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San Francisco Chronicle
a day ago
- Business
- San Francisco Chronicle
California parents have a new option to save for K-12 private school — but there's a catch
The GOP tax megabill signed into law in July had a provision tucked into it that could help parents who send their kids to private school. As students head back to school this month, a disproportionate number in the Bay Area will be at private schools: In several counties, rates of attendance are more than double the 8% statewide average. Nearly one-third of K-12 students in San Francisco attend a private school, according to data website Private School Review. That attendance comes with a hefty price tag. The average amount a family would spend to send their child to private school in San Francisco from kindergarten through high school graduation is about $520,000, according to a Chronicle data analysis. To help cover those costs, parents will soon be able to leverage an increased amount from 529 education savings plans. What are 529 plans and how are they changing? Created by Congress in 1996 and named for a section of IRS code, 529 plans are tax-advantaged investment accounts operated by states or educational institutions designed to help save for a child's education. They were originally intended to cover college or trade school costs, but since 2018, the law has allowed families to withdraw up to $10,000 annually from 529 plans for K-12 tuition without paying a penalty or federal taxes on the growth. Starting next year, under the tax and spending bill signed by President Donald Trump on July 4, the K-12 withdrawal limit increases to $20,000. The bill also expanded what K-12 expenses could be covered. Under previous law, only tuition for K-12 was eligible for federal penalty-free 529 withdrawals; under the new law, expenses like books, tutoring, standardized and AP test fees, and educational therapies for students with disabilities are all considered qualified expenses. Some states have changed their laws so parents don't pay a state penalty or tax on those K-12 withdrawals either. But not in California. K-12 expenses are still considered nonqualified expenses, so you'll pay a 2.5% penalty plus state income taxes (as high as 13.3%, depending on your household income) on the taxable growth when you withdraw 529 funds for those purposes. Given that, does it ever make sense in this state to use your kid's 529 funds to pay for their private school tuition or other pre-college educational costs in California? It could. Here's what experts say. The case against using a 529 for K-12 expenses Richard Pon, a certified public accountant and certified financial planner, has a son who's enrolled in private school in San Francisco. He said he doesn't use 529 money to pay for it. The first reason is the state income taxes and the 2.5% penalty. The other reason is the flexibility of 529 funds: Even if your child gets a free ride to college with room and board paid for, those funds could be used to pay for graduate school, professional certifications like a CPA license or nursing license, or get rolled into an IRA. You could also roll the 529 funds into an account for another child or relative, or a friend. And if you're using 529 funds to pay for elementary school, that means they don't have time to grow in the market before your child goes to college — though, of course, there's always a chance they could drop between now and then, too. If you're really in a financial bind and paying for your kid's private school tuition from their 529 means the difference between paying your mortgage or not, then yes, it could make sense to tap those funds — though many 529 accounts are protected by federal law in bankruptcies, so if you're truly at the edge of financial peril, you may want to leave the money in that account alone. In general, Pon said, 'I would think about holding this (money) as long as possible instead of saying, 'Hey, I'll use it for K-12.'' The case for using a 529 to pay K-12 expenses For some families in California, it might make sense to pay K-12 educational costs from a 529, said Sean Pyles, a certified financial planner and the host of NerdWallet's 'Smart Money' podcast. He said to think of 529s less as college savings accounts and more like flexible education savings accounts. When it comes to the tax question, parents can do the math and see if using the funds for K-12 expenses pencils out. 'What it's going to come down to for each person is figuring out whether they are going to be coming out ahead by actually reaping tax benefits from this account, or if, given the amount (of taxes and penalties) that California imposes, it's just not going to be financially beneficial to them at this point,' he said. For parents making the investment in private schools for their kids, it's probably worth checking with an accountant, financial planner or other tax pro to see if the math makes sense.
