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Potential California Tax Increases

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Democrats are at it again in California.  I personally feel that the majority of bills created by California Democrats DO NOT support what the residents of California wants. So, let’s talk about a new one, AB 1253, which can be viewed at http://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=201920200AB1253

 

The California Democrats  have proposed a significant tax hike on taxable income of $1 million and higher. Legislators say the tax hike would raise more than $6 billion a year to help K-12 schools and government services hurt by the coronavirus pandemic.  I don’t know about your, but I have heard many times in the past that additional taxes and fees were going to the schools, for example the Lottery proceeds were supposed to go to the school, but what they didn’t’ communicate was they were taking away existing funding, and replacing it with Lottery.  In California we pay one of the highest state income taxes, sales tax, and gas tax.  I personally feel as a CPA and business owner, we the people need to tell our representatives, NO MORE TAXES and they need to become fiscally responsible.

 

Anyway, here are the tax rates that AB 1253 is proposing:

 

  • A 1% tax on income above $1 million, but not over $2 million
  • A 3% tax on income over $2 million, but not over $5 million
  • A 3.5% tax on income over $5 million

 

The bill would apply retroactively to tax years beginning on or after January 1, 2020, and would be permanent.

 

Under existing law, the highest tax rate for individuals is 12.3%, but when your income is over $1,000,000 there is  an additional 1% for income over $1 million often called a “mental health tax”.   With all the mental health tax collected, California shouldn’t have a mental health problem.  However, look at our homeless challenges.  Again, from a business perspective, the State seems to just be out of control in spending and just wants to tax the residents more and more and have no accountability.

 

If AB 1253 were enacted, the 13.3% rate would rise to 14.3% for incomes above $1 million and the state’s highest rate would be raised to 16.8% for incomes above $5 million.

The proposal would result in a top tax rate of nearly 54% for federal and state taxes for the highest earners.   If Biden is elected, he has already stated he would roll back the Trump tax cuts, so the combined tax rate would increase even more.

 

California already has the highest state tax rate at 13.3%, Hawaii is the second highest at 11%.  Most other states have a state tax of about 6%, and  Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming do not have an income tax.

 

The continued tax increases are going to continue to move wealthy individuals out of the state.  However, a change of residency needs to be done right, so if you are considering to change your residency, please contact us.  Most of the clients we have helped with changing residency, have done so properly and maintain a second home in California.

 

At this point, we highly recommend that you contact your State representative, and voice your opinion on the proposed tax increase and perhaps a discussion about fiscal responsibility.  Please contact us at 949-756-8080 if we can be of assistance.

Why you shouldn’t wait to file your 2018 income tax return

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The IRS opened the 2018 income tax return filing season on January 28. Even if you typically don’t file until much closer to the April 15 deadline, this year consider filing as soon as you can. Why? You can potentially protect yourself from tax identity theft — and reap other benefits, too.

What is tax identity theft?
In a tax identity theft scheme, a thief uses your personal information to file a fraudulent tax return early in the tax filing season and claim a bogus refund.

You discover the fraud when you file your return and are informed by the IRS that the return has been rejected because one with your Social Security number has already been filed for the same tax year. While you should ultimately be able to prove that your return is the legitimate one, tax identity theft can cause major headaches to straighten out and significantly delay your refund.

Filing early may be your best defense: If you file first, it will be the tax return filed by a would-be thief that will be rejected — not yours.

What if you haven’t received your W-2s and 1099s?
To file your tax return, you must have received all of your W-2s and 1099s. January 31 was the deadline for employers to issue 2018 Form W-2 to employees and, generally, for businesses to issue Form 1099 to recipients of any 2018 interest, dividend or reportable miscellaneous income payments.

If you haven’t received a W-2 or 1099, first contact the entity that should have issued it. If that doesn’t work, you can contact the IRS for help.

What are other benefits of filing early?
Besides protecting yourself from tax identity theft, the most obvious benefit of filing early is that, if you’re getting a refund, you’ll get that refund sooner. The IRS expects more than nine out of ten refunds to be issued within 21 days.

But even if you owe tax, filing early can be beneficial. You still won’t need to pay your tax bill until April 15, but you’ll know sooner how much you owe and can plan accordingly. Keep in mind that some taxpayers who typically have gotten refunds in the past could find themselves owing tax when they file their 2018 return due to tax law changes under the Tax Cuts and Jobs Act (TCJA) and reduced withholding from 2018 paychecks.

Need help?
If you have questions about tax identity theft or would like help filing your 2018 return early, please contact us. While the new Form 1040 essentially does fit on a postcard, many taxpayers will also have to complete multiple schedules along with the form. And the TCJA has changed many tax breaks. We can help you ensure you file an accurate return that takes advantage of all of the breaks available to you.

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