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California payroll taxes and year-end uncertainty

Tax planning has historically involved making wise year-end choices, anticipating coming changes in the tax code. The need to be strategic about these choices has never been greater than this year, when several key tax cuts are due to expire at the end of the year.

It isn't just the Bush-era income tax cuts that are due to end. The federal payroll tax cut that was in effect for 2011 and 2012 is also slated to expire. It was passed, after all, as a temporary economic stimulus measure.

For families in the middle of the income distribution, making between $40,000 and $65,000 a year, this may mean paying around $672 more in income taxes next year. For those in the top twenty percent, however, the impact would be nearly $2000, according to the Tax Policy Center, a nonpartisan group.

Of course, this and other taxes are part of the so-called "fiscal cliff" that - with the election over - has become such a political football. Uncertainty abounds as to what steps the Obama administration and Congress may take to respond.

It is interesting to note, however, there have also been developments on payroll taxes here in California. In San Francisco, voters voted overwhelmingly last week to replace the city's payroll tax with a tax on gross receipts.

This is only one example of how payroll taxes affect business owners. In our dynamic capitalist economy, businesses sometimes run into problems paying those taxes, just as individuals do. When that happens, though, an experienced tax attorney can help identify options for moving forward.

Source: "San Francisco Tech Companies Win a Proposition to Save on Taxes," New York Times, Somini Senigupta, 11-7-12

Our firm handles situations similar to those discussed in this post. To learn more about our practice, please visit our California payroll taxes page.

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