Most taxpayers in California will be required to file a state tax return. But if you earned less income than the current year filing requirements, you may not have to file this year. Read the tax form instruction booklet for details about the filing thresholds. You may wish to learn how to prepare California taxes even if you are not required to do so, especially if you are entitled to a refund.http://www.ftb.ca.gov/forms/2010/10_540a_540ins.pdf 

Earned income from wages and self-employment earnings is taxable in California. Some kinds of unearned income are also taxable, such as retirement distributions, lottery winnings and bank interest. Unlike many other states, the state of California does not tax unemployment compensation.http://www.ftb.ca.gov/forms/2010/10_540a_540ins.pdf

Before starting the forms, take a few minutes to gather up the necessary tax paperwork. This will save you from having to search for documents after you begin. You will need the following:

1. Your Social Security number
2. Your complete mailing address
3. The full name and Social Security number of your spouse/domestic partner, if you will file jointly
4. Your earned income received – If you are an employee, this will be reported to you on Form W-2 or Form 1099 as state taxable wages. If you are self-employed, you'll need to add your gross earnings and then subtract the amount of your qualified business expenses.
5. The unearned income you received that is also subject to state tax – Examples of this include rental property income, capital gains and pension payments.
6. Your state income taxes already paid – Employees will see this on Form W-2 as state taxes withheld. Self-employed individuals will use the total of any estimated state taxes paid during the year.
7. A copy of your completed federal income tax return, if you are filing onehttp://www.ftb.ca.gov/forms/2010/10_540a_540ins.pdf  

Your California state tax return will use your federal adjusted gross income as a starting point for calculating your state tax liability, so you need to complete your federal form before starting on your state return. If you will not be filing a federal return, you may want to speak with a tax professional who can help you to figure this amount.http://www.irs.gov/pub/irs-pdf/f1040.pdf 

If possible, consider filing your California tax return electronically. E-filing saves time, money and paper by allowing you to prepare and submit your tax return using only your computer. This method allows for faster processing and, if you are due a refund, you may be able to receive it up to six weeks sooner by e-filing. The state of California offers free e-filing of the state return for most taxpayers on the Franchise Tax Board website.http://www.ftb.ca.gov/online/calfile/index.asp 

There are also software companies that offer free federal and state e-filing for certain taxpayers. If you will be filing your federal income tax return using tax software or a tax preparation website, you will usually be given the option to include the state return for an additional fee. To file your California return using any of these methods, simply follow the program instructions and use your tax documents.http://www.ftb.ca.gov/individuals/efile/allsoftware.shtml

If you have Internet access, you can download your Form 540 "California Resident Income Tax Return" and the tax form instruction booklet from the Franchise Tax Board website. If you do not have access to the Internet, you can generally obtain hard copies of these from your local library.http://www.ftb.ca.gov/forms/2010/10_540.pdf 

To file a paper return, begin by writing your full name and Social Security number, as well as your spouse/domestic partner's, if applicable, on the lines provided. Select the filing status you used on your federal return and enter the appropriate number of exemptions.http://www.ftb.ca.gov/forms/2010/10_540.pdf

At this point, you should stop and read the tax instructions carefully. The instruction booklet will explain various income adjustments you may need to make as well as tax credits you may be able to claim. As you work through the state return, consult the instructions for help when necessary.http://www.ftb.ca.gov/forms/2010/10_540a_540ins.pdf 

Enter your state wages as shown on Form W-2 on line 12 of the California return. Take out your IRS Form 1040 and carry the amount of your federal adjusted gross income to line 13 of the return. Then make any necessary income adjustments on lines 14 through 16 to calculate your state adjusted gross income on line 17. Subtract your standard or itemized deductions to figure your net taxable income on line 19.http://www.ftb.ca.gov/forms/2010/10_540.pdf

Consult the tax table located in the tax form instructions and enter your tax due on line 31. Subtract any applicable state tax credits you can claim and the amount of state income taxes you have already paid through withholding or estimated tax payments. Your final result will be either an additional balance due on line 111 or a refund on line 115.http://www.ftb.ca.gov/forms/2010/10_540.pdf 

If you have a refund, you can choose to receive it via direct deposit by writing in your bank's routing number and personal account number in the boxes provided. Sign and date the return and have your spouse/domestic partner do the same if necessary. Make a copy of the completed form for your personal records. If you have a balance due, write out a check or money order for the balance.

Send the form and any payment to the address listed on the form. If you are not able to submit your return by the April 18, 2011, filing deadline, you can learn about how to get a state tax extension in California.http://www.ftb.ca.gov/forms/2010/10_540a_540ins.pdf