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Keeping Pace with California Tax Law: Part 1 — Understanding Prop 19

By |2022-08-18T12:29:46-07:00July 27, 2022|Categories: Legislation, Real Estate|Tags: , |0 Comments

Nobody can accuse California legislators of being lazy when it comes to tax legislation. They’re constantly introducing new legislation, which often presents opportunities for taxpayers to reduce their tax liability. And whether you agree with their approach or feel such relief is a poor use of taxpayer funds, staying on top of these relief measures only benefits you and the things you care about.

As one of California’s premier tax and financial strategy firms, we keep a close eye on changes to federal, state, and local tax code, so that we can fine-tune each of our client’s personalized tax-savings and wealth-building plans.

California Proposition 19

In this three-part series, we discuss three recent changes to California tax code that may impact your taxes (hopefully in a good way):

Understanding Prop 19

Prop 19 — The Home Protection for Seniors, Severely Disabled, Families, and Victims of Wildfire or Natural Disasters Act — is intended to help retirees and older homeowners sell their primary residence and relocate within California more affordably. Starting April 1, 2021, eligible California homeowners could sell their primary residence and transfer the tax base from their previous home to their next home of equal or lesser value.

For example, suppose you’ve owned a home in San Diego for the last 20 years and its assessed value is Continue reading… Continue reading… Continue reading…

Tax Relief for California Taxpayers

By |2022-07-13T16:46:28-07:00July 13, 2022|Categories: Legislation|Tags: , , , |0 Comments

The California State Assembly — the lower house of the California State Legislature — recently passed legislation to offer inflation relief to California residents who filed their 2020 taxes along with addition tax-relief legislation. In this post, we touch on the key points of the new legislation.

Better for Families (Inflation Relief) Tax Refund

California Assembly Bill No. 192 establishes what is commonly referred to as the “Inflation Relief Tax Refund.” This bill authorizes a one-time tax refund of up to $1,050 for married filing jointly (MFJ) taxpayers with California Adjusted Gross Income (AGI) of up to $500,000 with a dependent and up to $700 payment for qualifying individual taxpayers with California AGI of up to $250,000 with a dependent.

Payments will be distributed starting late October (the earliest) with the last batch expected to be sent by the middle of January 2023.

To qualify to receive the refund, you must meet the following criteria:

  • Filed your 2020 tax return by October 15, 2021. If you didn’t file your 2020 tax return by this date, you’re not eligible for the refund. However, if you applied for an Individual Taxpayer Identification Number (ITIN) and had not received it by October 15, 2021, you must have filed your complete 2020 tax return by February 15, 2022.
  • Have a 2020 California adjusted gross income (AGI) of $500,000 or less (married filing jointly or head of household) or $250,000 or less (single filer)
  • Have been a California resident for six months or more of the 2020 tax year
  • Have not been eligible to be claimed as a dependent in the 2020 tax year
  • Are a California resident on the date the payment is issued

If you qualify, you will receive a direct deposit payment (if you filed your return electronically and indicated direct deposit on your tax return); otherwise, you’ll receive payment in the form of a debit card.

The payment amount you can expect depends on your adjusted gross income (AGI): Continue reading… Continue reading… Continue reading…

The Infrastructure Investment and Jobs Act: What Taxpayers Need to Know

By |2021-12-08T14:55:34-08:00December 8, 2021|Categories: Legislation, Taxes|Tags: , , , |0 Comments

Lawmakers in Washington, D.C., are interested in many things, including opportunities for creating generation-defining legislation. So it was in November that Congress passed a bipartisan infrastructure deal with implications that included changing the end date of the Employee Retention Credit and establishing reporting requirements for cryptocurrency transactions.

The Infrastructure Investment and Jobs Act (H.R. 3684), which was signed into law on the Nov. 15 by President Biden, was originally introduced in the U.S. House of Representatives as the INVEST in America Act. It began as a $715-billion infrastructure bill to address provisions related to federal-aid highway, transit, highway safety, motor carrier, research, hazardous materials, and rail programs of the Department of Transportation (DOT).

Infrastructure Legislation Image

During congressional negotiations, it was expanded to include funding for broadband access, clean water, and electric grid renewal. The revised version, renamed the Infrastructure Investment and Jobs Act, calls for approximately $1.2 trillion in spending.

In this post, we cover several new tax provisions in H.R. 3684 that may impact you as an individual taxpayer, contractor, or business owner.

New Tax Provisions for Individuals

As a result of the passage of H.R. 3684, the following tax provisions now apply to individual taxpayers: Continue reading… Continue reading… Continue reading…

For Business Owners and Investors: California AB 150 — Pay More Taxes Now in Order to Pay Less in Taxes Later

By |2021-09-10T15:52:30-07:00September 10, 2021|Categories: Legislation|Tags: , |1 Comment

In December 2017, the Tax Cuts and Jobs Act (TCJA) became law, representing the most significant federal tax code overhaul in the United States in more than three decades. In part, the TCJA limited the state and local tax (SALT) deduction on federal tax returns to $10,000. In response, several states have enacted an elective pass-through entity tax as a workaround.

On July 16, 2021, California joined the group when its governor signed into law California Assembly Bill 150 (AB 150).

How California Assembly Bill 150 Works

A pass-through entity (PTE), which is also known as a flow-through entity or fiscally transparent entity, is a legal business structure wherein income flows through to the business entity’s owners and investors, rendering the income of the entity as the income of the owners or investors.

California AB 150 — Pay More Taxes Now in Order to Pay Less in Taxes Later

Here’s how California’s elective pass-through entity (PTE) tax works:

  1. A qualifying elective PTE pays 9.3 percent of qualified net income — the taxpayer’s share of income (including interest, dividends, and capital gains) from the PTE — to the California Franchise Tax Board (FTB).
  2. At year’s end, the PTE issues a federal K1 showing the taxpayer’s income from the PTE as 9.3 percent less than what the taxpayer received. This lowers the taxpayer’s federally reported income from the PTE by 9.3 percent.
  3. The taxpayer claims a credit on his or her state tax return equal to the PTE tax paid to the FTB.

Note: The pass-through entity tax reduces only the federally reported income, not state reported income. The PTE files a separate state K1 reporting 100 percent of what it paid the owner.

Here’s an example: Continue reading… Continue reading… Continue reading…

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