California Laws to Consider for Tax Preparation

 | 
September 16, 2022
UPDATED: 
September 16, 2022
California Laws to Consider for Tax Preparation

As the tax season approaches, everybody has a unique approach to tax preparation. In the US, tax laws vary from state to state. And over the years, the state of California has enacted a number of laws that impact taxes. These laws can be difficult to keep track of, and they often change from year to year. As a result, it's important to consult with a tax professional or an accountant to ensure you're taking advantage of all the tax breaks and deductions to which you're entitled.

The first step is to determine what type of filing status you will use. In general, most people will file as either single or married—filing jointly. However, other options are available if you are divorced or widowed or have a dependent child. Once you've determined your filing status, the next step is to gather all the necessary documentation. This includes your W-2 form from your employer, 1099 forms for any interest or dividends you've earned, and receipts for any deductible expenses.

If you're like most people, you'll also need to take some time to figure out which deductions you're eligible for. Common deductions include charitable donations, medical expenses, and home office expenses. Once you've gathered all the necessary documentation, the next step is to fill out your tax return. You can do this yourself using tax software, or you can hire a professional tax preparer.

There are many things that you may not be aware of when it comes to taxes and California. Here are some things to keep in mind:

1. California's standard deduction is different from the federal standard deduction.

As you may know, the standard deduction is the amount of money you can deduct from your taxable income. Since 2018, the federal standard deduction has been $12,000 for single filers and $24,000 for joint filers. However, the standard deduction in California is only $4,236 for single filers and $8,472 for joint filers. This is no longer a secret; the state's standard deduction is significantly lower than the federal one. However, it is possible to take an itemized deduction if it exceeds the state's standard deduction. And for that, you need a professional to help you with the tedious paperwork.

Depending on your location, for instance, a tax preparer in Sacramento can help you understand the process and get your taxes in order. The benefit of having a tax preparer is that you can maximize your deductions by itemizing them. This can save you a significant amount of money on your taxes. You can use that money to invest in your future or go on a much-needed vacation. Isn't this the best way to use your tax return?

2. California has a sales tax, but there are some exceptions.

Most states have a sales tax, and California is no different. The state's sales tax rate is 7.25%. However, some items are exempt from the sales tax, including groceries, prescription drugs, and certain medical devices. Additionally, many cities and counties have their own sales tax rates. So, it's important to be aware of the sales tax rate in your area. No matter what, you should always keep receipts for any major purchases to track your sales tax. 

In addition, if you made any online purchases from out-of-state retailers, you may be responsible for paying use tax. The use tax is similar to the sales tax but applies to purchases made from out-of-state retailers.

3. There is no state inheritance tax in California.

When someone dies, their assets may be subject to inheritance tax. Inheritance tax is applied on property transfers from a deceased person to their heirs. However, California does not have an inheritance tax. So, if you're inheriting property from a loved one who resided in California, you don't have to worry about paying inheritance tax on the transfer. 

As a matter of fact, California is one of a handful of states that does not have an inheritance tax. However, some federal taxes may apply to inherited property, so it's important to speak with a tax professional about the specific details of your situation.

4. California has a renter's credit.

If you're a renter in California, you may be eligible for the renter's credit. To qualify for the credit, you must have a household income that does not exceed $35,500. The credit is equal to 10% of the rent you paid during the year, up to a maximum credit of $60. The credit is available for both single filers and joint filers. 

The credit is non-refundable, which means it can only reduce your tax liability to zero. However, any unused portion of the credit can be carried forward to future tax years. Moreover, the credit is only available for tax years 2018 and 2019. So, if you're a renter in California, be sure to take advantage of this credit while it's still available.

5. There is no state tax on social security benefits in California.

Social security benefits are subject to federal taxes, but they're not subject to state taxes. So, if you live in California and receive social security benefits, you don't have to pay state taxes. However, that income may be subject to state taxes if you have other income, such as a pension or investment revenue. 

The federal taxes you pay on your social security benefits depend on your income and filing status. Additionally, if you receive social security benefits and have other income, you may be required to pay federal taxes on a portion of these benefits. So, be sure to speak with a tax professional about your specific situation.

6. There is no state estate tax in California.

The estate tax is legitimate in many states, but California does not have an estate tax. So, if you're inheriting property from a loved one who resided in California, you don't have to pay estate tax on the transfer. However, some federal taxes may apply to inherited property, so it's important to speak with a tax professional about the specific details of your situation.

7. You may be eligible for the California Earned Income Tax Credit (EITC).

California Earned Income Tax Credit (EITC) is a refundable tax credit for low- and moderate-income taxpayers. The credit equals a percentage of your earned income—from employment or self-employment—up to a maximum credit of $2,881. 

The credit is available for both single filers and joint filers. Additionally, income limits apply to the credit, and it's refundable, which means it can reduce your tax liability to below zero. So, if you're a low- or moderate-income taxpayer in California, take advantage of this credit.

Conclusion

The most amazing thing about California is that there are so many different laws to consider regarding tax preparation. As you can see, there are a few essential California laws to consider for tax preparation. By understanding these laws, you can be sure that you're taking advantage of all the deductions and credits available to you. 

Additionally, by knowing and following compliance laws, you can ensure you're not paying unnecessary taxes. But talk to a professional to take advantage of all the deductions and credits available to you.

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  • Mae spearheads our sales department and holds the responsibility of ensuring we keep up with the times and does our best to relate our service to the highest brands and quality businesses in Los Angeles.

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