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Showing posts with label state tax domicile. Show all posts
Showing posts with label state tax domicile. Show all posts

March 1, 2013

Expats Avoid State Taxes -Five States with Highest Income Tax Rates

As an US expatriate living and working or retired abroad, you can avoid paying state taxes and save substantial amounts of  income taxes.  It is very important because state laws do differ, that you take the proper steps to abandon you state tax domicile. Some states often allege you have still maintained that status if you keep sufficient contacts with the state or have an intent to return to that state in the future. It is only after you return from your assignment abroad, and that state asks about your unfiled state tax returns, that this issue usually arises.  By then, it could be too late to take the proper precautionary steps to avoid the problem.

CNBC has named the five states with the highest state and local income taxes as California, Hawaii, Vermont, Oregon and New Jersey.

California has a rule which allows you to claim non-residency status  for state tax purposes while living abroad even if you keep contacts with the State which is known as the "safe harbor rule."  To qualify you must:

  • Live and work under a written contract abroad for at least 545 days
  • Not earn more than $200,000 in investment income
  • Not return to California more than 45 days during any calendar year.
Under states have other various schemes to determine if they can still hit you with state income tax while you are abroad. You need to review the rules of the state you live in to determine how difficult it will be to cut state income tax ties.  Need help with this important tax planning step?  Email us at ddnelson@gmail.com. 

October 29, 2012

Avoiding California State Income Taxes Moving Abroad

It is often difficult to give up your obligation to pay California taxes when starting to work abroad.  California is an "Intent State."  That California wants to continue to tax you until you show the intent of moving your tax domicile to another country or state.  They  look at all of the facts and circumstances in retrospect years later to determine if you actually had the "intent" to move your tax residency to another country.


There is a solution to the ambiguities involved with successfully giving up your California residency for tax purposes. That is the Safe Harbor Rule which can be used. Under that rule:
  • You must remain living and working outside of California for at least 546 days under a contract of employment;
  • You do not have more than $200,000 in investment income;
  • You do not return to California more than 45 days during any calendar year.
If you meet these criteria, you are automatically deemed to be a California nonresident for the period you work abroad even though you may still have a California drivers license, voter registration, etc.

It is important to successfully avoid California tax domicile status when living abroad since California does not allow the foreign earned income exclusion or foreign tax credits. If means if you remain a California tax resident a lot of taxes may be due.

Some states make it even tougher to give up the obligation to pay state taxes when working abroad. Virigina and New Mexico are just a few.

We can help you avoid continuing having to pay state taxes when you move abroad to work or retire. Contact us if you have questions or concerns at ddnelson@gmail.com.

May 27, 2012

US Expatriates Can Avoid Paying State Income Taxes with Proper Planning

Many US expats wish to maintain a US mailing address or home in the US , or US state drivers license, etc. but do not want to risk having to pay any state income taxes (there is no Federal requirement that you maintain a state tax domicile if you live and work outside of the US).   You should check the tax laws in your state of residency to see what difficulties you may encounter trying to stop paying state income taxes when you do chose to live and work abroad. Many states have laws which  attempt to keep their residents paying state income taxes (even though an ex resident may have moved their residence abroad) while other states make it easy to stop paying state tax.   California, Virginia, New Mexico and a few other states are those that make it difficult  to stop paying state income tax when you change your domicile to one outside of the US.

One easy solution you can use to attempt to avoid paying state income taxes when living and working abroad, is to move your US address, tax domicile, voter registration, drivers licenses, etc.  a state with no personal income taxes. The US states which do not have personal individual income taxes. Those include:

AlaskaNew HampshireTennessee
FloridaSouth DakotaWashington
NevadaTexasWyoming