Would Trump’s tax plan cost Californians and raise our taxes? There are too many trial balloons and false starts coming out of Washington on the “tax” front, but we are monitoring these developments and advising clients as they navigate the complex issues facing today’s business owners. The latest income tax overhaul released on Wednesday contains a troubling proposal for those of us who live and work in California:
We would no longer be able to deduct state and local taxes
This proposed change hurts Californians more than any other state in the union. California has some of the highest tax rates in the country, especially as your income rises.
The Sacramento Bee provided some interesting analysis in an article today regarding the amount of state and local taxes paid by typical Californians. “Californians deducted the equivalent of 5.5 percent of total income in 2014.” In addition “the average deduction claimed by Californians earning between $75,000 and $100,000 in 2014 was $4,486, according to a Bee review of IRS data. Under the current system, a California family in the 15 percent federal income bracket that deducted that much in state income taxes would reduce their federal taxes by around $700.”
In another important insight, the Bee noted: “In 2014, the amount Californians deducted for state income taxes was three times the amount deducted for property taxes or charitable contributions and 25 percent more than the amount deducted for mortgage interest. It dwarfed the amount paid in alternative minimum tax – which insures the wealthy pay enough after deductions – by a factor of ten.”
Lawmakers are working to remove this controversial component of the newly proposed tax plan. It has been pitched as “easier” and “simplified tax code” and “increased standard deductions.” The devil is always in the details, and we will continue to monitor developments.
What would Trump’s tax plan cost Californians and how will it affect your tax picture? If you are a business owner, high wage earner or have offshore bank accounts or investments your tax planning and tax preparation have become quite complex. You also face a much higher likelihood of an IRS audit when compared to the general population. Allen Barron provides extensive tax, accounting, legal and business advisory services to San Diego and the greater Southwest. If you are interested in reducing your tax burden and maximizing retained earnings, we invite you to contact us for a free consultation at 866-631-3470.