[California] retroactive tax increases

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills

[California] retroactive tax increases

Postby hicabob » Thu Nov 08, 2012 6:07 pm

Not being political , but I was surprised (and bummed) to learn that Cali's prop30 tax changes will be retroactive to the start of 2012. I always assumed that tax changes would be for the next year. Do retroactive increases have any precedent?
hicabob
 
Posts: 1593
Joined: 27 May 2011
Location: cruz

Re: retroactive tax increases

Postby sscritic » Thu Nov 08, 2012 6:34 pm

hicabob wrote:Not being political , but I was surprised (and bummed) to learn that Cali's prop30 tax changes will be retroactive to the start of 2012. I always assumed that tax changes would be for the next year. Do retroactive increases have any precedent?

If you haven't filed your 2012 taxes yet, then you haven't paid your 2012 taxes yet (you may have prepaid, but that doesn't count). I guess if they wanted to they could have made the new taxes start on November 7, but is anyone really prepared to report their income from 1/1 to 11/6 separately from their 11/7 to 12/31 income?

Don't forget the federal AMT fix has always (afaik) been retroactive. If the AMT fix is passed in December, don't you want it to apply back to January 1? Or is it that you think increases should be handled differently than decreases?
sscritic
 
Posts: 19709
Joined: 6 Sep 2007

Re: retroactive tax increases

Postby Leesbro63 » Thu Nov 08, 2012 6:35 pm

I don't know about the precedent for doing state taxes retroactively, but in 1993 Clinton tax increases got enacted and were made retroactive to 1/1/93. I believe it went to the SCOTUS and they allowed it.
User avatar
Leesbro63
 
Posts: 3291
Joined: 8 Nov 2010

Re: retroactive tax increases

Postby Electron » Thu Nov 08, 2012 6:44 pm

One issue is whether a retroactive tax increase could result in a penalty related to estimated tax payments.

If that is the case, I suspect any penalty would be relatively small. The problem could also be avoided if one paid the safe harbor amount.
Electron
User avatar
Electron
 
Posts: 952
Joined: 10 Mar 2007

Re: retroactive tax increases

Postby Spirit Rider » Thu Nov 08, 2012 6:51 pm

The "ex post facto" prohibition in the constitution has been held by the supreme court to only apply to criminal law and not civil law. Even the application to criminal law has been chipped away by a series of rulings.

So yes, unless there is a prohibition against "ex post facto" civil laws in the CA contitution this is entirely legal. And yes, there is ample precident for both tax increases and tax breaks being retroactive.
Spirit Rider
 
Posts: 1038
Joined: 2 Mar 2007

Re: retroactive tax increases

Postby bottlecap » Thu Nov 08, 2012 6:55 pm

I'm fairly certain they can make it retroactive. It's dirty pool and prohibits you from planning, but it's not uncommon.

JT
User avatar
bottlecap
 
Posts: 3045
Joined: 7 Mar 2007
Location: Tennessee

Re: retroactive tax increases

Postby ryuns » Thu Nov 08, 2012 7:04 pm

sscritic wrote:If you haven't filed your 2012 taxes yet, then you haven't paid your 2012 taxes yet (you may have prepaid, but that doesn't count). I guess if they wanted to they could have made the new taxes start on November 7, but is anyone really prepared to report their income from 1/1 to 11/6 separately from their 11/7 to 12/31 income?

Don't forget the federal AMT fix has always (afaik) been retroactive. If the AMT fix is passed in December, don't you want it to apply back to January 1? Or is it that you think increases should be handled differently than decreases?


