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The Ultimate Guide to Personal Income Tax Residency in California

An Introduction to Multi-state Residency Tax Issues

Because people are more transitory than ever before, the traditional concept of operating a business in one location has changed. The accessibility of air travel has made it far easier to live in one state and work in another. Due to coronavirus, working remotely for an employer in another state has become almost mainstream.

Residency has been a hot topic our firm has worked on for several years. We have narrowed it down to three reasons this area of the law has received so much attention and scrutiny, especially from state governments.

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First, the state of California has been much more aggressive about pursuing individuals and business entities who conduct business inside the state. This includes enforcing filing obligations, broader attempts at tracing California source income, and evaluating residency in California. 

Second, in an effort to counteract substantial budget shortfalls, California has leaned heavily on expanding its tax base to encompass people outside of its state borders in an attempt to rope in those who have business ties to California. 

Finally, California’s tax rates are providing those of high net worth or who are considering transitioning out of state added incentive to leave through the California exit tax.

In particular, California’s tax on capital gains which can be up to 13.3 percent. Taxed like ordinary income, capital gains can take a significant chunk of an expected investment return.

The laws surrounding this area can be complicated and difficult to handle. Luckily, we have dealt with these issues on a variety of levels and can be of assistance to you. 

In the meantime, I am hoping you’ll peruse all the guidelines that I have written regarding residency to further understand the many considerations you need to be aware of regarding:

  • How California treats residency,
  • What a residency audit entails,
  • How to avoid a residency audit and,
  • How to protect yourself if you are involved in one.

If, after reading all of the articles from “The Ultimate Guide to Personal Income Tax Residency in California,” you still have questions and concerns, please call my office to set up an appointment. If you’re a business owner with a multi-state tax law problem, we are here to help you navigate past it, saving you both money and migraines.

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