Every April 15th, Americans from all over the country begrudgingly pay their income taxes, and Californians are no different, filing their California State Income taxes along with their federal returns. Every time we turn in those 540 forms, we taxpayers hope every deduction, credit, and exemption has been taken advantage of, so we can keep the hard-earned cash in our wallets.
The State of California Franchise Tax Board administers all of California’s taxes. Currently tax rates range from 1.25% for low-income residents to 9.55% for top income earners, ranking Californian’s among the highest taxed resident’s in the U.S. The Franchise Tax Board offers taxpayers two ways to reduce the amount of State income tax they pay – deductions and exemptions or credits. Deductions lower the amount of taxable income while exemptions or credits reduce the actual tax bill. Often times, exemptions can have a more significant affect in lowering the amount of taxes you will pay.
Currently California allows taxpayers to deduct $7340 if they are married and filing jointly or the head of the household. For those filing as singles or married filing separately, the standard deduction is $3670. Additionally, Californians are given a $950 deduction for each dependent claimed on their 540 forms. These deductions can offer big savings and if you’ve filed itemized deductions on your federal forms, you generally don’t have to repeat the process on your 540’s.
Tax Credits include adoption expenses (50% of which may be deducted,) dependent parent care, child care, and other state taxes. Also, California offers $198 exemptions to married taxpayers filing jointly and $99 to those filing as individuals. Dependents, the Blind, and senior citizens are given $99 tax credits as well. Keep in mind the state phases out these exemptions for higher-income earners.
Whether you use the services of an accountant or file taxes on your own, make sure to do your homework and take advantage of all the deductions and exemptions California has to offer.