July 14, 2017

Breaking California Residency

Although the Golden State is among the most coveted places to live in the United States, its heavy taxes can be discouraging. Taxed at the highest rates in the country, many California residents are incentivized to consider leaving the state but breaking residency in California is easier said than done.  To successfully break residency, taxpayers must go beyond just spending more time somewhere else and acquiring an out-of-state address.

How does CA determine residency?

California considers you a resident if you are present in the state for any purpose other than a temporary or transitory one.  Residency is based on the concept of domicile, which looks to where your closest financial and familial connections have been established.   Factors such as the following are considered: the locations of your living accommodations, closest family members, prized possessions, professional services, and many other factors such as gym memberships, voting poll, and driver’s license. Please click here for a comprehensive checklist for factors California is likely to review to determine residency.

What is needed to successfully break CA residency?

You will need to have sufficient evidence that demonstrates the following:

  1. Sufficient facts and circumstances that you are no longer domiciled in California.
  2. Sufficient facts and circumstances that you have established domicile elsewhere.
  3. Sufficient indicators that you have no intention of returning to California.

Residency is more likely to be broken if your new facts and circumstances mirror those of your life as it had been while living in California.  It is vital to have sufficient evidence to support the above facts in order to withstand a residency audit.

Will breaking CA residency result in an audit?

Residency is a hot issue with the CA Franchise Tax Board.  Upon exiting the state, they may at the very least make an inquiry to your whereabouts via a questionnaire.   Since CA requires you to disclose on your final tax return the date of your exit, they are aware of who is leaving the state.

Additionally, if you have a substantial income event closely after your residency change, the chances of a residency audit substantially increase.  California examines each taxpayer’s circumstances on a case by case basis to determine residency.

If you are considering leaving California, it is important to check in with us to make sure you have everything you need to substantiate your exodus.  Please contact us to schedule an appointment to discuss your options for moving out of state.