I believe that's the key point--you have not actually paid those taxes for the year, though you may have made advanced payments in anticipation of your annual tax bill. The sales tax portion will not be retroactive because those taxes are actually paid and off the books, AFAIK. I imagine, though, if you pay use taxes at the end of the year that they'll be assessed at the new rate?
An inconvenience is only an adventure wrongly considered; an adventure is an inconvenience rightly considered. -- GK Chesterton
User avatar
ryuns
 
Posts: 3293
Joined: 7 Aug 2007
Location: Sacramento, CA. Age: 29

Re: [California] retroactive tax increases

Postby Bob's not my name » Fri Nov 09, 2012 5:31 am

Fight back with a retroactive 401k/TIRA contribution. Reduce your 2012 annual income any time before December 31, 2012 (401k) or even April 15, 2013 (deductible TIRA if you or your spouse is eligible).

If you can't max all your tax-deferred vehicles, fight way, way back by converting old Roth contributions to new 401k/TIRA contributions. It's like taking your money back to the good old days when the top rate was only 9.3%.

It's open enrollment right now. Fight back by maxing your 2013 FSA (now limited to $2,500 by the ACA).
Bob's not my name
 
Posts: 6559
Joined: 15 Nov 2009

Re: [California] retroactive tax increases

Postby Mudpuppy » Fri Nov 09, 2012 7:20 am

Keep in mind that CA overcalculates the withholding amount for the top bracket at 10.3% in the standard withholding tables distributed to employers. So if you pay your CA taxes through payroll withholdings and you based your state withholding allowance on the DE4 form, you've already been overpaying the whole year by 1%. Those who pay by estimated quarterly payments or who adjusted their withholding allowance to compensate for the extra 1% in the employer withholding tables are the ones that will have to worry about penalties, particularly those who make quarterly payments. That's why it's usually a good idea to try to meet the safe harbor provisions to avoid being subjected to a penalty when one makes quarterly payments.
Mudpuppy
 
Posts: 2395
Joined: 27 Aug 2011
Location: Sunny California

Re: [California] retroactive tax increases

Postby Sidney » Fri Nov 09, 2012 11:28 am

bottlecap wrote:I'm fairly certain they can make it retroactive. It's dirty pool and prohibits you from planning, but it's not uncommon.

JT

Anyone who might be subject to AMT has dealt with this a lot. I don't see it as dirty pool - just part of a sloppy process.
I always wanted to be a procrastinator.
Sidney
 
Posts: 5512
Joined: 8 Mar 2007

Re: [California] retroactive tax increases

Postby Electron » Fri Nov 09, 2012 4:13 pm

Bob's not my name wrote:If you can't max all your tax-deferred vehicles, fight way, way back by converting old Roth contributions to new 401k/TIRA contributions. It's like taking your money back to the good old days when the top rate was only 9.3%.

Please explain how that would work. Thank you.
Electron
User avatar
Electron
 
Posts: 952
Joined: 10 Mar 2007

Re: [California] retroactive tax increases

Postby vesalius » Fri Nov 09, 2012 4:24 pm

Sidney wrote:
bottlecap wrote:I'm fairly certain they can make it retroactive. It's dirty pool and prohibits you from planning, but it's not uncommon.

JT

Anyone who might be subject to AMT has dealt with this a lot. I don't see it as dirty pool - just part of a sloppy process.
Absolutely, very sloppy indeed. The 2012 AMT should be interesting yet again. At least I get to live in a no state income tax state.
vesalius
 
Posts: 602
Joined: 13 Jul 2010
Location: Texas

Re: [California] retroactive tax increases

Postby RenoJay » Fri Nov 09, 2012 5:59 pm

This is pretty scary to me. My parents live in California and have saved a considerable amount over their lifetimes. Just a few weeks ago my Dad explained how he was converting most of his IRA money to Roth IRAs. Seems like this new retroactive law will potentially eat away a fair amount of his life savings during the switch.

So what's to prevent CA from going back in time and saying everyone owes retroactive taxes from 2005?
RenoJay
 
Posts: 714
Joined: 17 Nov 2009
Location: Nevada

Re: [California] retroactive tax increases

Postby Bob's not my name » Fri Nov 09, 2012 6:10 pm

KAWill70 wrote:
Bob's not my name wrote:If you can't max all your tax-deferred vehicles, fight way, way back by converting old Roth contributions to new 401k/TIRA contributions. It's like taking your money back to the good old days when the top rate was only 9.3%.