USA Today
24-06-2025
- Business
- USA Today
Senate revises Trump big, beautiful bill; see tax on tips, senior 'bonus deduction' changes
The Senate released its revisions to the legislation dubbed the "One Big Beautiful Bill" by President Donald Trump this week, but whether it's better for average Americans than the House bill might be questionable, some experts say. The Senate's version of the mega tax bill keeps popular benefits like no taxes on overtime and tips, an additional tax deduction for those 65 years and older, and a deduction for state and local taxes (SALT). However, the Senate's tweaks, if passed, may make those tax benefits less beneficial for individual taxpayers, some accountants said. No tax on tips and overtime pay Eliminating taxes on tips and overtime pay is one of President Donald Trump's most popular campaign promises, and the Senate kept it – but with a cap. For tips, the Senate offers a maximum $25,000 deduction for both overtime pay and tips, but it would begin to phase out for single filers earning, with a modified adjusted gross income (MAGI), $150,000, and couples over $300,000. It would reduce the deduction by $100 for every $1,000 of income over those thresholds. MAGI begins with the adjusted gross income, whch is basically the sum of all income, which commonly can include items like dividends, interest, capital gains, rental income, self-employment income, taxable alimony, Social Security, pensions, annuity income, and a few more things. The AGI is then adjusted or 'modified' further to get to the MAGI. For a single filer, the deduction is completely phased out if income is $250,000 over the MAGI threshold. The House version didn't have a cap or a phase out. Instead, it excluded highly compensated employees who make at least $160,000 in 2025. 'For both no tax on tips and no tax on overtime, the House version is more beneficial to the average taxpayer as there are no caps on the deduction,' said Richard Pon, a certified public accountant in San Francisco. Brian Fitzpatrick votes yes on bill: Fitzpatrick votes for 'Big Beautiful Bill.' What it means for Medicaid, tax cuts Senior deduction The Senate proposed a $6,000 'bonus deduction' for those aged 65 and older, but eligibility is capped at $75,000 in income for single filers and $150,000 for couples. The deduction would be available from 2025 through 2028, and would supplement, but not replace, the existing extra standard deduction already available to older adults. For 2025, a single filer age 65 or older can claim an extra $2,000, while married couples filing jointly can add $1,600 for each spouse over 65 in addition to the standard deduction available to all taxpayers. The Senate's bonus deduction would be on top of those. The House agreed on a $4,000 bonus deduction with similar eligibility parameters and duration. Bonus deductions are meant as a substitute for Trump's promise of no tax on Social Security because the budget reconciliation process doesn't allow provisions related to Social Security, according to the Bipartisan Policy Center Since tax deductions only reduce taxable income, not tax owed directly, those who pay little to no federal income tax may benefit very little if at all from the bonus deduction, analysts said. CR grad comes home to address Trump bill Trump agenda, Medicaid cuts focus of Bucks County visit as CA congressman returns home SALT deduction Individual taxpayers could lose big under the Senate's version of the controversial SALT, or state and local tax, deduction. In 2017, Trump's first major tax bill capped SALT at $10,000. Before that, it was uncapped, meaning individuals could deduct all their state and local taxes on their federal tax returns. The cap was seen as mostly hurting many big Democratic states like New York with high state and local taxes. As a workaround, many states adopted Pass-Through Entity (PTE) taxes, which allow the entity to pay state income tax at the entity level and take the tax deduction. Only individuals, not entities, are subject to the SALT cap. The House plan raises the cap to $40,000 for individuals earning $500,000 or less. The Senate kept the current $10,000 cap and said passthrough entity taxes (PTE) would now be subject to the $10,000 limit, Pon said. 'I think the cap may be raised slightly -- most likely by doubling the cap to $20,000 for married taxpayers,' Pon said. But 'the proposal to stop the PTE workaround, I think, will pass as it raises revenue which is needed to get the deficit under control.' Medora Lee is a money, markets, and personal finance reporter at USA TODAY. You can reach her at mjlee@ and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday.
