California Seniors: Tax Tips to Know Now

As one of the 41 states that require residents to file State personal income tax returns, California expects to see your return April 17th this year. Residents will file a Form 540, 540EZ, 540-A or 540-ADS. California can be a tough state for taxpayers, offering minimal homeowners exemption help and no deduction for federal taxes. However, certain tax laws do offer taxpayers some relief. Seniors should explore all deductions and exemptions, to make sure you keep all the money you should.

The personal income tax rate in California does not exceed 9.3% of total taxable income. With six tax brackets, and the highest one starting at $41,477, California offers more choices for taxpayers looking for their correct rate. Filers should be sure to file in the correct bracket-accidentally putting yourself in a too-high bracket can cost you money. The lowest tax bracket caps at $6,319 in annual income; for some seniors, this may your bracket after your standard deduction and tax credit. Check out the figures below to see how low of a bracket you can go to! In each bracket, there are exemptions and credits that can help you make the best return possible.

First, there is a tax credit for all filers. Seniors over 65 can take the $87 tax credit. In addition, all residents over 65 can claim a $75 senior exemption tax along with any other exemptions they are eligible for. Not yet 65? Married couples get a $170 credit and singles take $85 off the top. In addition to these credits, the standard deductions for California filers are $3254 for singles and $6508 for married people filing jointly. Starting with these dollars taken off your taxable income can make a big dollar difference in your taxes owed-or tax dollars owed to you! There is no federal income tax deduction, however, and the medical and dental deductions are the same as those for your Federal taxes. Still, don't overlook those medical deductions. Be sure to take them off your taxes.

Good news for seniors in this state: your social security benefits are exempt from state taxes in California, as are Railroad Retirement benefits. For most retirees, this means your income is not taxable. Be careful with your pension, though: if you take an early distribution, you could be charged a 2.5% tax fee. Also, all pensions are fully taxed in California-including private, local, state, and federal plans. Ex-military? Thank you for your service, but unfortunately Federal tax rules apply to any retired military payments you may receive.

All California property is subject to tax, with homestead exemptions handled by the local county tax assessors' office. Contact your local office to make sure you're getting your homeowners exemption to the full amount you should. Seniors can postpone paying property taxes through the property tax postponement program, but be careful. The postponed amount does accrue interest, which can be a hard hit later on. This can also put your home ownership in jeopardy, as a lien is brought against the property during the postponement period. Everyone should be cautious when it comes to putting their home on the line, for any reason. The short-term gains are not usually worth the long-term consequences.
Hate paperwork and always out of stamps? Consider CalFile, the state e-file system. If you were a state resident for all of 2006 and are claiming fewer than five dependents, you can use this simple, free, on-line filing system. Start the process at http://www.ftb.ca.gov/online/calfile/qualifications.html.

To find the answers to more questions, call the California Franchise Tax Board at 1-800-852-5711 or visit http://www.ftb.ca.gov/.