Please explain how that would work. Thank you.
Look for an article on thefinancebuff.com on Wednesday. Or read this: viewtopic.php?f=10&t=98625
Bob's not my name
 
Posts: 6559
Joined: 15 Nov 2009

Re: [California] retroactive tax increases

Postby mikep » Fri Nov 09, 2012 6:13 pm

RenoJay wrote:This is pretty scary to me. My parents live in California and have saved a considerable amount over their lifetimes. Just a few weeks ago my Dad explained how he was converting most of his IRA money to Roth IRAs. Seems like this new retroactive law will potentially eat away a fair amount of his life savings during the switch.

So what's to prevent CA from going back in time and saying everyone owes retroactive taxes from 2005?


He can recharacterize the conversion I believe as if it never happened.
mikep
 
Posts: 3045
Joined: 22 Apr 2009

Re: [California] retroactive tax increases

Postby hicabob » Fri Nov 09, 2012 6:35 pm

RenoJay wrote:This is pretty scary to me. My parents live in California and have saved a considerable amount over their lifetimes. Just a few weeks ago my Dad explained how he was converting most of his IRA money to Roth IRAs. Seems like this new retroactive law will potentially eat away a fair amount of his life savings during the switch.

So what's to prevent CA from going back in time and saying everyone owes retroactive taxes from 2005?



That would be one way to balance the budget!

This new retroactive one frosts me because I sold my biz early this year, most of it as cap gains - I had mentally accepted the 9.3% california hit (Cali counts cap gains as reg income!! ) but this new one kinda gave me a solar plexus punch - oh well - next April is time to pay the piper.
hicabob
 
Posts: 1593
Joined: 27 May 2011
Location: cruz

Re: [California] retroactive tax increases

Postby sscritic » Fri Nov 09, 2012 6:41 pm

RenoJay wrote:This is pretty scary to me. My parents live in California and have saved a considerable amount over their lifetimes. Just a few weeks ago my Dad explained how he was converting most of his IRA money to Roth IRAs. Seems like this new retroactive law will potentially eat away a fair amount of his life savings during the switch.

Most people don't convert IRAs to Roths when they already have $500,000 of other taxable income. If anything would take away your parents' lifetime savings it would be the existing federal tax and the existing 9.3% Ca tax on high incomes (below $1 million).

If your parents have $250,000 of other taxable income and convert $50,000, their tax will increase by $500 (1%).
If they convert another $200,000 on top of that, the extra tax is $4,000 (2%).

They really don't have much savings if $4,500 is "a fair amount of his life savings" unless he only has $20,000 saved, in which case he won't have $250,000 to convert.

P.S. If they reconvert as previously suggested, they are looking at the federal tax possibly being higher when they withdraw the money later.
sscritic
 
Posts: 19709
Joined: 6 Sep 2007

Re: [California] retroactive tax increases

Postby RenoJay » Fri Nov 09, 2012 6:42 pm

hicabob wrote:
RenoJay wrote:This is pretty scary to me. My parents live in California and have saved a considerable amount over their lifetimes. Just a few weeks ago my Dad explained how he was converting most of his IRA money to Roth IRAs. Seems like this new retroactive law will potentially eat away a fair amount of his life savings during the switch.

So what's to prevent CA from going back in time and saying everyone owes retroactive taxes from 2005?



That would be one way to balance the budget!

This new retroactive one frosts me because I sold my biz early this year, most of it as cap gains - I had mentally accepted the 9.3% california hit (Cali counts cap gains as reg income!! ) but this new one kinda gave me a solar plexus punch - oh well - next April is time to pay the piper.


