Question

15. California allows the same business expense deductions that are allowed on the federal return, with a few exceptions. Differences in expenses are reported on the Schedule CA (540), Part I, Section B, line 3, column B or C.

Answer 1

You’re right — California generally follows federal treatment of business expenses, but where it differs you report adjustments on Schedule CA (540), Part I (wages and other income), Section B, line 3 (Business income or loss). Here’s how to handle it and what the columns mean:

- Column A — Federal amount: enter the net business income or loss as shown on your federal return (Schedule C net profit/loss as reported on Form 1040).
- Column B — Subtractions: enter amounts to subtract from the federal amount to arrive at California income. Use this when California allows a deduction that was not taken on the federal return (rare for business line items).
- Column C — Additions: enter amounts to add back to the federal amount. Use this when an expense deductible on the federal return is not deductible for California (this is the common case).
- Column D — California amount: calculate Column A + Column B − Column C (Schedule CA will show the resulting CA business income/loss).

Common types of differences that often require an adjustment (examples — check the current FTB instructions for each item):
- Differences in depreciation, Section 179, or bonus depreciation rules between federal law and California conformity.
- Any federal-only deductions that California disallows (add back on Column C).
- State tax refunds, credits, or other state-specific items that affect business income differently for CA.

If you want, tell me the specific expense(s) or federal deduction(s) you’re concerned about and I’ll tell you whether California typically conforms and how to report any adjustment on Schedule CA.