If you live in California, leaving the Golden State and skipping California’s 13.3% rate can be tempting. This is especially true if you are about to sell stocks, cryptocurrencies, or your company that appreciates. After all, California taxes ordinary income and capital gains at the same rates. Not long ago, the tax bill would have raised the highest rate of 13.3% in California to 16.8% for the highest earner. But even without those proposed increases, it paid 13.3% in Not deductible State taxes (after the IRS’ $10,000 cap) really hurt.
You can leave for Nevada, Texas, Florida, Wyoming, or other non-tax states, but if you’re not careful, you may be required to continue paying California taxes. In some cases, the state of California can assess taxes no matter where you live. California is tough The Franchise Tax Board (FTB) toes the line between residents and non-residentsand he can investigate how and when you left, and the burden is on your shoulders You to show you no from ca.
If you’ve been in California for more than nine months, you are Supposedly Being a resident, which also usually means more than six months. Moving sounds easy, but if you’re not careful how you go about it, you could end up saying goodbye to high taxes in California, and hello to residency auditing. It helps to know what you’re up against.
The IRS can audit for 3 or 6 years, and the state of California can sometimes audit Forever. California, like the IRS, gets unlimited time if you don’t file an income tax return. That can make filing a non-resident tax return — simply reporting your income from your California source as a non-resident — a smart move. California looks at objective factors to determine residency. Your time in California versus time abroad matters. California uses comparative analysis to see if you have closer connections with another state.
Many people who leave have unrealistic expectations and have a hard time distancing themselves from California. And make no mistake, in California tax disputes, actions can be decisive. In some cases, the state of California can even assess taxes no matter where you live.
There are many factors involved in assessing who is a California resident, but physical presence is the biggest issue. There are also important assumptions. For example, if you spend more than 9 months in California, you are assumed to be a resident. If you spend 6 months or less in California, you maybe qualify as a seasonal visitor, but this rule only applies if you do not work While you are here you meet other rigorous tests.
What are some of the biggest mistakes people make when leaving? There are many more, but here’s a sample:
- If possible, do not keep your home in California. If you have a house, it is better to sell it or at least rent it. Otherwise, he may appear ready to return and may suggest that you intend to.
- Do not keep valuables and valuables in California. It looks especially bad if you move out of state but your most important possessions remain in California. Even if you keep a home in California, move all of your really important personal belongings to your home new home out of state.
- Don’t move and go back right. Any movement is meant to be permanent. Your circumstances may change in the future, but you should work on the assumption that this is a permanent move. Don’t post on social media — or even tell friends and family — that you’re in the process of selling your stock or other assets, but that you’ll be back in California soon.
- If possible, don’t move in the same year that you expect to sell assets such as stocks or cryptocurrencies. If you wait to sell until January, your California tax return for part of the year will appear to file complete of income to California, even though you only pay California taxes on the first portion of the year’s income. If FTB sees a big sale in the non-California part of the year, it’s a tempting scrutiny target.
- Don’t keep all your communications the same—simple items like a vote, driver’s license, vehicle registration, and more. A good checklist appears here, so be careful.
- Do not fail to consider the audit. Since California is notorious for going after people who move and conducting residency audits, you need to plan ahead and be prepared. Maybe it’s karma, but if you Supposedly That you won’t be audited and don’t plan to, there’s a good chance that you will. On the contrary, if you are truly Prepared, there’s a good chance you’ll be fine, whether you get audited or not.
- Do not ignore the rules for determining the sources of income tax. Certain types of income are the source of income in California no matter the cause. A good example of this is the sale of real estate in California. They are taxed by the state of California even if they leave and take root in another state before selling.
- Don’t fail to count your days in and out of California. Count them for that year and for at least four years after that. Also keep track of the days you are not in California or in your new state. Aside from fewer days in California, always make sure you spend more days in your new state. Travel days can be challenged in a third location if it appears your true home is still in California.
- If you get audited, don’t handle it yourself. Hire a professional tax attorney, preferably one who is aware of the many risks involved.
- Don’t discard future California state tax returns when needed. If you filed your last tax return for the year you moved in, would you be a target? Sometimes yes, so keep in mind if you are required to report a California source of income for future years as a non-resident. It can actually be an advantage to have some income from a California source, and continue to register as a non-resident. This way, the statute of limitations will run each year, and you will transition seamlessly from filing a California return application, to filing a nonresident return application.