Twitter CEO Jack Dorsey may regret cancelling his planned move to Africa this year. Sacramento Democrats are proposing to raise the state`s already punitive top tax rate from 13.3 percent to 16.8 percent — retroactive to January of this year. It`s a good time for California`s top earners to grab their money and run. The income tax increase would also affect many small businesses and entrepreneurs, as many pay corporate tax under the income tax structure. „The governor has made it clear that he will not raise taxes,“ Myers said at an economic summit sponsored by the Oakland Metropolitan Chamber of Commerce. For some time, California has been losing citizens to tax-exempt states like Texas, Nevada, Washington, Wyoming and Florida, not just Elon Musk. In fact, you don`t need to move to a tax-free state to pay less. All other states have lower income tax rates than California, either no taxes or lower taxes. And many states tax capital gains more favorably, like the IRS. California taxes ordinary income and capital gains up to 13.3% — unless the rate goes up. This prompts sellers of stocks, bitcoins and other assets facing California`s 13.3% capital gains tax to move and then sell. The same goes for litigants who settle large lawsuits that take place before reaching an agreement.
While the move seems simple, you need to be thorough and careful so you don`t get asked to keep paying California taxes. Timing is also important. Exposure to the California audit can be scary, and in some cases, California can levy taxes no matter where you live. „There will be no income tax increase, no California wealth tax, no interest in raising corporate tax or capital gains tax.“ Yet during the nascent legislative period, lawmakers have already proposed raising taxes and fees by an incredible $234 billion a year, according to the California Tax Foundation. It is a non-profit research organization founded decades ago by california taxpayers assn., an anti-tax lobby. This data, along with the California Treasury Department`s latest budget forecast showing that state revenues are $16.7 billion higher than the governor`s forecast earlier this year, plus the $22 billion in reserves and roughly $26 billion expected for COVID-19 federal aid, make it clear that California does not need new taxes. Revenue gains are so robust that legislative budget analyst Gabe Petek said last week that some of the excess money may have to be returned to taxpayers below the „Gann limit,“ an election measure passed by voters four decades ago. In addition, Petek said, „Our analysis suggests that the (Gann border) will be an even more important factor in the state budget in the coming years,“ as revenues increase beyond the parameters of the border.
President Joe Biden, it has been revealed, will ask Congress this week to nearly double capital gains taxes on highest-income taxpayers, in addition to an increase in taxes on their ordinary income, which he had previously proposed to pay for infrastructure improvements. „If you see that taxes are constantly being offered in California, but not in other states that welcome you with open arms, that will be a factor in your business perspective. There is cause for concern. The proposed tax hike is nothing new or rare for members of the California legislature. Every year, state lawmakers introduce countless bills aimed at increasing taxes and fees for individuals, businesses, and consumer goods. The IRS can usually audit for 3 or 6 years depending on the problem, but California can sometimes audit forever. Like the IRS, California has an unlimited number of years to check if you ever file a tax return. This can make continuing submission in California – as a non-resident – a smart game.
This way, you only report your California-source income, but not everything else. California-source income would include rental income from California real estate, Schedules K-1, which you could obtain from California partnerships or LLCs, could also reflect some California-source income. Whether you declare as a non-resident or not, many people naturally worry that saying goodbye to California taxes could mean a hello residency check. But the fact that the top tax rate may rise again could set some people in motion. It`s not just income taxes that lead to reverse immigration. The repeated talk of a wealth tax is worrisome, even for those who only aspire to be rich. California lawmakers have proposed significant tax increases — again, two tax laws that were introduced in 2020 and failed to pass. As the economy improves and the state craves money, this year could be different. A tax bill would increase the state`s already stratospheric top tax rate for very high incomes by up to 3.5 percent.
The other is a controversial wealth tax. Currently, the personal income tax rate is 13.3 per cent, but the Assembly`s Bill 1253 would raise the maximum tax rate to 14.3 per cent for those earning more than $1 million. Beyond $2 million, you will reach 16.3% and more than $5 million, which equates to a peak rate of 16.8%. Even before the proposed changes, California`s richest 1 percent pay the bulk of the state`s personal income tax revenue (46 percent in 2016). Last year`s bill to raise the tax rate to 16.8 percent failed, but the new bill comes as the economy begins to improve. This would increase financial stimulus for the rich to flee to states that have little or no income taxes, such as neighboring Nevada and Texas — especially since the last major federal tax reform four years ago limited the deduction for state and local taxes to $10,000. The Assembly bill would increase the maximum rate to 14.3% for households earning more than $1 million, 16.3% for incomes over $2 million and 16.8% for households earning more than $5 million. The combined top federal tax rate would increase to 53.8% on wage income and 40.6% on capital gains. Another Assembly bill would impose a 0.4% wealth tax on assets over $30 million. What`s new, however, is that celebrities have begun to leave the state, citing the Golden State`s burdens on corporations and wealthy individuals who pay the vast majority of taxes received from the state. And they are not wrong. Californians, especially wealthy businesses and individuals, continue to pay some of the highest taxes in the country.
Initiative 21-0015, the repeal of the Death Tax Act, would cancel out a tax increase in last fall`s Proposition 19. This measure increased property taxes for families by requiring a revaluation at market value, with limited exceptions when property is transferred from parents to children. This initiative would restore parent-child exclusion from reassessment, which was originally incorporated into the state constitution in 1986 by Proposition 58. Another significant tax increase was proposed in the form of Assembly Bill 310 and Assembly Constitutional Amendment 8, which together call for a new 1% tax on net worth over $50 million and a 1.5% tax on net worth over $1 billion. That would cost taxpayers an additional $22.3 billion a year in new taxes — at least until the targeted taxpayers pack up and move to one of the 49 states that don`t levy this type of flawed tax. Support. 13 capped the national property tax rate at 1%, limited annual increases in the estimate to a maximum of 2% until there was a change in ownership, required a two-thirds majority of the legislature to pass state taxes, and ordered that local taxes be approved by voters. Californians already pay the highest income, sales and gasoline taxes in the country. The income tax on crown corporations is near the top. We have relatively low local property taxes, but they still rank 16th in the country. By far, the largest tax increase proposed by the tax foundation would raise $200 billion a year to fund a „Guaranteed Health Care for All“ deposit program. But this bill, AB 1400, does not yet have a funding mechanism.
The Foundation based its estimate on previous proposals of this type. And the sponsors do not plan to push the new law until 2022, an election year. It`s income tax time across America, but in the California legislature, it`s still tax time. Some Democrats never stop trying to raise taxes. It sounds addictive. Never mind that Californians already pay the highest state taxes in the country. Capital gains are largely discretionary. That said, gains from stocks and other investments will only become taxable after they are sold, and a sharp increase in federal taxes to 43.4% would encourage wealthy investors to hold them to avoid new levies that would also reduce government revenues from those gains. .