California State Tax Cops Hunt Millions: ‘We Will Find You’

Living in California has many perks, but tax rates are not among them. In November 2012, California hiked its already high state tax rates retroactively, imposing a whopping rate increase of 30% for some high income taxpayers. Those earning $250,000 to $300,000 a year now pay 10.3%, up from 9.3%. For $1 million-plus-earners, California’s rate is 13.3%, up from 10.3%.

California taxes motivate some migrations out of state, but one of the key complaints from residents is about capital gain rates. You see, there aren’t any–it’s all ordinary in California. At the federal level, the capital gain rate rose to 20% for higher income taxpayers. Add the 3.8% investment tax that results from the healthcare law known as Obamacare, and you have 23.8% for many.

670px-flag-of-california

Although we may focus primarily on federal taxes, some states–and California is one of them–tax capital gains as high as 13.3%. It’s one thing to compare states, but the comparisons can be even more depressing when one looks around the world. If you are paying up to a 33% combined federal and state tax on capital gains as you may be in California, you are paying more than virtually anyone else in the world. Experts say such a high tax rate has long-term negative implications for the economy.

Take a look at how we stack up:

Rank  State/Country           Rate

  1. Denmark                    42.0%
  2. France                         38.0%
  3. California                   33.0%
  4. Ireland                        33.0%
  5. Finland                       32.0%
  6. New York                    31.5%
  7. Oregon                        31.0%
  8. Minnesota                 30.9%
  9. New Jersey                30.4%
  10. Vermont                     30.4%
  11. D.C.                             30.4%
  12. Maryland                   30.3%
  13. Sweden                       30.0%
  14. Maine                         29.8%
  15. Iowa                            29.6%
  16. Idaho                          29.4%
  17. Hawaii                        29.4%
  18. Nebraska                   29.1%
  19. Connecticut              29.0%
  20. Delaware                   29.0%
  21. West Virginia            28.9%
  22. United States            28.7%
  23. Georgia                      28.6%
  24. Kentucky                   28.6%
  25. Missouri                     28.6%
  26. Rhode Island            28.6%
  27. North Carolina          28.5%
  28. Virginia                      28.5%
  29. Ohio                           28.3%
  30. Wisconsin                 28.2%
  31. Oklahoma                  28.2%
  32. Massachusetts         28.1%
  33. Portugal                     28.0%
  34. United Kingdom       28.0%
  35. Illinois                        28.0%
  36. Mississippi                28.0%
  37. Utah                           28.0%
  38. Arkansas                   27.9%
  39. Montana                    27.9%
  40. Louisiana                  27.9%
  41. Kansas                      27.9%
  42. Indiana                      27.8%
  43. Michigan                   27.8%
  44. Colorado                    27.8%
  45. Arizona                      27.7%
  46. Alabama                    27.4%
  47. South Carolina         27.3%
  48. Norway                      27.0%
  49. Spain                         27.0%
  50. Pennsylvania           26.8%
  51. New Mexico              26.5%
  52. North Dakota            26.3%
  53. Tennessee                25.0%
  54. New Hampshire       25.0%
  55. Austria                       25.0%
  56. Germany                    25.0%
  57. Israel                          25.0%
  58. Slovak Republic       25.0%
  59. Alaska                        25.0%
  60. Florida                        25.0%
  61. Nevada                      25.0%
  62. South Dakota           25.0%
  63. Texas                         25.0%
  64. Washington              25.0%
  65. Wyoming                   25.0%
  66. Australia                    22.5%
  67. Canada                      22.5%
  68. Estonia                      21.0%
  69. Chile                          20.0%
  70. Iceland                       20.0%
  71. Italy                             20.0%
  72. Japan                         20.0%
  73. Poland                       19.0%
  74. Hungary                    16.0%
  75. Greece                       15.0%
  76. Mexico                       10.0%
  77. Belgium                     0.0%
  78. Czech Republic       0.0%
  79. Korea                         0.0%
  80. Luxembourg             0.0%
  81. Netherlands              0.0%
  82. New Zealand            0.0%
  83. Slovenia                    0.0%
  84. Switzerland               0.0%
  85. Turkey                        0.0%

Meanwhile, California tax authorities are mounting a big campaign to track down those who earn in the state but didn’t file a state income tax return with the Franchise Tax Board. Since the 1950s, the Franchise Tax Board has contacted people who earned income in California but did not file a tax return. In 2014, California collected more than $715 million through this effort.

Each year, FTB receives more than 500 million income records from banks, employers, state government, the IRS, and other third parties. FTB matches these income records against its database of tax returns. The program detects others who earned income but did not file a return through sources such as occupational licenses and mortgage interest payments.

Those contacted by FTB have 30 days to file a state tax return or show why one is not required. For those who do not respond, FTB estimates a tax bill based on income records. The assessment includes interest, fees, and penalties that can total as much as 50 percent of the tax due.

For alerts to future tax articles, follow me on Forbes. You can reach me at Wood@WoodLLP.com. This discussion is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.

 

via The Tax Lawyer http://ift.tt/1McA3W5

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