Sorry to hear about your timing, but congrats on selling the business. Now come up here to Nevada where retired Californians hang out. I moved in 2005 when CA raised the state income tax to 10.3% for high incomes.
RenoJay
 
Posts: 714
Joined: 17 Nov 2009
Location: Nevada

Re: [California] retroactive tax increases

Postby RenoJay » Fri Nov 09, 2012 6:45 pm

sscritic wrote:
RenoJay wrote:This is pretty scary to me. My parents live in California and have saved a considerable amount over their lifetimes. Just a few weeks ago my Dad explained how he was converting most of his IRA money to Roth IRAs. Seems like this new retroactive law will potentially eat away a fair amount of his life savings during the switch.

Most people don't convert IRAs to Roths when they already have $500,000 of other taxable income. If anything would take away your parents' lifetime savings it would be the existing federal tax and the existing 9.3% Ca tax on high incomes (below $1 million).

If your parents have $250,000 of other taxable income and convert $50,000, their tax will increase by $500 (1%).
If they convert another $200,000 on top of that, the extra tax is $4,000 (2%).

They really don't have much savings if $4,500 is "a fair amount of his life savings" unless he only has $20,000 saved, in which case he won't have $250,000 to convert.

P.S. If they reconvert as previously suggested, they are looking at the federal tax possibly being higher when they withdraw the money later.


They have a couple million to convert, and due to RMD's that will kick in within a couple years they'll be pushing pretty close to the threshholds outlined. I wish they would have listened to me in 2010 when Roth conversions became available to all. I cautioned them: Taxes are only headed in one direction, and the stock market is still early in it's recovery. Convert to Roth IRAs now!!
RenoJay
 
Posts: 714
Joined: 17 Nov 2009
Location: Nevada

Re: [California] retroactive tax increases

Postby nvboglehead » Fri Nov 09, 2012 7:03 pm

Yes, the government can and does make some tax increases retroactive. This also happened with federal income taxes in 1993 under Clinton's leadership.

Nevada is just next door with no state income tax and inexpensive real estate. We have been here for 15 years and we love it!

Dale
Learn from the Bogleheads! Do you want to work for your money or have your money work for you?
User avatar
nvboglehead
 
Posts: 424
Joined: 20 Feb 2007

Re: [California] retroactive tax increases

Postby hicabob » Fri Nov 09, 2012 7:45 pm

RenoJay wrote:
hicabob wrote:
RenoJay wrote:This is pretty scary to me. My parents live in California and have saved a considerable amount over their lifetimes. Just a few weeks ago my Dad explained how he was converting most of his IRA money to Roth IRAs. Seems like this new retroactive law will potentially eat away a fair amount of his life savings during the switch.

So what's to prevent CA from going back in time and saying everyone owes retroactive taxes from 2005?



That would be one way to balance the budget!

This new retroactive one frosts me because I sold my biz early this year, most of it as cap gains - I had mentally accepted the 9.3% california hit (Cali counts cap gains as reg income!! ) but this new one kinda gave me a solar plexus punch - oh well - next April is time to pay the piper.


Sorry to hear about your timing, but congrats on selling the business. Now come up here to Nevada where retired Californians hang out. I moved in 2005 when CA raised the state income tax to 10.3% for high incomes.



I was planning on joining you early this year in Reno under the naive assumption the cap gains would be saved but my CPA explained about the infamous "California Tax Claw" and that $$$ earned in Ca pay tax in Ca and they are aggressive about it. To be fair - I don't think my biz would have evolved anywhere else in the world though so I shall pay the piper with a grimace and a smile.
hicabob
 
Posts: 1593
Joined: 27 May 2011
Location: cruz

Re: [California] retroactive tax increases

Postby aaplhpq » Fri Nov 09, 2012 8:02 pm

hicabob wrote:
RenoJay wrote:This is pretty scary to me. My parents live in California and have saved a considerable amount over their lifetimes. Just a few weeks ago my Dad explained how he was converting most of his IRA money to Roth IRAs. Seems like this new retroactive law will potentially eat away a fair amount of his life savings during the switch.

