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Disqualifier: I am a professional tax practitioner. I have done my best to research any question that I am responding to and endeavor for that information to be accurate. However, because I, as well as others in this field are not perfect, PLEASE seek the advice of other experts so that you will have 100% accurate information. Thank you.

Bruce Tyler, EA Sunland, CA.
You will need to file 2 state income tax returns - one in the state in which you reside and one in CA. The CA form is 540NR. Your income, as well as your wifes' income must be reported on the CA return. CA provides for a credit on taxes paid to another state on income earned in that state. This is FOR THE CALIFORNIA RESIDENT with income outside of CA. I do not know which state you live in, but I will assume they have a similar provision wherein you would report all income (yours' and you wifes') and then be provided a credit for the tax paid to California on California sourced income. To sum up:

California: All income reported. Credit for taxes paid to another state on non CA souced income will be provided on CA Sch S.

Your State: (Assumption) All income reported. Credit for taxes paid to California on CA sourced income should be a credit on your state income taxes return.

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