Yahoo
20-06-2025
- Business
- Yahoo
From tax on tips to SALT deductions: Senate tweaks bring change to Trump's big tax bill
The Senate released its revisions to the legislation dubbed the "One Big Beautiful Bill" by President Donald Trump this week, but whether it's better for average Americans than the House bill might be questionable, some experts say. The Senate's version of the mega tax bill keeps popular benefits like no taxes on overtime and tips, an additional tax deduction for those 65 years and older, and a deduction for state and local taxes (SALT). However, the Senate's tweaks, if passed, may make those tax benefits less beneficial for individual taxpayers, some accountants said. Eliminating taxes on tips and overtime pay is one of President Donald Trump's most popular campaign promises, and the Senate kept it – but with a cap. For tips, the Senate offers a maximum $25,000 deduction for both overtime pay and tips, but it would begin to phase out for single filers earning, with a modified adjusted gross income (MAGI), $150,000, and couples over $300,000. It would reduce the deduction by $100 for every $1,000 of income over those thresholds. MAGI begins with the adjusted gross income, whch is basically the sum of all income, which commonly can include items like dividends, interest, capital gains, rental income, self-employment income, taxable alimony, Social Security, pensions, annuity income, and a few more things. The AGI is then adjusted or 'modified' further to get to the MAGI. For a single filer, the deduction is completely phased out if income is $250,000 over the MAGI threshold. The House version didn't have a cap or a phase out. Instead, it excluded highly compensated employees who make at least $160,000 in 2025. 'For both no tax on tips and no tax on overtime, the House version is more beneficial to the average taxpayer as there are no caps on the deduction,' said Richard Pon, a certified public accountant in San Francisco. The Senate proposed a $6,000 'bonus deduction' for those aged 65 and older, but eligibility is capped at $75,000 in income for single filers and $150,000 for couples. The deduction would be available from 2025 through 2028, and would supplement, but not replace, the existing extra standard deduction already available to older adults. For 2025, a single filer age 65 or older can claim an extra $2,000, while married couples filing jointly can add $1,600 for each spouse over 65 in addition to the standard deduction available to all taxpayers. The Senate's bonus deduction would be on top of those. The House agreed on a $4,000 bonus deduction with similar eligibility parameters and duration. Bonus deductions are meant as a substitute for Trump's promise of no tax on Social Security because the budget reconciliation process doesn't allow provisions related to Social Security, according to the Bipartisan Policy Center Since tax deductions only reduce taxable income, not tax owed directly, those who pay little to no federal income tax may benefit very little if at all from the bonus deduction, analysts said. Individual taxpayers could lose big under the Senate's version of the controversial SALT, or state and local tax, deduction. In 2017, Trump's first major tax bill capped SALT at $10,000. Before that, it was uncapped, meaning individuals could deduct all their state and local taxes on their federal tax returns. The cap was seen as mostly hurting many big Democratic states like New York with high state and local taxes. As a workaround, many states adopted Pass-Through Entity (PTE) taxes, which allow the entity to pay state income tax at the entity level and take the tax deduction. Only individuals, not entities, are subject to the SALT cap. The House plan raises the cap to $40,000 for individuals earning $500,000 or less. The Senate kept the current $10,000 cap and said passthrough entity taxes (PTE) would now be subject to the $10,000 limit, Pon said. 'I think the cap may be raised slightly -- most likely by doubling the cap to $20,000 for married taxpayers,' Pon said. But 'the proposal to stop the PTE workaround, I think, will pass as it raises revenue which is needed to get the deficit under control.' Medora Lee is a money, markets, and personal finance reporter at USA TODAY. You can reach her at mjlee@ and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday. This article originally appeared on USA TODAY: Senate tweaks to Trump tax bill take president's promises down a notch Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
