Itemizing charitable deductions on California taxes while taking standard deduction + 2020 charitable deduction on federal taxes

Question

This question is pretty specific, but it's worth a try. Apologies in advance for the length; I'm aiming to be as clear as possible.

In 2020, as a provision of the CARES Act, it is possible to take the standard deduction on federal income tax and additionally deduct up to $300 worth of charitable contributions (Form 1040, Line 10). This $300 deduction is above the line, i.e., it reduces adjusted gross income (Form 1040, Line 11).

Enter California state taxes. On a California tax return, adjusted gross income (from Line 11 of the 1040) is the starting point, then you attach Schedule CA (540) (instructions) to make further adjustments to both income and deductions (for example, as required by discrepancies between federal and state law).

It's possible to itemize on California taxes while taking the standard deduction on federal taxes. This is done by checking the box at the top of Part II of Schedule CA (540) and attaching a federal Schedule A.

Here's where I start to get confused. The federal Schedule A asks on Line 11 for my total charitable contributions. Let's call that amount $X. Of course, if I were itemizing on my federal taxes, I'd only be able to claim the $X (on Schedule A) and not the $300 (on Form 1040). But because this Schedule A is just hypothetical -- it's not part of my actual federal tax return -- the $300 deduction is part of the adjusted gross income California is telling me to use, and then the attached Schedule A claims $X, which would result in $300 worth of double-dipping.

Now, form CA (540) should be where this gets ironed out. But the instructions are hard to follow (the relevant parts can be found by searching for "CCSD", which comes up in three places). In some places I literally don't know what the instructions are telling me to do. What especially baffles me is that the instructions for Part II (Adjustments to Federal Itemized Deductions), Line 11 seem to be telling me to write something in the Additions column (rather than Subtractions), which would seem to result in additional double-dipping (the "Additions" in Part II increase my deductions, not my income).

Can anyone walk me through what to do here and why it comes out right in the end?

Answer 1

Let me say first that I have no experience doing California taxes. However, I think I can make sense of the Schedule CA (540) instructions for you.

First, it is important to understand how the instructions for Part I are organized. The Part I instructions are split into two groups: There is a relatively short section devoted to "Column A," and a much larger section referring to "Column B & Column C." Each of these sections has instructions related to the "CCSD" (Charitable Contribution with your Standard Deduction).

In Column A, here is what the instructions have to say:

Line 22

Add line 10 through line 18a and line 19 through line 21. However, if you claimed any of the following deductions below or if you made any of the adjustments described in the instructions for federal Schedule 1 (Form 1040), line 22, include that amount in the total you enter in column A, line 22.

• Charitable contribution with your standard deduction (CCSD) on federal Form 1040 or 1040-SR, line 10b
• Foreign housing deduction from federal Form 2555, Foreign Earned Income from Schedule 1 (Form 1040), line 22

Line 23 - Total

Subtract line 22 from line 9. This amount should match the amount entered on federal Form 1040 or 1040-SR, line 11.

When you get to Column A, Line 22, you are supposed to add up everything from Line 10 through Line 21, but also add the extra $300 for the CCSD that you had in your Form 1040, Line 10b. This is done because we want Column A to match your Federal 1040 return numbers, and the $300 deduction is not accounted for anywhere else on this Form in Column A. Then in Line 23, you subtract the amount in Line 22 (which includes the extra $300 deduction) from Line 9. When you do this, your Line 23 amount here should match what you had on your 1040, Line 11 (your Federal Adjusted Gross Income), just as the instructions here say that it should.

Now for Columns B & C:

Line 22 - Add line 10 through line 18a and line 19 through line 21 in column B and column C.

If you claimed a charitable contribution with your standard deduction (CCSD) from federal Form 1040 or 1040-SR, line 10b, include that amount in the total you enter on column B, line 22. Enter the amount and “1040, CCSD” on the dotted line next to line 22. This amount may only be claimed for California purposes as an itemized deduction. See instructions for Part II, line 11, for more information.

and

Line 23 - Total

Subtract line 22 from line 9 in column B and column C.

Also, transfer the amount from:

• Line 23, column B to Form 540, line 14

If column B is a negative number, transfer the amount as a positive number to Form 540, line 16.

To understand how this works, let's say that you don't have any other adjustments in Columns B or C at all; the CCSD is the only adjustment we need to make here.

For Column B, Line 22, they want you to add up Lines 10-21, and then add in the $300 for the CCSD here. If you don't have anything in Column B, Lines 10-21, then Column B, Line 22 will be $300.

Then in Column B, Line 23, you need to subtract Column B, Line 22 from Column B, Line 9. If you don't have anything in Column B, Line 9, then $0 - $300 will give you a value of Negative $300 for Line 23. Now, the instructions say that if Column B, Line 23 is negative, then put that amount as a positive number in your California Form 540, Line 16. The result of that is to add $300 to your income for state tax purposes, which cancels out the $300 deduction from your Federal 1040.

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Part II of the form is where you now include all of your charitable contributions as an itemized deduction. I agree that the mention of the CCSD in the instructions in relation to Part II, Line 11, Column C is not clear. But Columns B and C in Part II should only be used when there is a difference in what is deductible between Federal law and state law, and the instructions list a few examples. If you include all of your charitable cash gifts on the Federal Schedule A that you are completing for your state return, and all of those are allowable in California (in most cases they are), then you won't enter anything in Part II, Line 11, Columns B or C.