California Business Tax Advantages
In the state of California, income tax system varies from the federal tax law. This could mean that a number of your federal deductions may be disallowed or limited in the Golden State. However, the state has its own credits and deductions where business entities and entrepreneurs may obtain some benefits.
Several kinds of income are exempted from income tax in the Golden State. These include the following:
- Interest from federal bonds
- State income tax refunds
- Social security and retirement benefits
- Unemployment compensation
- California state lottery winnings
- Distributions from health savings account
- Paid maternity and family leave
Aside from these income tax exemptions, some other types of income are not federally taxed but are taxed in California. These include foreign-earned income, cash for clunkers rebate and interest earned on local and state bonds. In terms of California deductions, the state does not allow any for adoption expenses, federal estate taxes, health savings account, local or foreign income taxes, qualified higher education expenses and expenses of principals and teachers. The state of California has additional deduction for their own such as the federal mortgage interest credit, the medical expenses which follow the federal deductability rules and the interest on utility company loans.
The Golden State’s income tax rate generally ranges from around 1.25% to around 9.55%. This is levied on the state residents’ income and from non-residents’ income living in California. The state also takes a mental health surcharge aside from the regular tax rate from residents whose income hit over the $1 million mark.
When talking about tax credits, California deducts these from the tax due, making them more valuable than deductions in some cases. Income tax credits include the following:
- Renters Credit – $60 credit for single renters who have earned an income of $34, 412 or less; $120 credit for married or registered domestic partners who have generated an income of $68, 824 or less.
- Exemption Credit – $98 each for the self, the spouse and all the dependents.
- Adoption Cost Credit – 50% of the cost in the year of the adoption
- New Home credit – Credit for people who have purchased a new home
- Child/dependent Care Credit – allowed for child or dependent care expenditures.
- First-time Buyer Credit – Credit for fist-time buyers of houses
- Dependent parent – This is for the married or registered domestic partners filing separately
- Joint custody head of household credit – for married or single filing separately who has a child
While there are tax deductions in California, it also provides tax advantages and incentives to business entities operating in the state.
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