Cutting Tax Ties with California

For the first time in many years, long-standing residents are leaving California. According to the California State Department of Finance, the population declined by 173,000 between July 1, 2020 and July 1, 2021. This departure trend began in 2020, as many Californians headed for Texas and other western states. The State of Texas reports that approximately 34% of new residents are from California.

 

Those choosing to exit California need to be aware of the state’s residency laws. Even those who have spent over nine months in their new state of residency may be considered California residents. Severing ties to California can be complicated and failure to follow the proper steps could cause retroactive residency tax assessment and penalties.

 

How to break all ties to California and successfully establish ties to another state.

 

  1. Limit return trips in frequency and duration. Travel back to California should be limited to transitioning to the new state, a brief visit with family, or vacation.
  2. Consider California-source income issues. Salaries and wages or other income for work performed in California is taxable to nonresidents.
  3. Sell all residential property and terminate any California leases.
  4. Be aware the California Franchise Tax Board tracks residents who move. Consider long-term residency plans, as returning to California within a short period may result in a denial of change in residency.
  5. Carefully document the change in residency.

 

Ways to document the move and sever ties to California by establishing ties to the new state of residency.

 

  1. Relinquish your California driver’s license and register with the new state.
  2. Notify California DMV and move vehicle registration.
  3. Register to vote and cancel California registration.
  4. Insure cars and real estate with an insurer in the new state.
  5. File a change of address with the USPS and IRS and notify family, friends, banks, creditors, and other accounts of the new address.
  6. Use a local bank to maintain financial accounts in the new state.
  7. Use healthcare providers in the new state.
  8. Establish a new office or workspace.
  9. Change all professional licensing and affiliations.

 

While it may feel good to say “good riddance” to California high taxes, severing ties and documenting your change in residency is paramount.

 

Please remember to consult a tax advisor with questions concerning California residency tax issues.

 

Author, Hayden Behen, CPA

Tax Supervising Senior

Spiegel Accountancy

 

 

Any accounting, business or tax advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties.

Scroll to Top