So what's to prevent CA from going back in time and saying everyone owes retroactive taxes from 2005?



That would be one way to balance the budget!

This new retroactive one frosts me because I sold my biz early this year, most of it as cap gains - I had mentally accepted the 9.3% california hit (Cali counts cap gains as reg income!! ) but this new one kinda gave me a solar plexus punch - oh well - next April is time to pay the piper.


Don't wait till April 2013. If you prepay the prop 30 tax by EOY 2012, you can get a deduction for Federal 2013 (subject to AMT). This may help you
aaplhpq
 
Posts: 38
Joined: 8 Nov 2012

Re: [California] retroactive tax increases

Postby Epsilon Delta » Fri Nov 09, 2012 11:03 pm

aaplhpq wrote:
Don't wait till April 2013. If you prepay the prop 30 tax by EOY 2012, you can get a deduction for Federal 2013 (subject to AMT). This may help you

I think you mean if you pay by Dec 31, 2012 you get the deduction for 2012 Federal taxes (which are due approximately April 15 2013).

But if federal taxes go up you may prefer to have the deduction in 2013, on the other hand if they limit deductions in 2013 you'd rather have the deduction in 2012. I think I'm going to start using ardent spirits, or maybe go to Washington for some THC.
User avatar
Epsilon Delta
 
Posts: 3085
Joined: 28 Apr 2011

Re: [California] retroactive tax increases

Postby Calm Man » Sat Nov 10, 2012 9:39 am

[off topic comment removed by admin alex]
Calm Man
 
Posts: 2154
Joined: 19 Sep 2012

Re: [California] retroactive tax increases

Postby travellight » Sat Nov 10, 2012 4:52 pm

it may have been done before but still feels unfair for those who try to plan their year out, not knowing this can happen. I think the tax increase should have taken effect Jan. 1, 2013.
travellight
 
Posts: 1823
Joined: 12 Aug 2008
Location: San Diego

Re: [California] retroactive tax increases

Postby Mudpuppy » Sat Nov 10, 2012 5:18 pm

travellight wrote:it may have been done before but still feels unfair for those who try to plan their year out, not knowing this can happen. I think the tax increase should have taken effect Jan. 1, 2013.

I don't want to get too political, but any person trying to account for all possibilities has known of this possibility for a while now. One could not have known the outcome, but one could have been sure to be covered by the safe harbor provisions (e.g. planning to pay an amount equal to 100% of 2011 taxes for the 2012 estimated payments) to avoid any penalties. This is pretty much a good idea to employ in any year where the income tax waters appear to be murky, unless one has had a significant drop in income during the current year.
Mudpuppy
 
Posts: 2395
Joined: 27 Aug 2011
Location: Sunny California

Re: [California] retroactive tax increases

Postby Electron » Sat Nov 10, 2012 6:38 pm

The law may have been written to allow a waiver for any resulting tax penalty.

http://www.irs.gov/irm/part20/irm_20-00 ... ont01.html

See the paragraph on waivers and estimated tax. One can attach an explanation to their tax return. Even though this is for the IRS it could be similar for California.

"Occasionally a law is enacted that has retroactive tax consequences. When this happens, the law often includes a provision under which the estimated tax penalty may be waived to the extent that the penalty is a direct result of the change in the law."
Electron
User avatar
Electron
 
Posts: 952
Joined: 10 Mar 2007

Re: [California] retroactive tax increases

Postby sscritic » Sat Nov 10, 2012 9:39 pm

Mudpuppy wrote:
travellight wrote:it may have been done before but still feels unfair for those who try to plan their year out, not knowing this can happen. I think the tax increase should have taken effect Jan. 1, 2013.

I don't want to get too political, but any person trying to account for all possibilities has known of this possibility for a while now.

