When you were not in California anymore, you must have sighed with relief when the tax year reached below 183 days in the state. You have come through the bright-line test and are free and clear, right? It is, unfortunately, one of the most expensive illusions in state taxation.
The actual picture is even more complicated. Although the 183-day rule is another significant first challenge, the California Franchise Tax Board (FTB) uses an even more effective second exam, the so-called Closest Connection or Domicile test.
In case the FTB feels that you are still closely related to California, then they may declare the distance of your official association to California as a resident, even though you spend less than a day there. Look for a professional (Like an attorney for IRS problems)who can help you manage tax matters.
Domicile: The Real Core of the Matter
Your permanent, true home is the domicile, the place where you plan to come back even after many years of not being with each other. Only one domicile at a time is possible. The whole strategy used by the FTB to audit you is to demonstrate that you never actually changed from California. They will create an image of that life of yours, and in case that image is more Californian than your new state, then you will be paying a tax bill.
In addition to the Day Count: The Factors that the FTT Question
The FTB will rigorously tear up your life to question your change of domicile. They seek permanence and a foot shadow of California. Key factors include:
Where are your Personal and Family Ties?
Where do your spouse or children live and attend school? Do you have a home (even rented) in California? Do you go back to major holidays?
Professional and Business Connections
Have you just had a temporary assignment to another place, or have you permanently changed your base of profession? What are your principal clients/business interests? Do you have a California professional license in place?
The stuff of your life:
- This is where the audits are getting so determined.
- It is a big red flag not to change them to your new state.
- Being on record as a voter in California is a statement of the plan to come back to California.
- To hold on to your main bank, investment accounts, and even your dentist or doctor in California is to imply a temporary dereliction.
- Of your family treasures, treasured objects, and pets, where is all this located? To show your intention to go back, a storage unit in California may be packed with personal stuff.
How to Safeguard Yourself: Defensible Position
Win an audit is the way to create an advance, typed-out case of your new life. Being gone is not sufficient; being gone is not demonstrating that you are gone.
- Sever Ties F formally
You do so, as soon as you relocate, get a new driver’s license, and your cars get registered, and you get yourself registered in your new home. Un-enroll in the state of California.
- Record Your Action
Take the pictures of your new home. Store lease agreements or mortgage. Review the contents of your documents on estate planning (Will, Trust) to include your new address and the state laws. Consultation with a professional tax expert (like a business tax lawyer)would make your work easy.
- Travel Smart
Travelling: Reduce trips to California. Should you have to go back, note down carefully the days and the reason (e.g., visiting family for over 5days). It is also advisable not to go there simply because it is social or recreational.
The first line of defense would be a low number of days, but this would be easily defeated by the closest connection test. To the FTB, you are a California resident until you are able to demonstrate otherwise beyond a reasonable doubt. The kind of plan that you should have is to carefully and practically move the center of your life elsewhere.
