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Can my state taxes really be 6x my federal?
Old 02-14-2024, 11:38 PM   #1
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Can my state taxes really be 6x my federal?

I'm not a tax whiz, but I also don't have a complicated financial life (no deductions, no kids, own my home). I'm living on long term cap gains and cash out about $50,000 a year. This year I stumbled by forgetting my dividends and ended up with $60,000 income/investment total.


I just did my first run through on taxes and it appears I owe California six times as much taxes than I do the fed. Seems a little nuts (the ratio). I don't mind paying taxes, it's just that I get WAY more value from the federal government than I ever do from the state.


Not to mention my city charged me $1,500 to fix the sidewalk in front of my house that I didn't ask for. Isn't that what taxes are supposed to pay for?
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Old 02-14-2024, 11:49 PM   #2
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The federal to state ratio seems way off.

The most likely explanation is that what you're referring to is the amount owed, rather than the tax liabilities themselves. This can happen if your withholding is imbalanced in that you're withholding (or making estimated payments) more to federal than you are to state relative to your tax liability.

At any rate, I would look at the tax returns and the numbers and how they got there until you understand why that 6x ratio exists. It may be right, or you may find an error on your tax return, or you may learn about a CA state income tax quirk that affects you.

As a total SWAG, your federal tax liability at that income level should be perhaps 2x your CA tax liability.

No comment on the sidewalk.
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Old 02-14-2024, 11:55 PM   #3
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Seems about right, considering the IRS may not be taxing the QD and LTCG at all while CA taxes them as ordinary income.
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Old 02-15-2024, 12:27 AM   #4
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We are responsible for the county sidewalks and our street trees. I paid $400 to repair one slab of my sidewalk a few years back. It is not unusual.
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Old 02-15-2024, 12:31 AM   #5
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The federal to state ratio seems way off.

The most likely explanation is that what you're referring to is the amount owed, rather than the tax liabilities themselves. This can happen if your withholding is imbalanced in that you're withholding (or making estimated payments)

No comment on the sidewalk.

I don't have withholding or pay quarterly. I just cash out mutual fund to live off of, and see what I owe at the end of the year.
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Old 02-15-2024, 12:36 AM   #6
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Seems about right, considering the IRS may not be taxing the QD and LTCG at all while CA taxes them as ordinary income.
This ^, plus the CA standard deduction is about 1/3 of the federal standard deduction.
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Old 02-15-2024, 01:52 AM   #7
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Originally Posted by Brook2 View Post
I'm not a tax whiz, but I also don't have a complicated financial life (no deductions, no kids, own my home). I'm living on long term cap gains and cash out about $50,000 a year. This year I stumbled by forgetting my dividends and ended up with $60,000 income/investment total.


I just did my first run through on taxes and it appears I owe California six times as much taxes than I do the fed. Seems a little nuts (the ratio). I don't mind paying taxes, it's just that I get WAY more value from the federal government than I ever do from the state.


Not to mention my city charged me $1,500 to fix the sidewalk in front of my house that I didn't ask for. Isn't that what taxes are supposed to pay for?

Yeah, I can't imagine that. I know CA taxes CAN be very high but only if your income is quite high and then Fed taxes would likely be proportionately high. It must be some imbalance in the standard deductions. Or you're doing it wrong.



Here in Paradise, my state taxes are more like 1/6 my Fed taxes (often less, depending.)
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Old 02-15-2024, 05:15 AM   #8
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Seems about right, considering the IRS may not be taxing the QD and LTCG at all while CA taxes them as ordinary income.
This.

Our AGI last year was about $60K. Federal taxes were $0, so state taxes were infinitely more.
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Old 02-15-2024, 07:02 AM   #9
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Similar situation can happen in Minnesota. LTCG are ordinary income from dollar 1.
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Old 02-15-2024, 07:13 AM   #10
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Yes, that's about right. With a low income that consists mostly of LTCG and QDIVs, your effective Federal tax rate will be ridiculously low, something like .5%. California should be about 3-3.5%.

I believe most states would tax you a lot more than the Fed in this situation because many state tax codes don't have special treatment for cap gains and qdivs.
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Old 02-15-2024, 07:18 AM   #11
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Similar situation here in Pennsylvania. My state income taxes are alway higher than my federal taxes are.
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Old 02-15-2024, 07:35 AM   #12
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This is entirely possible given it's California. I'm assuming you are using some form of tax software? Since it looks like this is a fairly easy return, why not download the Fed and State forms and do the return by hand? That way you can see exactly what is causing the difference and / or find the error.
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Old 02-15-2024, 07:43 AM   #13
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We are responsible for the county sidewalks and our street trees. I paid $400 to repair one slab of my sidewalk a few years back. It is not unusual.
Can you charge a toll?
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Old 02-15-2024, 09:24 AM   #14
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I ran slightly afoul of this in Wisconsin in 2023. WI treats 70% of the LTCG as ordinary income. Caught me by surprise. My state tax was just about 3x my Fed.
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Old 02-15-2024, 09:51 AM   #15
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This is entirely possible given it's California. I'm assuming you are using some form of tax software? Since it looks like this is a fairly easy return, why not download the Fed and State forms and do the return by hand? That way you can see exactly what is causing the difference and / or find the error.

I'm using Freetaxusa.com which has been recommended by several people. It's probably way more reliable than 'me' doing it by hand for sure I'll double look at things - but so far I'm not finding it. It could be as simple as what people said above, it's not that my state taxes are so high - but that my federal is so low since it's mostly LTCG, and the state sees that as ordinary income.
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Old 02-15-2024, 10:06 AM   #16
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I figured Cali as I read your post. I am not a person driven by taxes, either way, as it's a necessary thing. However, I must say it is nice not paying state income taxes anymore as an ex-Cali.
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Old 02-15-2024, 10:10 AM   #17
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Can you charge a toll?

Now if I could get a laugh like THAT every time the city asked for money for some oddball thing, I might not mind so much.


I'm lucky I can afford these things, whereas my neighbors live on a limited fixed income with health issues. Our city threatens to put a lien on one's house for nonpayment. A little nutty when the city spends a lot of money on really ridiculous things (rant rant)
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Old 02-15-2024, 11:51 AM   #18
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After reading this thread I have come to the conclusion that some folks here pay very little in Federal taxes.
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Old 02-15-2024, 11:58 AM   #19
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After reading this thread I have come to the conclusion that some folks here pay very little in Federal taxes.
When I was working, I would read posts over on bogleheads about how a married couple could have an income of $100K and pay no federal income taxes.

I'm now one of those people, at least for a few years.
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Old 02-15-2024, 12:10 PM   #20
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After reading this thread I have come to the conclusion that some folks here pay very little in Federal taxes.
Well, after all ...
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