Unless you were asleep.
Published: Thursday, Jun. 21, 2012
As Democratic state leaders continue budget negotiations, Gov. Jerry Brown's tax hike on sales and upper-income earners officially qualified Wednesday for the November ballot, as did two other tax measures.

Debra Bowen sent out the announcement of initiative 1578 to County Clerks on March 19, 2012, after the summary had been prepared by Kamala Harris and submitted on March 16. The general idea that Brown was going to ask for a tax hike came earlier than that. Here is a story from 2011.

12/ 1/11 Judy Lin AP
Facing another budget deficit and the prospect of deep cuts to education, Gov. Jerry Brown plans to file a ballot initiative as early as Friday that asks voters to increase taxes on the wealthy and raise the sales tax by half a cent.

In fact, the story goes back to February of 2011.
By Judy Lin, Associated Press, Juliet Williams, Associated Press / February 1, 2011
The Democratic governor has proposed a ballot measure this June that would ask voters to extend temporary increases in the state's sales, income and vehicle taxes for five years, but Republicans have said they will not allow it to go before voters.

The legislature wouldn't agree to the June 2011 ballot, so signatures were gathered and it was put on the November 2012 ballot. In short, the word was out 11 months before the beginning of 2012.
sscritic
 
Posts: 19709
Joined: 6 Sep 2007

Re: [California] retroactive tax increases

Postby Jerilynn » Mon Nov 12, 2012 12:05 am

nvboglehead wrote:
Nevada is just next door with no state income tax...

Dale


Well, not yet, at least. I'll betcha a pizza that a couple of States with no income tax now, will have them within the next few years. (Some entities tried to do just that in Washington in 2010)
Cordially, Jeri . . . 100% all natural asset allocation. (no supernatural methods used)
User avatar
Jerilynn
 
Posts: 1940
Joined: 6 Sep 2011
Location: USA, Earth

Re: [California] retroactive tax increases

Postby RoLev » Mon Nov 12, 2012 1:21 am

I converted my traditional IRA to a Roth in 2010 and deferred the tax to 2011 and 2012. With the Prop. 30 increase, I would have been better taking the full tax hit in 2010. In that sense, for me the Prop. 30 tax increase was retroactive to 2010. :annoyed

RoLev
RoLev
 
Posts: 26
Joined: 24 Apr 2008

Re: [California] retroactive tax increases

Postby reisner » Mon Nov 12, 2012 11:05 am

I too converted an IRA to a Roth, but while I was living in NH. I later moved back to California; since some of my taxes were deferred, CA wanted to take a bite too. I refiled my old Federal return, payed the taxes and interest due, and thus doged the California grab. I thought it pretty cheeky of the Golden State to target an out-of-state pre-residence tax event.
reisner
 
Posts: 228
Joined: 20 Jun 2008

Re: [California] retroactive tax increases

Postby sscritic » Mon Nov 12, 2012 11:24 am

reisner wrote:I too converted an IRA to a Roth, but while I was living in NH. I later moved back to California; since some of my taxes were deferred, CA wanted to take a bite too.

Your tax wasn't deferred; your declaration of income was deferred. The only reason you didn't pay the tax in the earlier year is that you did not declare the income in the earlier year. You were the one who decided (initially) to defer your income to a year in which you lived in CA.
sscritic
 
Posts: 19709
Joined: 6 Sep 2007

Re: [California] retroactive tax increases

Postby NYBoglehead » Mon Nov 12, 2012 11:52 am

Jerilynn wrote:
nvboglehead wrote:
Nevada is just next door with no state income tax...

Dale


Well, not yet, at least. I'll betcha a pizza that a couple of States with no income tax now, will have them within the next few years. (Some entities tried to do just that in Washington in 2010)


It'll be interesting to see what happens on that front. Keep in mind Washington voters decided NOT to add an income tax, even though it would have hit only high earners.
NYBoglehead
 
Posts: 1578
Joined: 25 May 2012

Re: [California] retroactive tax increases

Postby Jerilynn » Mon Nov 12, 2012 12:13 pm

NYBoglehead wrote:
Jerilynn wrote:
nvboglehead wrote:
Nevada is just next door with no state income tax...

