We live in a high tax state. California has some of the highest taxes in the nation.
You may or may not know that your state taxes can be deducted from your federal taxes. California, of course, is one of those states that levies states taxes. This is to be contrasted with states like Nevada or Texas which do not have state income taxes. However, if you have friends in a state such as Nevada or Texas, they will undoubtedly tell you that those states get at their citizens by often having higher taxes and fees such as the cost of registering a car or the percentage tax based on real estate.
California Income Taxes vs. Local Sales Taxes in San Francisco
Another situation of interest is a person who does not pay a lot of California income tax but has a very significant sales tax bill. For your information, the sale tax rate in San Francisco is currently 8.75%. In certain situations if the sales tax exceeds the tax paid to the state directly you can deduct your sales taxes, and this can be more advantageous than deducting your California income tax. This is an uncommon situation in California but it can occur.
If you are spending a lot on items that incur local sales taxes, be sure to keep records throughout the year. Then at year and we can compare the amounts that you paid in sales taxes versus the amount that you paid in states taxes, and we can identify the most advantageous deduction for you.
The reality is that many of the taxes you pay, whether those are state income taxes or local sales taxes can be deducted off of your federal return. The trick is to keep accurate records. If this is confusing, just reach out to us and we can work together to understand your situation and thereby minimize your federal income tax by charting which scenario is most advantageous. Our goal, always, is to minimize your local, state, and federal taxes to the fullest extent of the law.