USA Today
20-06-2025
- Business
- USA Today
From tax on tips to SALT deductions: Senate tweaks bring change to Trump's big tax bill
The Senate released its revisions to the legislation dubbed the "One Big Beautiful Bill" by President Donald Trump this week, but whether it's better for average Americans than the House bill might be questionable, some experts say. The Senate's version of the mega tax bill keeps popular benefits like no taxes on overtime and tips, an additional tax deduction for those 65 years and older, and a deduction for state and local taxes (SALT). However, the Senate's tweaks, if passed, may make those tax benefits less beneficial for individual taxpayers, some accountants said. No tax on tips and overtime pay Eliminating taxes on tips and overtime pay is one of President Donald Trump's most popular campaign promises, and the Senate kept it – but with a cap. For tips, the Senate offers a maximum $25,000 deduction for both overtime pay and tips, but it would begin to phase out for single filers earning, with a modified adjusted gross income (MAGI), $150,000, and couples over $300,000. It would reduce the deduction by $100 for every $1,000 of income over those thresholds. MAGI begins with the adjusted gross income, whch is basically the sum of all income, which commonly can include items like dividends, interest, capital gains, rental income, self-employment income, taxable alimony, Social Security, pensions, annuity income, and a few more things. The AGI is then adjusted or 'modified' further to get to the MAGI. For a single filer, the deduction is completely phased out if income is $250,000 over the MAGI threshold. The House version didn't have a cap or a phase out. Instead, it excluded highly compensated employees who make at least $160,000 in 2025. 'For both no tax on tips and no tax on overtime, the House version is more beneficial to the average taxpayer as there are no caps on the deduction,' said Richard Pon, a certified public accountant in San Francisco. Senior deduction The Senate proposed a $6,000 'bonus deduction' for those aged 65 and older, but eligibility is capped at $75,000 in income for single filers and $150,000 for couples. The deduction would be available from 2025 through 2028, and would supplement, but not replace, the existing extra standard deduction already available to older adults. For 2025, a single filer age 65 or older can claim an extra $2,000, while married couples filing jointly can add $1,600 for each spouse over 65 in addition to the standard deduction available to all taxpayers. The Senate's bonus deduction would be on top of those. The House agreed on a $4,000 bonus deduction with similar eligibility parameters and duration. Bonus deductions are meant as a substitute for Trump's promise of no tax on Social Security because the budget reconciliation process doesn't allow provisions related to Social Security, according to the Bipartisan Policy Center Since tax deductions only reduce taxable income, not tax owed directly, those who pay little to no federal income tax may benefit very little if at all from the bonus deduction, analysts said. SALT deduction Individual taxpayers could lose big under the Senate's version of the controversial SALT, or state and local tax, deduction. In 2017, Trump's first major tax bill capped SALT at $10,000. Before that, it was uncapped, meaning individuals could deduct all their state and local taxes on their federal tax returns. The cap was seen as mostly hurting many big Democratic states like New York with high state and local taxes. As a workaround, many states adopted Pass-Through Entity (PTE) taxes, which allow the entity to pay state income tax at the entity level and take the tax deduction. Only individuals, not entities, are subject to the SALT cap. The House plan raises the cap to $40,000 for individuals earning $500,000 or less. The Senate kept the current $10,000 cap and said passthrough entity taxes (PTE) would now be subject to the $10,000 limit, Pon said. 'I think the cap may be raised slightly -- most likely by doubling the cap to $20,000 for married taxpayers,' Pon said. But 'the proposal to stop the PTE workaround, I think, will pass as it raises revenue which is needed to get the deficit under control.' Medora Lee is a money, markets, and personal finance reporter at USA TODAY. You can reach her at mjlee@ and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday.