Dale


Well, not yet, at least. I'll betcha a pizza that a couple of States with no income tax now, will have them within the next few years. (Some entities tried to do just that in Washington in 2010)


It'll be interesting to see what happens on that front. Keep in mind Washington voters decided NOT to add an income tax, even though it would have hit only high earners.


Yep. I think it was 65% against 35% for. I think the big fear was that once it got a foothold, it was just a matter of time before they expanded it to 'less than high earners.'
Cordially, Jeri . . . 100% all natural asset allocation. (no supernatural methods used)
User avatar
Jerilynn
 
Posts: 1940
Joined: 6 Sep 2011
Location: USA, Earth

Re: [California] retroactive tax increases

Postby paulsiu » Mon Nov 12, 2012 12:42 pm

Hey, my sister lives in CA and may be considered a higher income earner (I have no idea what she makes, but she's a doctor). So the bad thing right now is that the income taxation is retroactive to 1/2012, so if she makes less than $250K and her investment doesn't put her above $250K, nothing will happen, but if her income is more than $250K, she has to an extra percentage of tax for income over $250K?

Do employers normally increase their withhold or will a lot of people now end up with a large tax bill?

She's maxed out on her 401K and her IRA are non-deductible. What else can she do?

Paul
paulsiu
 
Posts: 1245
Joined: 16 Nov 2008

Re: [California] retroactive tax increases

Postby travellight » Mon Nov 12, 2012 1:02 pm

I suspect she should start saving up to pay the bill, Paul.
travellight
 
Posts: 1823
Joined: 12 Aug 2008
Location: San Diego

Re: [California] retroactive tax increases

Postby NorCalDad » Mon Nov 12, 2012 1:06 pm

paulsiu wrote:Hey, my sister lives in CA and may be considered a higher income earner (I have no idea what she makes, but she's a doctor). So the bad thing right now is that the income taxation is retroactive to 1/2012, so if she makes less than $250K and her investment doesn't put her above $250K, nothing will happen, but if her income is more than $250K, she has to an extra percentage of tax for income over $250K?

Do employers normally increase their withhold or will a lot of people now end up with a large tax bill?

She's maxed out on her 401K and her IRA are non-deductible. What else can she do?

Paul

Has she asked you for advice, or are you just worrying on her behalf? If she's over $250k (or married and over $500k), she might already be on top of it. Anyone who's a wage earner (rather than reliant on stock options, investments or selling a business) and doesn't blow through every penny of his/her six-figure paycheck shouldn't be too worried about having to take drastic tax planning measures, in my view.
NorCalDad
 
Posts: 529
Joined: 26 Mar 2012
Location: Northern California

Re: [California] retroactive tax increases

Postby indexfundfan » Mon Nov 12, 2012 1:09 pm

paulsiu wrote:Hey, my sister lives in CA and may be considered a higher income earner (I have no idea what she makes, but she's a doctor). So the bad thing right now is that the income taxation is retroactive to 1/2012, so if she makes less than $250K and her investment doesn't put her above $250K, nothing will happen, but if her income is more than $250K, she has to an extra percentage of tax for income over $250K?

Do employers normally increase their withhold or will a lot of people now end up with a large tax bill?

She's maxed out on her 401K and her IRA are non-deductible. What else can she do?

Paul

As someone already pointed out earlier, CA is already currently withholding at 10.3% since 2009.

States with no income taxes are looking more attractive. Personally, I am starting to explore options in TX.
My signature has been deleted.
User avatar
indexfundfan
 
Posts: 1368
Joined: 20 Feb 2007

Re: [California] retroactive tax increases

Postby RenoJay » Mon Nov 12, 2012 1:26 pm

Jerilynn wrote:
NYBoglehead wrote:
Jerilynn wrote:
nvboglehead wrote:
Nevada is just next door with no state income tax...

