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California taxes: What determines residency?

If you currently live in California but used to live in another state, you may have noticed that taxes tend to be higher here. We get a lot of great services for that money, but paying state taxes can be expensive. So much so, in fact, that some people contemplate a strategic out-of-state move to avoid the higher tax rates - especially if they know they'll soon be coming in to some money (selling a business, selling real estate, settling litigation, etc).

Unfortunately, strategically giving up state residency is not as easy as it sounds. It can also be difficult to claim that you are not a resident of California if you spend considerable time here for business or personal purposes.

This was the subject of a recent article on the Forbes website. The article's author describes some of the considerations that go into deciding residency for tax purposes.

Who is a California resident?

Generally speaking, you are considered a Californian if you are in the state for more than nine months. You may also be considered a resident if you have a home here, even if you spend time outside the state "for a temporary or transitory purpose."

Here are some other factors that the California state government may consider when determining your residency status:

  • Where you own a home (including your "main" domicile, if you have more than one property)
  • Where you claim a homeowner's property tax exemption
  • Where your children attend school
  • Where your children and your spouse primarily live
  • If you or your children attend college in California, whether you pay in-state or out-of-state tuition
  • Where you are registered to vote
  • Where your vehicle is registered and where your driver's license was issued
  • Where you have a bank account
  • Where your important social, religious and professional organizations are located
  • Where you obtain services like medical care, dentistry, legal advice and financial advice

Before making strategic tax decisions, consult with a professional

If you answered "in California" to several of the above criteria, you are probably a California resident. Even if you move before making a big financial change, California tax authorities could still pursue payment from you.

Before making any major financial decisions for tax purposes, it is a good idea to discuss your plans with an experienced tax law attorney.

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