You’re tired of paying income taxes in California and you want to move to a tax-free state. You should know that California will come after you and fight your desire to become a nonresident of California because the state has a vested interest in your income. Despite this, it can be done.
The most important thing to remember is that if you want to become a nonresident, you must truly move and change your residence (1) and domicile (2). How do you prove you really left California? The State considered nineteen factors in its case against Stephen Bragg.
- Location of taxpayer’s residential real property and the approximate sizes and value.
- State where taxpayer’s spouse and children reside.
- State where the taxpayer’s children attend school.
- State where the taxpayer claims the homeowner property tax exemption.
- Taxpayer’s telephone records (origination point of phone calls).
- Number of days spent in California versus other states and the purpose of such days.
- Location where the taxpayer files his federal and state tax returns and the state of residence claimed on such returns.
- Location of taxpayer’s bank accounts.
- Origination point of the taxpayer’s checking and credit card transactions.
- State where the taxpayer maintains memberships in social, religious, and professional organizations.
- State where the taxpayer registers his automobiles.
- State where the taxpayer holds a driver’s license.
- State where the taxpayer maintains voter registration and voting participation history.
- State where the taxpayer obtains professional services (doctors, dentists, accountants, and lawyers).
- State where the taxpayer is employed.
- State where the taxpayer maintains or owns business interests.
- State where the taxpayer holds a professional license.
- State where the taxpayer owns investment real property.
- Indication in affidavits from various individuals discussing the taxpayer’s residency.
One item that must be done is to notify the California Assessor in writing when a property is no longer eligible for the homeowner’s exemption. Failure to do so will result in escape assessments and penalties if discovered and will sabotage your attempt to become a nonresident. Do a web search “remove homeowner’s exemption”. This is not a complete list of the items that could be considered by the State of California but it provides a good idea of what you should and more importantly, should not do, if you want to win your case against the state.
You should expect a residency audit to be initiated against you. The State of California will not let go of their tax revenue easily. Months before you are aware of an audit, the State of California is combing through multiple databases, investigating as many of the factors listed above as possible. Based on the outcome of this investigation, the State of California will determine whether to embark on the audit. Once a residency audit begins, the State of California will request credit card statements and receipts, banks statement (debit card transactions), and utility bills. Be sure to keep all of this information until the audit process is complete.
Here are some tips:
- Move to the other state, severing all ties with California. Eliminate or minimize visits to the state.
- Document everything relating to the change of residency; dates of key events (received drivers license on, etc.). Keep this for use in preparing your tax return and for the residency audit.
- Do not keep a car registered in California.
- Do buy a new home and move furniture to that home before the stated move date.
If you or your spouse will be allowed by your current employer to work remotely from your new state of residence, you must remain an employee of the company, having your wages sourced to the new state of residence. This is because wages are taxable in the state the work is performed. If you were to become an independent contractor, income from your business will be taxable to the state the services benefit. Hopefully your employer will work with you on this to ensure you don’t have any surprises come tax time.
There is so much more that is beyond the scope of this article.
Be sure to contact us if you are planning a move out of California. We will assist you in making this complicated transition a success.
(1) A resident is someone who is in California for other than a temporary or transitory purpose and is domiciled in California.
(2) Domicile is the place where an individual voluntarily establishes his true, fixed, permanent home and to which place, whenever absent, has the intention of returning.