March 31, 2020 - Douglas Myser

Bye California hello residency audit. Californians like to complain about high taxes, and who can blame them ? California may have more millionaires and billionaires, but the tax cost of livin in the Golden State has always been high. The current top rate 13.3%--which is the same on ordinary income and capital gain--dates from 2012. But with the 2018 federal tax law changes, paying 13.3% in non-deductible state taxes (after $10,000 cap) is even more painful. The tax law is causing an exodus of high tax state residents to no tax or lower tax states. Lower tax means just about everywhere. If you aren't careful, though about how you do it, you could end up leaving California and yet being asked to keep paying California taxes. There's also the fact that California has a very broad reach into other states. In some cases, California can assess taxes no matter where you live. Should this discourage you ? Hardly, but it pays to know what you are up against in a fight. If you live in California, you probably know how aggressive California's state tax agency can be. In fact, even if you live somewhere else, you might have heard of the Golden State's aggressive tax rules. Bye California hello residency audit.

California has a 13.3% tax rate on high income earners, the highest tax rate in the nation. Add to that the taxes of the IRS. It hits only 1.5% of Californians, those with a single income filing of at least $263,000, or joint income of $526,000. But the new federal  law that limits state and local tax deductions to $10,000 makes it burn even more, especially if you are writing a several hundred thousand dollar check to California and cannot deduct it. That makes moving out seem so enticing. California's franchise tax board monitors the line between residents and non-residents, and does so rigorously. Like other high tax states, California is likely to probe how and when you stopped being a resident. For that reason, even if you think your facts are not controversial, be careful. Bye California hello residency audit. 

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