As the saying goes, there are two things in life that are certain: death and taxes. Taxes are necessary because they fund government services. Without taxes, the government will have a hard time delivering public services. Taxes are used to fund government spending on public goods and services.
The government imposes various types of taxes. One is income tax, which is levied on a person’s or business’s income. It is the federal government that collects the federal income tax. State income tax is collected by the state where a taxpayer resides or earns income.
If you are an earning resident in California, you are required to pay California income tax. Businesses are also required to file their income tax returns.
Taxes are complicated. If you are dealing with taxes, it is best to speak with a professional. There are deadlines that you have to consider, forms to fill out, and various matters to consider when filing tax returns. A financial expert can guide you and assist you with your tax concerns.
Top 5 Things About California Income Tax
- California personal income tax is levied on the salaries, wages, investments, pensions, or other forms of income of an individual or household. Wage and salary income, however, does not include value of benefits, such as workers’ health coverage. Capital gains, interests, and dividends are considered income in California; thus, they are subject to income tax.
Social Security benefits are not taxed, but they may be subject to federal taxes.
- The higher your income, the higher your taxes will be. California uses a graduated rate system for income tax, depending on your earnings. It has nine different rates: one percent to 12.3%. The tax rates depend on your income, residency, and filing status. If you’re earning over $1 million, you have to pay an additional 1 percent income tax (called mental health services tax).
If you earn $10,412 or less, you must pay income tax equivalent to 1% of your income. If you earn $698,272 or more, your income tax rate is 12.3% of the amount over $698,271.
Thus, for higher-income households, income tax rate is considered among the highest in the country. On the other hand, it is also considered the lowest income tax rate for the lower-income households.
- Deductions are allowed on the income taxes.
- Standard deductions: In 2023, taxpayers can deduct their taxable income by $5,363 for single filers. For married couples, head of household, or qualifying surviving spouses, the standard deduction is $10,726.
- Itemized deductions: If the amounts exceed the standard deductions, you can still qualify for the itemized deduction. Among the itemized deductions allowed include the following:
- Dental and medical expenses
- Home purchase interest for mortgage up to $1,000,000
- Job expenses
- Certain miscellaneous expenditures
- Losses in gambling
- Disaster loss deduction: If the president or governors declares a disaster, you can deduct a casualty loss from the income you earned. To qualify for the deduction, the damage must be sudden or unexpected, such as during an earthquake or flood.
- IRA deduction
- Your residency status affects your income tax.
Here’s how:
- If you are a resident, all income you derive, even if outside California, are subject to income tax.
- If you’re a part-year resident, all income that you receive while a resident is taxed. Also, income you earn from California sources is subject to income tax.
- If you’re a non-resident, only income earned from California sources is subject to tax.
You are considered a resident if you fall in any one of the following categories:
- You are residing in California for a permanent purpose (not temporary or transitory) or
- You reside in California but you are temporarily away.
- Nonpayment of California income tax is subject to penalty. If you cannot pay your taxes on time, the state allows taxpayers an extension to pay their taxes. Payment of income tax in California follows the federal deadline. After the deadline or its extension, if you still cannot pay your bill, there are payment plans available. However, this applies only if you owe less than $25,000.
Nonpayment of taxes due results in a penalty. You will be penalized 5% of the amount of California income tax you owe per month, up to a maximum of 25% penalty.
Since there are different types of taxes, there are also different due dates and reporting requirements. Make sure that you understand your tax obligations to avoid delinquency.
Time to Speak with a Financial Adviser from Top Priority Financial Solutions.
Talk to a financial expert who knows that ins and outs of taxation in order to avoid paying penalties. Top Priority Financial Solutions specializes in tax and credit problems in California and beyond. If you are having tax and other financial issues, want to rebuild your credit score, or deal with debt collectors, call us and we’ll help you with your current predicaments. Our financial experts and advisors can assist and give you sound financial advice and solutions appropriate to your current situation.
Get in touch with us today! Call us at (424) 240-7656 or email shawnta@tpfinancialsolutions.com. You may also visit our office located at 13413 Crenshaw Blvd. Hawthorne.
