California Tax Question ... (rental, loan, incomes)

[sheri257]

I just got done doing our preliminary taxes since our income went up quite a bit this year ... and I was worried about the tax hit.

Funny thing happened ... we're actually getting a small refund from the fed but ... we actually owe the state money.

I guess our state withholding was based on individual incomes but, when our incomes are combined the state takes a bigger pound of flesh.

Usually our federal would track with the state but, not this time. I guess the California tax hit substantially increases as you make more money.

Has this happened to you?

[EscapeCalifornia]

Its pretty typical for your California withholding to leave you with a small amount owed at the end of the year even if the Feds give you a refund. California's tax rates are VERY progressive. I found that out a few years ago when my income went up significantly from one year to the next. It was like my income went up 50% but my California tax went up 150%. Isn't that fun?

[Charles]

Originally Posted by sheri257

. we're actually getting a small refund from the fed but ... we actually owe the state money.

Too bad you're getting a refund. You just gave the government an interest free load. Consider fine tuning your exemptions such that you owe the maximum amount without incurring a penalty.

[sheri257]

Has anyone avoided the additional state taxes by going the "married ... but filing separately" route?

I remember reading that it can be advantageous in some cases. I'm wondering if this is one of them.

[cobmw]

As Charles pointed out having your employer withhold more taxes than you owe is like making a free loan to the government. Keep the money and earn interest on it then pay your tax bill when it comes due. That is unless you have no self control whatsoever. Then maybe the free loan to the government works for you.

[sheri257]

I guess you guys missed the part where I said "small" refund. The fed refund isn't large ... only $200 so ... It's not like I was giving a huge loan to the government.

On the other hand, I owe about $1,000 to the state so ... I'm not sure why you guys are obsessing on the refund and this so called free loan to the government when, overall, I still owe money.

We did zero out our exemptions because we knew we'd be in a higher tax bracket (which is going to be even higher this year ...)

And because I didn't want a huge tax bill at the end of the year. You seem to be forgetting that there can be penalties and interest for significantly underpaying what's owed ... so that can cost you also.

The question I'm really trying to answer here is .... what have people done to reduce the state tax hit at higher income levels? Does married filing separately help ... or something else?

[Charles]

Originally Posted by sheri257

The question I'm really trying to answer here is .... what have people done to reduce the state tax hit at higher income levels? Does married filing separately help ... or something else?

I use Turbo Tax. I am pretty sure (but not 100%) that it figures out the best method of filing given your circumstances. For us (I have income, wife doesn't) filing joint is the best way. But consider Turbo Tax. If you have simple income (no businesses, rental property, etc) then it is really neat.

[NYSD1995]

CA's income tax graduations are much lower than the federal government:

For single and married filing separately taxpayers:
-- 1% on the first $6,622 of taxable income
-- 2% on taxable income between $6,623 and $15,698
-- 4% on taxable income between $15,699 and $24,776
-- 6% on taxable income between $24,777 and $34,394
-- 8% on taxable income between $34,395 and $43,467
-- 9.3% on taxable income of $43,468 and above.


Not much you can do to avoid it, just the general stuff to lower your taxable income