When should you itemize your federal deduction if you live in California?

It’s tax time again, which means everyone I know has to put up with my complaining about Intuit’s (makers of TurboTax) lobbying for more complicated tax laws.

In any case, if you’re doing your own taxes and you make enough to live in San Francisco at least semi-comfortably*, you should probably be itemizing your federal tax deduction.

So California has fairly high taxes, which includes the CA SDI 1% for disability and paid family leave. Whether you’re happy about California being more like a European socialist paradise or not, turns out that these higher taxes are deductible from federal taxes. (Don’t worry, we’re still contributing more than our fair share).

If you’re a single person renting an apartment in California, here’s a visualization of the way I think about it:

When does it make sense to itemize your federal deduction if you live in CA?

Answer: basically when you make more than $40-50k or give a lot to charity

In this graph, the blue line is the percentage of your CA AGI (I assumed it was the same as federal to simplify) that the federal standard deduction represents. Since it is fixed at $6,100 for 2013, you can see that it represents less and less of your share as income increases. CA tax is the red line, and the yellow line is the CA SDI tax, fixed at 1% through 100k. Add those up and you get the bold green line- total non-discretionary items you can deduct.
Right here you can see that at about $80,000+ you should run the calculations yourself to see if itemizing is a good idea. However, I’m assuming that the readers of this blog either give a decent chunk to charity or have some student loan interest that they are working on. In that case the percentage of your AGI that you can deduct shifts upwards, and the cutoff at which you should check to see if deducting makes sense shifts back quickly. In the case of 5% going to charity, you should start running the numbers around $55,000ish.

I do have to add the disclaimer that, while I’ve spent far too many hours reading IRS docs to try to not use TurboTax, I am certainly not a certified Tax Preparer/Accountant/Lawyer/Lifeguard/Sandwich-Artist/etc.

Last PSA- give to Charity! Think about each dollar as not a dollar coming out of your pocket, but actually only 75 cents, since after reading this post you’ve realized that deducting is what you should be doing :-)

*yes, this is a sore subject- but I assume if you are reading this and working full time in the city you are in the range below

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