The Internal Revenue Service recently issued a notice about proposed regulations that will address the deductibility of state and local tax payments for federal income tax purposes, specifically reminding taxpayers that the IRS position is that federal law controls the characterization of payments, regardless of the treatment under state law. To read the IRS press release, click here.
Efforts are already underway to reduce the slap many Californians are feeling from the $10,000 limit on federal deductions for state property or income taxes paid. Senators De Leon, Allen, and Hill have introduced SB 227, the "Protect California Taxpayers Act," which would effectively eliminate the cap on these federal deductions by providing a dollar-for-dollar tax credit against the state income tax liabilities of taxpayers who make a charitable donation to the California Excellence Fund. Donations would be used to fund California government programs typically funded through state tax revenues. Any credit that exceeds the taxpayer's income tax liability would be carried over to the next year, and would not be refundable.