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Allocating non-wage business and pass-through income for part-year residents or non-residents

Total sources income under California law and California Sources income

When entering Schedule C, Rent, Farm, 4835, and K-1 income, it's important to distinguish between
Total Sources income under California law
 and
California Sources income
.
  • Total sources
     is the amount of federal income that's taxable to California, regardless of their residency status.
  • California sources
     apply to part-year or non-residents only. This includes all income while a resident of California, and/or income from California Sources as a nonresident.
For any activity with a
CA
 ZIP Code that's not using the multi-state allocation spreadsheet, 100 percent of federal amounts are both Total Sources and California Sources.
Activities with any other ZIP Code transfer 100 percent of federal amounts to
Total Sources
, and 0 percent to
California Sources
.
For any activity, regardless of the ZIP Code, allocated using the multi-state allocation spreadsheet, use the
California Total Sources
 (CA) column to allocate all income taxable under California law (as if the taxpayer was a resident) and the
California Sources
 column to allocate instate portions. Any information entered in the multi-state allocation spreadsheet will transfer to the corresponding field and column on the
CA
 input screens.

Form 540NR

Form 540NR calculates income on lines 12–19 and tax on line 31 as if the taxpayer was a full-year California resident. Income on these lines is always calculated at 100 percent of the federal, regardless of any allocations. Therefore, tax on line 31 is based on income from all sources.
Form 540NR then uses Schedule CA (540NR) to calculate income from California Sources. The return calculates an in-state ratio of
California sourced income
 to
Total source income
 to apply against the tax originally calculated as a full-year resident. This determines the tax liability on Form 540NR.

Schedule CA (540NR)

If
Total Sources under California law
 doesn’t equal 100 percent of federal amounts, the difference will result in an addition or subtraction on Schedule CA (540NR), columns B and C. Schedule CA (540R), column E will calculate in-state, California sourced income based on federal data entry, or amounts entered in the California Sources PY/NR Only columns of
CA
 input screens. Review the California Schedule CA Reconciliation Report, titled
Rec Bus
 and
Rec K1
 in forms view, for activity-by-activity calculations of
Total sources
 and
California sources
.
Review Schedule CA (540NR), Schedule CA (540NR) instructions and the Reconciliation worksheets, titled
Rec Bus
 and
Rec K1
 in forms view, for more information on the calculations in determining
Total sources
 and
California sources
.
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