San Francisco Chronicle
09-05-2025
- Business
- San Francisco Chronicle
Will Californians' taxes go down with Trump tax cuts? It could come down to one thing
Republican lawmakers are debating a tax policy that could have major implications for Californians. The Tax Cuts and Jobs Act of 2017, enacted during the first Trump administration, imposed a limit on how much of your state and local taxes could be deducted from your federal taxable income. The limit, referred to colloquially as the 'SALT cap,' was set at $10,000. It is set to expire at the end of the year, along with many other provisions of the 2017 Trump tax bill. But Republicans are preparing a new package of tax changes, and whether to raise or eliminate the SALT cap has been a major talking point. For more than a century, there was no limit on SALT deductions. The deduction was first added to the tax code in 1913 with the idea that people shouldn't be taxed twice on their income — and thus, you should be able to subtract what you've already paid in state and local income taxes, property taxes and personal property taxes from the amount on which you're being assessed for federal taxes. But after Trump took office in 2017, Republicans saw a new $10,000 cap as a much-needed source of tax revenue. It also happened to target states that didn't vote for Trump. The impact of the cap was disproportionately felt by higher-income people in coastal blue states, including California and New York. That's because to claim the SALT deduction rather than the standard deduction, taxpayers file an itemized return, and higher-income people are more likely to itemize their deductions. Also, wealthy blue states tend to have higher taxes because they offer more government services, and have higher home prices that command higher property taxes. (Though California's Prop 13 property tax increases for homeowners who stay put.) To compare: The median existing home-sale price in March was $403,700 nationally, $884,350 in California and a whopping $1.4 million in the Bay Area, according to data from the National Association of Realtors and its California branch. Richard Pon, a certified public accountant and certified financial planner based in San Francisco, said his clients were initially upset by the new limit on deducting state and local taxes. But the 2017 law also increased the income level at which the alternative minimum tax, or AMT, kicks in. Pon said many of his clients, most of whom make over $200,000 annually, were no longer subject to AMT under the changes, and so owed less as a result, helping offset the losses from the SALT cap. But politicians from both sides of the aisle representing California, New York and other affected states have been advocating to raise or eliminate the SALT cap. While campaigning last year, Trump courted New York voters with a post on Truth Social saying he would 'get SALT back.' The SALT cap led to an estimated 1 million California taxpayers owing $12 billion more annually, according to data from the state Franchise Tax Board cited by CalMatters in 2019. The majority of those taxpayers, 62%, made between $100,000 and $250,000 annually, the data showed. Funds raised by the newly imposed SALT cap helped offset other tax cuts in Trump's signature legislation: In addition to limiting the SALT deduction, the TCJA doubled the standard deduction, eliminated personal exemptions and a number of miscellaneous deductions, reduced the maximum mortgage interest deduction, doubled the maximum child tax credit to $2,000, created a $500 credit for older dependents and created a generous deduction for many pass-through entities not subject to corporate income tax, like businesses with sole proprietorships,. Almost all of its changes for individuals are set to expire at the end of this year, while nearly all of the corporate ones, including cutting the corporate tax rate from 35% to 21%, are permanent. Part of the debate in Congress right now comes down to whether the SALT cap will be lifted entirely, raised, or limited to certain income levels. Pon said another consideration would be pegging the amount to inflation — the $10,000 hasn't come up for discussion since 2018 — or removing the marriage penalty on the limit, since under the current tax code the cap is $10,000 for both single people and for married couples filing jointly. 'I don't see that there's a real interest from anybody, Republican or Democrat, in helping millionaires and billionaires,' said Rep. Nicole Malliotakis, R-N.Y., according to Politico. She proposed lifting the cap for people with household incomes 'under the $400,000-$500,000 range.' But others — so-called 'SALT Republicans' from predominantly blue states — say they want the SALT deduction limit completely eliminated. And on the other end of the spectrum, 32 Republicans from the House signed a letter saying they wouldn't support the new tax package unless there were $2 trillion in concrete spending cuts, and the bill must not add anything to the deficit, meaning raising or lifting the SALT cap would have to be offset by increased taxes or decreased spending elsewhere. So the future of the SALT cap is still up in the air. GOP leaders have been hoping to get a vote on the new tax package set for the House Ways and Means Committee this week. If you feel strongly about it, consider getting in touch with your elected representative to let them know. (You can look them up on the House ' Find Your Representative' webpage.)
