What Are Capital Gains Taxes For The State Of California?

With more than 40 million people officially living in California, the great weather and beautiful beaches must be doing something right. The hurdles to be financially successful in this state are high. California has one of the highest costs of living in the US and is one of the highest income tax states. Taxation of capital gains in California is no less well taxing on investors’ budgets. The more taxes you pay, the harder it will be for you to build wealth.

California taxes all capital gains as income. In contrast, the Federal Government will differentiate between long-term capital gains and short-term capital gains for tax purposes. Capital gains tax rates range from zero percent up to 37%, depending on the type of capital gains being taxed. It has been my experience as a Los Angeles financial planner; many people ignore state capital gains taxes when doing their tax planning (that is, assuming they are doing any tax planning at all). Understanding California capital gains tax rate obligations can help you make proactive money moves to minimize your taxes owed to the Franchise Tax Board.

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How Does California Tax Capital Gains?

Simply put, California taxes all capital gains as regular income. It does not recognize the distinction between short-term and long-term capital gains. This means your capital gains taxes will run between 1% up to 13.3%, depending on your overall income and corresponding California tax bracket.

Determining Your 2020 California Income Tax Rates

California taxpayers are subject to nice progress marginal tax rate brackets. The tax brackets in California range from a low of just 1% to a high of 12.3%. Being a progressive state with a progressive income tax system, there is an additional 1% tax on incomes above $599,013, if you file as single. This is a Mental Health Services surtax that isn’t included in the marginal tax rate schedule.

Your state tax-filing status and the overall amount of income you earned for the year determine at which rate you will be taxed. With California not giving any tax breaks for capital gains, you could find yourself getting hit with a total state tax rate of 13.3% on your capital gains. This is often a surprise to the tech millionaires working at companies like Tesla

TSLA


TSLA
, Apple

AAPL


AAPL
, Airbnb, or even SpaceX with substantial stock options.

I am a huge fan of tax planning and tax loss harvesting. Employing tax-saving strategies are imperative for a resident of California with “high” incomes. I am putting quotes around high because you get hit with a 9.3% capital gains tax at just $58,635 of income, if you are single. That’s hardly enough income to call yourself “rich.”

Federal Capital Gains Tax Brackets

Single

• 0 percent: $0 to $39,375
• 15 percent: $39,376 to $434,550
• 20 percent: $434,551 or more

Married Filing Separately

• 0 percent: $0 to $39,375
• 15 percent: $39,376 to $244,425
• 20 percent: $$244,426 or more

California state tax rates and tax brackets

California Tax Brackets for Single Taxpayers

Taxable Income Rate

$0 – $8,809 1.00%

$8,809 – $20,883 2.00%

$20,883 – $32,960 4.00%

$32,960 – $45,753 6.00%

$45,753 – $57,824 8.00%

$57,824 – $295,373 9.30%

$295,373 – $354,445 10.30%

$354,445 – $590,742 11.30%

$590,742 – $999,999 12.30%

$1,000,000+ 13.30%

California Tax Brackets for Married/Registered Domestic Partner (RDP) Filing Jointly Taxpayers (and Qualifying Widowers)

Taxable Income Rate

$0 – $17,618 1.00%

$17,618 – $41,766 2.00%

$41,766 – $65,920 4.00%

$65,920 – $91,506 6.00%

$91,506 – $115,648 8.00%

$115,648 – $590,746 9.30%

$590,746 – $708,890 10.30%

$708,890 – $1,181,484 11.30%

$1,181,484 – $1,999,999 12.30%

$2,000,000+ 13.30%

For other the Calfornia Income Tax Rate for other filing status visit the Franchise Tax Board site.

With the stock market soaring to record highs in 2020 and many Californians earning high incomes- even during the COVID Recession- tax planning is a must. Work with your fee-only financial planner to develop a plan to help minimize your federal and California state taxes.