Avoiding California State Income Taxes When Moving Abroad

This is often called the California Safe Harbort Rule for Expatriates.

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.  If you originally move abroad and later move back to California before the 546 days passes you will owe tax returns for all of the years you were claiming this exception as well as any applicable penalties and interest. If California deems you a resident you owe it taxes on your worldwide income.

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.  Visit our website at www.taxmeless.com   Our US phone is 949-480-1235

Expats... Go w to Get Away From California Tax Man Successfully

It is often very difficult to give up your California tax residency and obligation to file a California tax return even though you move abroad and no longer live in California. LEARN MORE ABOUT THOSE RULES HERE.     You may need help getting out of California tax. We can help. Email us at ddnelson@gmail.com for help.

2014 California Tax Rates and Other Information

Many of our expat clients also pay taxes in California due to real estate, businesses, etc located in that state.  We also have many clients who have moved to California from abroad. The link below leads to a complete chart of the 2014 California Tax Rates and Other Information.

LINK TO 2014 CALIFORNIA TAX INFORMATION

Summary of The “American Taxpayer Relief Act” — tax changes included in the fiscal cliff legislation (with California Tax Law References)

We are sure you’ve heard and read about the New Year’s Day passage of the American Taxpayer Relief Act. Here is a rundown of the items that may affect you when we prepare your 2012 taxes and plan for 2013.

Individual tax issues
Payroll tax holiday: The 2% cut in the Social Security tax for all earners will not be extended into 2013. For wages paid on or after January 1, 2013, the Social Security tax will return to 6.2% (along with the Medicare tax) and the total employee share of the tax will be 7.65%. This means your paycheck will be 2% lower in January.

Tax rates: Beginning in 2013, the top tax rate of 39.6% (up from 35%) will be imposed on individuals with taxable income of more than $400,000 a year, $425,000 for head of household, and $450,000 for married filing joint. These thresholds are indexed for inflation. Other than the top rates, other rates remain the same as 2012.
Capital gain rates: Beginning in 2013, the maximum capital gains tax will rise from 15% to 20% for individuals taxed at the 39.6% rate (taxable incomes above $400,000, $425,000, or $450,000 depending on filing status as noted above). The treatment of qualified dividends taxed at capital gains rates is made permanent. (Act §201(a))
AMT: No matter what you thought of the fiscal cliff issue, most of us are relieved to have final resolution to the annual problem of the alternative minimum tax (AMT). Each year Congress has raised the exemption amounts to match inflation. This Act finally puts a permanent fix to the problem.
The amounts are permanently increased and contain an annual inflation adjustment. The 2012 exemption amounts are: $50,600 for unmarried taxpayers, $78,750 for joint filers, and $39,375 for married persons filing separately.
In addition, many refundable credits may be used to offset the AMT.
Phaseout of itemized deductions and exemptions: Beginning in 2013, itemized deductions and personal exemptions will be reduced for higher-income taxpayers. The phaseouts begin at: $300,000 for joint filers and a surviving spouse, $275,000 for heads of household, $250,000 for single filers, and $150,000 for married filing separate. Those who have adjusted gross income at these levels will lose the benefit of itemized deductions and personal exemptions based on 3% of the excess.
This will play into our planning for 2013.
Other benefits extended: Many of the tax benefits we have been taking advantage of will continue. Here are a few of them:
·         The $250 educator expense deduction is continued;
·         The cancellation of debt exclusion for qualified principal residence indebtedness will continue for federal purposes. California has its own law that also expired December 31, 2012. The Legislature must extend California’s law;
·         Child and Dependent Care Credit on up to $3,000 of expenses for one dependent or $6,000 for more than one;
·         Exclusion for employer-provided educational assistance;
·         The IRA to charity exclusion, which expired after 2011, has been revived for 2012 and continued through 2013. Because of its late passage, the Act provides two special rules:
o    A taxpayer may make a charitable distribution in January 2013 and it is deemed to have been made in 2012; and
o Any portion of a distribution from an IRA to the taxpayer in December 2012 may be treated as a qualified charitable distribution to the extent that the distribution is transferred to a qualifying charity before February 1, 2013.
Business provisions
Depreciation: The Act extends the bonus depreciation and special expensing (IRC §179) provisions for businesses. This will expand our choices when deciding how when to elect the bonus depreciation and how much §179 expense we should elect for this year.
Small business stock: The 100% exclusion of gain on the sale of qualified small business stock has been extended through 2013. California has a similar provision for exclusion of gain. However, that provision has been found unconstitutional and the FTB is disallowing exclusions taken in prior years. If you took advantage of this exclusion in the past four years, we will need to discuss this California turn of events.
Business tax credits: Many business tax credits that were set to expire will continue. We will talk about any that might benefit you and your business.
Energy provisions
Many of the energy credits, including the nonbusiness energy credits for energy-saving improvements made by individuals to their principal residence, have been extended. The $500 lifetime cap remains in place.
Estate tax provisions
The Act permanently provides for a maximum estate tax rate of 40% for estates of decedents dying after 2012, with an exclusion of $5 million, adjusted annually for inflation using 2010 as a base year. The Act also provides a 40% tax rate and a unified estate and gift tax exemption of $5 million (inflation-adjusted) for gifts made after 2012. The exemption amount for 2012 is $5,120,000. Although it’s not yet released, the inflation-adjusted exclusion amount for 2013 is projected to be $5,250,000.
Expatriate and International Tax Provisions:
The new law has made no significant changes to the expatriate income exclusion, foreign tax credit provisions, housing exclusion or to most IRS international business and investment tax laws and regulations.
This is a limited list of the provisions included in the Act. We will talk about these and others that apply to you and your tax situation when you come for your tax appointment or a pre-planning appointment. We have attended seminars and read up on the new tax law and are prepared to make sure you take maximum advantage of any benefits.



Don D. Nelson, Attorney, CPA
Charles Kauffman, CPA
Kauffman Nelson, LLP
Dana Point, California (USA)
Website: www.TaxMeLess.com
Blog: www.usexpatriate.blogspot.com
Email. dondnelson@gmail.com
Phone: US (949) 481-4094
Fax: US (949) 606-9627
Skype: dondnelson

CALIFORNIA 2011 RETROACTIVE TAX INCREASE

The California voters have spoken. They passed 

Proposition 30  which retroactively increases income taxes effective January 1, 2012 for those with high incomes. The following rate increases are effective for seven years:

Governor's Ballot Initiative
10.3% (1% increase) on income of:	$250,001–$300,000 for single/MFS; $340,001–$408,000 for HOH; and $500,001–$600,000 for MFJ.
11.3% (2% increase) on income of:	$300,001–$500,000 for single/MFS; $408,001–$680,000 for HOH; and $600,001–$1,000,000 for MFJ.
12.3% (3% increase) on income of:	More than $500,000 for single/MFS; More than $680,000 for HOH; and More than $1,000,000 for MFJ.

(Note: Income in excess of $1 million is also subject to the 1% mental health surcharge.)

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.