How might my taxes be affected by the new president and his administration?
President Trump entered office on promises to reduce income taxes for Americans, but many Californians have good reason to fear that their income taxes may in fact increase. As Republicans have stalled over the repeal of the Affordable Care Act, President Trump and Congress are pushing forward with a major tax overhaul. California, with its large percentage of high-income taxpayers, has much at stake if tax reforms pass. Our San Diego, California tax planning lawyers at Brunoro Law, APC, discuss what may happen to your income tax rate under Trump’s tax reforms.
Elimination of the Federal Income Tax Deduction for State and Local Taxes
The federal income tax deduction for state and local taxes saves Californians some $20 billion annually by allowing them to deduct at least $100 billion in state and local taxes. By eliminating the deduction, the federal government will gain significant revenue, with a lot of it coming from California. New York, another state that would be seriously affected by the elimination of these deductions, is already attempting to take action to prevent Trump from implementing this reform.
Elimination of the Federal Estate Tax
President Trump stated on the campaign trail that one of his first orders of business would be eliminating the estate tax, commonly also referred to as the death tax. Now that Trump is in office, it is likely that this tax reform will be passed in the near future. While in theory cutting the estate tax would save Americans money, it is unlikely to have this result in California.
Already, Californian leaders have proposed instating a state inheritance tax equal to the current federal estate tax to take effect if the current administration eliminates the federal estate tax. As of today, the federal estate tax rate stands at 40 percent. Only large estates are subject to this tremendous tax. Under Senate Bill 726, California would impose an inheritance tax of 40 percent on estates of $5.5 million or more. The revenue generated from this tax would go towards funding California’s schools, healthcare systems, roads, and much more. If both of these tax reforms pass, however, high-earning Californians may be looking to flee the state to protect their taxable income and assets.
Posted in: Tax Planning