How would the proposed Protect California Taxpayers Act work?
Californians could be deeply affected by the recently passed tax reform bill. Californians pay some of the highest state income and property tax rates in the nation. Now, the new federal law will allow individuals to deduct a maximum of $10,000 in state income and property tax deductions. Concerned with the impact that the tax reform bill could have on residents across the state, a proposed new act would work around the deduction cap in a creative manner. Our San Diego tax planning attorneys discuss the pending Act and other potential ways Californians may cope with the new tax law.
The Protect California Taxpayers Act
The Protect CA Taxpayers Act was recently introduced by Senate President Pro Tem Kevin de Leon. The legislation, which was created with the help of a UCLA law professor, proposes allowing Californians who itemize their deductions to count their state income taxes as if they are deductible charitable donations to the state of California. The bill has some precedent, as California and several other states already use a similar IRS rule to fund education. However, many remain skeptical whether the proposed bill would be accepted by the IRS when it so blatantly attempts to circumvent the $10,000 state income and property tax deduction.
Paying Early, Moving, and More
With the future of the Protect California Taxpayers Act unclear, many Californians continue to look for other ways to protect their pockets. Some Californians attempted to pay their property taxes early before the tax changes took effect on January 1st. Lawmakers are considering other long term solutions, such as replacing income taxes with payroll taxes.
For some Californians, even those used to paying high taxes, the new tax bill is the final straw that has made them decide to move. Californians looking to avoid tax penalties may look to sell their home or business and relocate before they are further affected by the new tax bill. Those who elect to stay in the state may look towards creating a trust in a state without state income tax. These trusts are controversial, so consult with a tax planning lawyer today to determine if a trust could help you preserve your assets.
Posted in: Tax Planning