Dale


Well, not yet, at least. I'll betcha a pizza that a couple of States with no income tax now, will have them within the next few years. (Some entities tried to do just that in Washington in 2010)


It'll be interesting to see what happens on that front. Keep in mind Washington voters decided NOT to add an income tax, even though it would have hit only high earners.


Yep. I think it was 65% against 35% for. I think the big fear was that once it got a foothold, it was just a matter of time before they expanded it to 'less than high earners.'


As a Nevada resident, I can attest that the attitude here is pretty "anti-tax." That's not to say we don't have massive state budget problems, but if/when an income tax is imposed, there will be ferocious push-back which will likely keep it a low as it can possibly be. Many of our residents are refugees from higher tax states and do not wish to see our state engage in the kind of spending-creep that has affected many of our neighbors and led to serial tax increases. I remember meeting a guy (who was pretty off the wall) who says he argues with the poor sales clerks at stores about paying the sales tax on clothing and other purchases. Not that he's the norm, but he does represent the attitude to a degree.
RenoJay
 
Posts: 714
Joined: 17 Nov 2009
Location: Nevada

Re: [California] retroactive tax increases

Postby Alan S. » Mon Nov 12, 2012 6:40 pm

Here's how CA will address underpayments:

http://www.cchgroup.com/wordpress/index ... discussed/
Alan S.
 
Posts: 3107
Joined: 16 May 2011
Location: Prescott, AZ

Re: [California] retroactive tax increases

Postby reisner » Mon Nov 12, 2012 9:17 pm

SS Ciritc;

How the heck is a guy in NH supposed to anticipate how CA will treat his local, personal IRA-Roth conversion? I'm a smart guy with some free time, and I was surprised. That should be a reflection on the crazy tax situation, not on me. The tax code should be simplified.Maybe there's an answer, but it's still absurd.CA--and other states and entities--are turning one's plain and simple personal life into a big business. The stress of sealing with this only encourages gaming the system.
reisner
 
Posts: 228
Joined: 20 Jun 2008

Re: [California] retroactive tax increases

Postby Index Fan » Mon Nov 12, 2012 9:38 pm

This is a serious problem for many people, doing this at the end of the year when people will be caught flat-footed and quite possibly without resources to cover the retroactive increase.

CA seems hell-bent on getting rid of all of those unfashionable well-off people. Interesting strategy!
"Optimum est pati quod emendare non possis." | -Seneca
User avatar
Index Fan
 
Posts: 2028
Joined: 7 Mar 2007
Location: The great Midwest

Re: [California] retroactive tax increases

Postby Jack » Tue Nov 13, 2012 1:48 am

Index Fan wrote:This is a serious problem for many people, doing this at the end of the year when people will be caught flat-footed and quite possibly without resources to cover the retroactive increase.

Really? Someone making $300,000 ($25,000 a month) will have a hard time scraping up an extra $500 between now and next April?
Jack
 
Posts: 3065
Joined: 27 Feb 2007

Re: [California] retroactive tax increases

Postby wearymicrobe » Tue Nov 13, 2012 7:02 pm

Does the 3/4% apply to things I have already paid taxes on. Like my car's. Where would these be applied if so.
wearymicrobe
 
Posts: 39
Joined: 19 Aug 2012

Re: [California] retroactive tax increases

Postby aaplhpq » Tue Nov 13, 2012 11:31 pm

aaplhpq
 
Posts: 38
Joined: 8 Nov 2012

Locked

Postby Alex Frakt » Wed Nov 14, 2012 12:13 am

Locked. OP's question was answered and the thread is turning increasingly off topic.
Alex Frakt
Founder
 
Posts: 9082
Joined: 23 Feb 2007
Location: Chicago


Return to Personal Finance (Not Investing)

Who is online

Users browsing this forum: Bing [Bot] and 32 guests