37California Personal Income Tax - Individuals

A California taxpayer received a $6,000 state income tax refund last year and deducted state income taxes as an itemized deduction, receiving a federal and California benefit from the deduction. How is the refund treated on the current California return?

  1. It is never taxable because it is a refund of the taxpayer's own money.
  2. It is taxable to the extent the prior deduction reduced tax, following the federal recovery rule. Correct answer.
  3. It is fully exempt for California purposes even if a benefit was received.
  4. It is taxable only if the taxpayer claimed the standard deduction last year.

Explanation

Under the tax benefit rule, a refund of state income taxes is included in income to the extent the prior year's deduction produced a tax benefit. California follows this recovery principle, so the taxable portion depends on the benefit received.

Question 38California Personal Income Tax - Individuals

A California taxpayer exercises an incentive stock option and the bargain element is not a regular tax item but is included in alternative minimum taxable income. What is the likely California consequence?

  1. No California effect because California repealed its alternative minimum tax.
  2. The bargain element is taxed as ordinary wages for regular California tax.
  3. The bargain element is exempt from all California tax.
  4. A California alternative minimum tax may apply because California has its own alternative minimum tax. Correct answer.

Explanation

California imposes its own alternative minimum tax with a separate exemption and rate structure, and the incentive stock option adjustment is a common trigger. A taxpayer with a large bargain element may owe California alternative minimum tax even when regular tax is unaffected.

Question 39California Personal Income Tax - Individuals

A California resident taxpayer is a 60% owner of an S corporation doing business only in California and materially participates in the business. How is the taxpayer's share of ordinary business income treated for California purposes?

  1. It is exempt because S corporation income is taxed only at the entity level.
  2. It is taxed as passive income regardless of participation.
  3. It is reported on the shareholder's California return and taxed at the shareholder level. Correct answer.
  4. It is taxed only if distributed as a cash dividend.

Explanation

An S corporation generally does not pay California income tax at the entity level; instead, its income flows through to shareholders and is reported on their individual returns. A materially participating shareholder treats the income as active, and distributions of previously taxed income are not taxed again.

Question 40California Personal Income Tax - Individuals

A California resident taxpayer converts a traditional IRA to a Roth IRA and includes $40,000 in federal gross income. The taxpayer's California marginal rate is 9.3%. What is the California treatment?

  1. California exempts the conversion because Roth accounts are federally tax-free.
  2. California taxes the conversion only when the Roth account is later distributed.
  3. California taxes the conversion income in the year of conversion, subject to any applicable deferral election. Correct answer.
  4. California taxes the conversion at a flat 15% rate.

Explanation

California generally follows the federal rule that a traditional-to-Roth conversion is taxable in the year of conversion, and it allows the same election to spread income over two years when that election is available. The conversion is not deferred until later Roth distributions.

Question 41California Business Entity Taxation

Which California entity-level tax applies to a corporation doing business in the state?

  1. A property tax surcharge on inventory
  2. The corporate franchise tax measured by net income Correct answer.
  3. A flat annual privilege tax based on gross receipts
  4. A payroll-based employment tax

Explanation

California imposes the franchise tax on corporations doing business in the state, measured by net income allocated to California. The minimum franchise tax applies even when income is low or absent.

Question 42California Business Entity Taxation

What is the minimum annual franchise tax owed by a California corporation subject to the franchise tax?

  1. $100
  2. $800 Correct answer.
  3. $1,500
  4. $5,000

Explanation

California corporations subject to the franchise tax owe at least $800 per year, even if their net income measure produces a smaller amount. This minimum applies to both C corporations and S corporations.

Question 43California Business Entity Taxation

A newly incorporated California C corporation begins doing business on July 1. When does its first franchise tax obligation generally arise?

  1. At the start of the following calendar year
  2. Immediately upon commencing business in the state Correct answer.
  3. On the first day of the month after incorporation
  4. On the date it files its first federal return

Explanation

The franchise tax obligation attaches when the corporation begins doing business in California, and the $800 minimum applies for that first year. Incorporation alone can also trigger the obligation.

Question 44California Business Entity Taxation

Which entity type is generally subject to California's franchise tax rather than the annual limited liability company fee?

  1. A limited liability company
  2. A general partnership
  3. A limited partnership
  4. A corporation Correct answer.

Explanation

Corporations are subject to the franchise tax, while LLCs pay an annual fee plus a separate LLC tax. Partnerships generally are not subject to the corporate franchise tax.

Question 45California Business Entity Taxation

What is the annual limited liability company tax owed by most California LLCs?

  1. $800 Correct answer.
  2. $0
  3. $2,000
  4. $250

Explanation

California LLCs owe an $800 annual LLC tax, separate from the graduated annual fee based on total income. The tax applies regardless of profitability.

Question 46California Business Entity Taxation

The California annual LLC fee is measured by which base?

  1. Taxable income after net operating losses
  2. Gross receipts from California sales only
  3. Total income from all sources Correct answer.
  4. California apportioned net income

Explanation

The LLC annual fee is based on total income from all sources, not just California-source income. The fee increases in steps as total income rises above specified thresholds.

Question 47California Business Entity Taxation

An LLC with total income of $600,000 for the year owes which annual LLC fee amount (in addition to the $800 tax)?

  1. $900
  2. $6,000
  3. $0
  4. $2,500 Correct answer.

Explanation

The LLC fee schedule imposes $2,500 when total income is at least $500,000 but less than $1,000,000. The $800 annual tax is owed separately.

Question 48California Business Entity Taxation

Which California return does an S corporation generally file?

  1. Form 100
  2. Form 565
  3. Form 540
  4. Form 100S Correct answer.

Explanation

California S corporations file Form 100S, the S corporation franchise and income tax return. Form 100 is used by C corporations.

Question 49California Business Entity Taxation

California generally conforms to the federal S corporation election, but what additional state-level requirement applies?

  1. The corporation must elect S status only for state purposes
  2. The corporation must be publicly traded
  3. The corporation must file a separate state S election Correct answer.
  4. The corporation must have at least ten shareholders

Explanation

California requires a corporation to file a state S corporation election (Form 2553 equivalent filed with the FTB) in addition to the federal election. Without the state election, the corporation is taxed as a C corporation for California purposes.

Question 50California Business Entity Taxation

For California S corporation purposes, how is the 1.5% entity-level tax generally computed?

  1. On gross receipts without deduction
  2. On shareholder distributions
  3. On total payroll only
  4. On net income apportioned to California Correct answer.

Explanation

California S corporations pay a 1.5% tax on net income apportioned to the state, subject to the $800 minimum. The tax is imposed at the entity level.