Tax season is rapidly approaching, and with the economic headwinds faced by U.S. citizens gaining strength by the day, it’s likely that many of the people reading this are unprepared. The country is undergoing a level of stagflation the likes of which haven’t been seen since the 1970’s, with the lowest-income Americans spending up to 80% of their take-home income on essentials like food and the rates of loan delinquencies soaring to record heights.
California’s sky-high tax rate, combined with the large tax burden that comes with owning real estate, ensures that the middle class is squeezed to the limit even during times of prosperity. When you combine it with elevated inflation for basic necessities, it sends people scrambling to find any means of reducing the pressure on their finances.
Taxes represent an enormous vector of financial stress, and this is only compounded by the fact that the 2017 Tax Cuts and Jobs Act capped the itemized deduction of state and local taxes to $10,000, which significantly impacted the level of deductions available to Californians. Thankfully, Governor Newsome recently took action to provide California property owners with a workaround for the deduction cap, a rare sight for a state famous for its willingness to tax residents.
This workaround, dubbed California Assembly Bill 150, allows pass-through entity owners to deduct more than the $10,000 cap when reporting their taxes. This works by allowing the taxpayer to classify themselves as a pass-through entity, which can then deduct the state taxes from their federal taxes at the entity level rather than on an individual partner basis.
As of now, there are still plenty of details that need to be hammered out, as the bill does not specify exactly how these rules will be reported on an individual’s tax return, and there are a number of restrictions on who, exactly, can make use of this law. This murkiness makes it essential for you to enlist the service of an expert tax law firm, who can help you navigate these new rules without running afoul of the IRS.
Californians with existing pass-through entities, single-member LLCs, S-corps, and sole proprietorships are heavily recommended to consult with a tax law expert to see what changes they need to make to their organization in order to qualify for the new rules. For southern California readers, one of the best firms in the area is Hone Maxwell, a tax law firm that’s been providing tax services for San Diego residents for over a decade.
Tough economic times are already here, and from the way the government and federal reserves are acting, it does not appear that relief will be coming any time soon. The best action you can take to help you and your family’s finances is finding some breaks from the relentless tax burdens placed on you by both the state and federal governments – breaks that can only be found by verified experts in tax laws. Get in contact with Hone Maxwell today:
Hone Maxwell
+16199804476
3465 Camino del Rio S #400, San Diego, CA 92108