San Diego is lovely in so many ways: our gorgeous coastline, our unparalleled burritos.
Turns out there is also “a little bit of uniqueness for the San Diego area” when it comes to tax planning, says Levi Anderson, a Certified Financial Planner with EP Wealth Advisors in University City.
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The Union-Tribune sat down with Anderson to understand what issues might affect people filing taxes in San Diego.
Taxes are due in May this year, not April
San Diegans, along with residents of dozens of other counties throughout California, have almost a whole extra month to file their taxes this year. This applies to both federal and state taxes, and to residential and business filers.
The new deadline: May 15.
Why? The deadline has been extended for residents of federally declared disaster areas, Anderson said.
The IRS has more information, including how this impacts filers. A few key details:
“Among other things, this means that eligible taxpayers will have until May 15 to make 2022 contributions to their IRAs and health savings accounts,” the IRS states.
The extension also gives more time for people to file quarterly estimated tax payments.
“This means that individual taxpayers can skip making the fourth quarter estimated tax payment, normally due Jan. 17, 2023, and instead include it with the 2022 return they file, on or before May 15.”
No taxes due on your Middle Class Relief Refund
Are you one of the 7.2 million Californians who got a direct deposit or 9.6 million who got a debit card from the state last fall or this winter?
And when you got that payment, did you worry a chunk of that will go right back to the state as income taxes?
Go ahead and exhale now.
“Very recently the IRS has come out and said — at least for California and a few other states — that that refund is not a taxable income for federal taxes,” Anderson said. “So that’s a little bit of good news.”
He added that it is not taxable for California state income tax purposes either.
Here’s how the IRS phrased this decision: “During a review, the IRS determined it will not challenge the taxability of payments related to general welfare and disaster relief.”
One drawback to these refunds: they were only given to California residents who filed taxes here in 2020. So if you didn’t file, you weren’t eligible for this support.
Also, if someone moved to California recently, they did not qualify.
“I did not get a payment,” said Anderson. He recently moved here from Texas. But, he added, “I love it here in San Diego. It was really fun to be one of the people that were moving in the opposite direction. The sunshine tax is definitely worth it.”
Relief for San Diego small-business owners
Anderson’s next pointer isn’t new for 2022 taxes, but it’s something that might have slipped under the radar for taxpayers last year when it went into effect.
The change: starting with 2021 taxes, business owners can change how they pay taxes and lower their individual tax burden as a consequence.
Here’s the backstory: The state and local tax deduction (known as the SALT deduction) is capped at $10,000. But, as Anderson noted, “Many small business owners pay much more than that in state and local taxes.”
He said small businesses that qualify can now pay state and local taxes through their “qualifying pass-through entity” — for example, S corporations or partnerships — which in turn reduces their personal income tax.
According to the state’s Franchise Tax Board:
“For taxable years beginning on or after January 1, 2021, and before January 1, 2026, qualifying pass-through entities (PTEs) may annually elect to pay an entity-level state tax on income. Qualified taxpayers receive a credit for their share of the entity level tax, reducing their California personal income tax.”
In other words, “the state of California has provided a workaround to provide tax relief to small business owners,” Anderson said.
Energy efficiency for the (tax) win
San Diego is a hot spot for energy-efficient upgrades, Anderson said, and there are various tax incentives available for people who add solar panels or buy an electric vehicle.
“A lot of folks, especially here in San Diego, are considering solar, or energy-efficient appliances, or electric vehicles,” he said. “The IRS make provisions for federal tax credits. Some of them are refundable, some are non-refundable. It would be important to check into those.”