California’s fiscal crisis does not show any signs of resolution. Despite assurances from the Governor and legislators that the state will remain able to pay its bills through June 30, John Chiang, State Controller, has released a warning that that may not be the case.

According to Mr Chiang, California could very well run out of cash by March 30.

Does this mean that we will be treated to IOU’s and delayed tax refunds? Right now it’s not looking very clear and if you take steps to prepare for it you can limit your exposure to making involuntary loans to the State legislature.

But what should you do? Well, first of all you need to get your tax returns filed ASAP. Right now there are no delays in processing refunds. If they owe you money, an electronic return with automatic deposit of refund will get you your money in a few short weeks.

What if they start issuing IOU’s and you’re still waiting for missing data? Here’s where it gets tricky. First of all, if you are typically looking for a big refund you should take steps to avoid overpaying your taxes by reducing withholding. That s a good rule in general. Second, if you already have a built up refund that may not be received back soon, you may want to bank on applying that refund to your 2010 taxes. In so doing you pay your 2010 estimated tax with their IOU. Next, dramatically reduce your 2010 withholding so that your current employer increases your paycheck right now, returning the money to you a little every payday, starting immediately.

Next post: More on charitable deductions

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