Guidebook to California Taxes

I often buy the U.S. Master Guide together with the Guidebook to California Taxes.

California tax preparers need such a guide because it's almost impossible to remember all the differences between U.S. and California tax laws.

If you would like a sample of what I'm talking about, dear reader, pictured on the right is a data input sheet for a professional tax service. It lists the various items by which Federal Adjusted Gross Income differs from California's. (There are similar input sheets for itemized deductions and tax credits.)

California has the highest marginal tax rate (14.4%, including the 1.1% surtax on wages over $1 million) of all the States in the Union. What is not often noted are all the adjustments to Federal taxable income that generally increase California income. To be sure, there are adjustments that go the other way, such as Social Security benefits and U.S. Treasury interest, both of which are not taxable in any state.

Such complexity is why tax preparers need the Guidebook to California Taxes, and why it is 1,024 pages long compared to the U.S. Master Guide's 944 pages.

Tax Day: We Really Mean It This Next Time

Pajaro, CA on March 11th (Axios)

This tax season has been a procrastinator's dream. San Mateo and 54 other California counties were affected by last winter's floods, and all their residents' 2022 tax returns were automatically extended to October 16th by both the IRS and the Franchise Tax Board.

Today the IRS gave notice that the deadline was extended another month to November 16th. The agency wouldn't have done it unless there were substantial numbers of people who needed the time.

California hasn't yet conformed, but it wouldn't be surprising if the Franchise Tax Board announces its own extension in a few hours.

Update: Yup

A Smart Move

(Illustration from estateexec.com)

Most middle-class Americans have a simple estate profile.

Assets may include a house, retirement accounts, stocks, cash, and personal effects. Beneficiaries of the estate are typically family and charities.

Even with such straightforwardness, there is still a smart move to make on income and estate taxes. Where possible, charitable bequests should be made from 401Ks and IRAs, while assets that have gone up in value ("appreciated assets") should go to the heirs.

This is because IRA and 401K distributions (unless they're from Roth plans) will be taxable to the heirs, while on the sale of the house or stocks they will only have to pay income taxes on the appreciation after the death of their thoughtful relative. (The charities don't pay taxes in either case.)

There are also the advantages of efficiency and flexibility.

there are two big benefits to making gifts at death using traditional IRA assets.

The first advantage is tax efficiency. Donors of traditional IRA assets at death can win an income-tax trifecta—no tax on contributions going in, no tax on annual growth, and no tax on assets at death...

The second advantage of leaving traditional IRA assets to charities is flexibility. Wills are often drawn up years before someone dies, and circumstances change. As a result, the donor may want to name different charities or donation amounts.

Making these changes is often easier with traditional IRAs than a will.

Let's say that you have a $100,000 IRA and that you wanted to leave $20,000 to your alma mater. You could create a new IRA, name its beneficiary as Old Blue College, and fund it with $20,000 from your existing IRA, leaving the remaining $80,000 for existing IRA's beneficiary. And you could do that without hiring a lawyer to rewrite your will.

You spent a lifetime earning, saving, and building an estate. Spend a few hours seing that thousands of dollars from that estate go to who you prefer, not the government.

Tax Day, 2022

Federal extension form 4868

Following retirement and the elimination of entities (partnerships, Subchapter S corporations) that required us to wait for K-1 forms that were frequently late, there were no excuses impediments to filing our tax returns by April 15th.

California extension form 3519

Ambition, however, fell easy prey to sloth and pain avoidance, two pillars of procrastination. Over the weekend I filled out draft tax returns with only a cursory look at deductions. (A full search involves four different credit cards and three bank accounts, i.e., the pain I was speaking about earlier.)

Two extension forms, plus checks that were more than enough to cover the liability for 2021, were mailed at the post office on Tax Day, April 18, 2022.

Having the government hold on to the money a few extra months was the cost; the benefit was the first restful sleep I've had in weeks. It was worth it.