I thought you’d like to know that California’s big tax hike has been virtually erased by Barack Obama’s federal tax credit.

In February, California’s foolish government increased the sales tax, income tax, car tax and child tax by around $900 to $1,000 per family. Retirees or those with no dependent children will pay much less.

Calculate your increased California taxes here.

The important thing to remember is that each tax increase will last only two years. See this chart.

This two-year time limit is important to your overall tax picture. When you and other California voters defeated Prop. 1A on the May 19 ballot, you limited the tax increases. The defeat of Prop. 1A ensures that the 0.25% income tax hike and the reduction of the child dependency tax credit (costing parents $210 per child) will end on December 31, 2010. Defeating Prop. 1A also guaranteed that the 1% hike in the state sales tax and the nearly-50% higher car tax will expire on June 30, 2011.

Now let’s look at what the federal government has done. Despite the foolishness of the “stimulus” plan and the historic national debt President Obama has created, the cash-flow reality is that most U.S. taxpayers will receive the “Making Work Pay Tax Credit”:

• $400 per individual with a modified adjusted gross income of less than $75,000
• $800 per married couple with a modified adjusted gross income of less than $150,000

 Just as California’s tax hikes last two years, the federal tax credit will be provided for two years, though 2010.

Now, before you do the math combining federal and state, I want to tell you how I’m avoiding paying California’s sales tax increase. 

I’ve responded to California’s 1% sales tax hike by using a credit card which “covers” the tax hike whenever I use it. Each month, the cash-back card from Chase rebates me 1% of all my purchases. I’m using it as much as possible and plan to receive $250-300 annually. Another good cash-back card I’m using is the American Express Costco card. Both cards also rebate me 3% on gasoline.

Personal transportation is another area in which Californians are saving.  One cost-saving method for many families is to repair their cars and trucks rather than buying new.

However, if you decide to buy a new car this year, the federal government permits you to deduct the sales tax and even more if you buy certain hybrids.

And think about this. If you’ve been concerned about plummeting retirement fund values, realize that you can avoid higher taxes by converting from a conventional IRA to a Roth IRA. Read how.

So what’s the bottom line? Here’s a calculation for the average California family:

   $900 average tax hike on a California family with two cars and two children
 – $800 federal tax credit
= $100 overall tax burden
 – $200 at least from a cash-back credit card
= Wipes out California’s two-year tax increase and you gain $100 per year, every year

Remember, retirees and those with no dependent children will pay even less.

In summary, when you consider tax hikes and tax credits and tax deductions, for the next two years, most Californians will NOT pay more in overall taxes. Many will pay less, resulting in more money from tax credits.

This will hold true unless the California Legislature and Governor raise taxes and fees this year or next.

And smart buyers will pay even less by using cash-back credit cards, shopping tax-free online, changing their lifestyles, and by making purchases that receive a helpful tax credit or substantial tax deduction.

I hope this information has encouraged you. If you’ve realized that you have a healthier net cash flow, please consider supporting good causes such as the pro-family, moral-values mission of SaveCalifornia.com. For none of us can afford to ignore the life-or-death battle for our culture and the next generation.

Jesus sat down opposite the place where the offerings were put and watched the crowd putting their money into the temple treasury. Many rich people threw in large amounts. But a poor widow came and put in two very small copper coins, worth only a fraction of a penny. Calling his disciples to him, Jesus said, “I tell you the truth, this poor widow has put more into the treasury than all the others. They all gave out of their wealth; but she, out of her poverty, put in everything—all she had to live on.”
Mark 12:41-44 NIV