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The new tax bill, which was signed into law on December 22, 2017 by President Trump, leaves many taxpayers uncertain about how this law may affect their tax and income status.
Of primary concern in California and other high-tax, high-cost states is the $10,000 limit on deductions for state, local, and property taxes. Data from the Department of Finance stated the average state and local deductions for Californians in 2015 was over $18,400. The current $10,000 deductions cap will severely impact taxpayers who could, in the past, deduct from their federal taxes an unlimited amount of state and local taxes.
Trump’s approved tax plan would put money into the federal government and take money away from the state. The above-referenced proposal, currently being considered, would allow taxpayers to make donations to the state and then deduct the money off their federal taxes.
Proponents of the work-around consider the proposal a win-win for California and taxpayers, as it puts much needed money into the state and allows taxpayers to benefit from donations and deduct these off their federal taxes.
A second work-around being considered is replacing state income taxes, which have a $10,000 cap, with employer payroll taxes which have no cap. This is a less favorable option as it would require employers to cut their employees’ salaries.
More information on this topic can be found in The Mercury News article, Will California Outmaneuver a New Federal Cap on Tax Deductions?
If you have questions or concerns about how the newly signed Tax Law will affect you, consider contacting Mendes Weed, LLP. We have helped clients throughout the United States and may be able to help you as well.
Disclaimer: The tips and materials provided on this page are for informational purposes only, offered as public service. No information on this website should be considered legal advice or used as a substitute for legal advice. For legal advice, you should contact an attorney directly.