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February 8, 2023
February 8, 2023
February 8, 2023
February 15, 2023
The 5 Steps to Avoid A Future California Tax Audit
by Danelle Jenetayeva
February 15, 2023
Three years after moving to Costa Rica, Cate received a $50,000 bill from California’s Franchise Tax Board (FTB). The tax bill was for the year after she had already moved out. No explanations.
Cate was not trying to cheat the government. She simply wanted to know why she owed.
Instead, Cate kept receiving more notices in the mail. Each notice indicated a larger tax due. Cate was frustrated. California was penalizing her for their own inability to answer any of her questions.
The government did not collaborate. But Cate wasn’t giving up. Read on to find out what happened to Cate. But first, a quick story about Alex who wanted to move to Austin.
Alex saved over $250,000 by staying in California.
Alex was ready to sell his business, retire early and move out of California to avoid high taxes.
He was house hunting, when his 10-year old daughter goat diagnosis of an autism spectrum disorder. The treatment would cost at least $250,000 over the first two years. It would require assembling a team of professionals.
The county where Alex resided offered these services for free for two years. More importantly, there was the right infrastructure set up for families dealing with the same challenges, and the quality of services was top notch.
As you can see from Alex's story, California offers many expected and unexpected benefits. Many people choose to stay. Business, family and community ties, climate, geography, the infrastructure...
Don’t let the tax tail wag your life plans. Even if you are moving out of California, make sure your ducks are in a row.
California is known to have one of the most aggressive residency audit programs in the country. They will visit your neighbors. They will speak with your child’s preschool principal. They will send you nastygrams years after you leave.
Simply setting up a mailbox in Nevada won’t work. If you want to leave California, you have to do it right. You have to be able to show your intent to leave California. And you must be able to prove your intent.
How do you show and prove your intent? If you follow the 5 steps outlined below, you’ll avoid the burdensome tax consequences.
“Domicile” challenges almost always revolve around the old state not willing to give up its domicile status. The new state will not refuse to accept that status.
Severing the old ties and establishing the new domicile is a delicate dance. The first step is to spend less than 9 months out of a year in California.
While you integrate into your new domicile, make sure to keep meticulous records of things you do to leave your old domicile:
Establish your intent to remain in the new domicile. Show that you spend more than half the year—183 days—in the state you claim as your domicile. That’s the basis for most state definitions of residency for tax purposes. Here are some things you can do to have an audit-proof evidence:
Think of who and what in your life is most valuable to you. Then show that your dearest connections are tied to your new community.
Until you are in the clear. Even, and especially, if your California income is zero. Filing your taxes starts the statute of limitations. Otherwise, you might be receiving nastygrams from California years down the line.
Two years after trying to get answers, the bill from California had grown to nearly $60,000.
Cate never got the answer about why she owed.
If Cate had followed Step #5, the answer would have emerged...
The sale of Cate’s house in California officially closed during the following calendar year. She was no longer a California resident at that time. The reporting inadvertently slipped through the cracks.
So much frustration, time and effort could’ve been avoided. Cate realized she was under-educated and took her share of responsibility.
I realize it can be overwhelming to navigate the tax code and fight an army of auditors. If that’s you, don’t try to fight this battle by yourself.
If you’d like to talk about your specific situation, schedule a quick virtual coffee on my calendar.
The 5 Steps to Avoid A Future California Tax Audit
by Danelle Jenetayeva
February 15, 2023
Three years after moving to Costa Rica, Cate received a $50,000 bill from California’s Franchise Tax Board (FTB). The tax bill was for the year after she had already moved out. No explanations.
Cate was not trying to cheat the government. She simply wanted to know why she owed.
Instead, Cate kept receiving more notices in the mail. Each notice indicated a larger tax due. Cate was frustrated. California was penalizing her for their own inability to answer any of her questions.
The government did not collaborate. But Cate wasn’t giving up. Read on to find out what happened to Cate. But first, a quick story about Alex who wanted to move to Austin.
Alex saved over $250,000 by staying in California.
Alex was ready to sell his business, retire early and move out of California to avoid high taxes.
He was house hunting, when his 10-year old daughter goat diagnosis of an autism spectrum disorder. The treatment would cost at least $250,000 over the first two years. It would require assembling a team of professionals.
The county where Alex resided offered these services for free for two years. More importantly, there was the right infrastructure set up for families dealing with the same challenges, and the quality of services was top notch.
As you can see from Alex's story, California offers many expected and unexpected benefits. Many people choose to stay. Business, family and community ties, climate, geography, the infrastructure...
Don’t let the tax tail wag your life plans. Even if you are moving out of California, make sure your ducks are in a row.
California is known to have one of the most aggressive residency audit programs in the country. They will visit your neighbors. They will speak with your child’s preschool principal. They will send you nastygrams years after you leave.
Simply setting up a mailbox in Nevada won’t work. If you want to leave California, you have to do it right. You have to be able to show your intent to leave California. And you must be able to prove your intent.
How do you show and prove your intent? If you follow the 5 steps outlined below, you’ll avoid the burdensome tax consequences.
“Domicile” challenges almost always revolve around the old state not willing to give up its domicile status. The new state will not refuse to accept that status.
Severing the old ties and establishing the new domicile is a delicate dance. The first step is to spend less than 9 months out of a year in California.
While you integrate into your new domicile, make sure to keep meticulous records of things you do to leave your old domicile:
Establish your intent to remain in the new domicile. Show that you spend more than half the year—183 days—in the state you claim as your domicile. That’s the basis for most state definitions of residency for tax purposes. Here are some things you can do to have an audit-proof evidence:
Think of who and what in your life is most valuable to you. Then show that your dearest connections are tied to your new community.
Until you are in the clear. Even, and especially, if your California income is zero. Filing your taxes starts the statute of limitations. Otherwise, you might be receiving nastygrams from California years down the line.
Two years after trying to get answers, the bill from California had grown to nearly $60,000.
Cate never got the answer about why she owed.
If Cate had followed Step #5, the answer would have emerged...
The sale of Cate’s house in California officially closed during the following calendar year. She was no longer a California resident at that time. The reporting inadvertently slipped through the cracks.
So much frustration, time and effort could’ve been avoided. Cate realized she was under-educated and took her share of responsibility.
I realize it can be overwhelming to navigate the tax code and fight an army of auditors. If that’s you, don’t try to fight this battle by yourself.
If you’d like to talk about your specific situation, schedule a quick virtual coffee on my calendar.
February 8, 2023
February 8, 2023
How a Founder Scored $23M Tax-Free Win
February 10, 2023
How to Leave California Without Lingering Tax Consequences
February 9, 2023
