CA to TX move, impact on taxes and residence?? Tax guidance?

[Aiming_4_55]

Just when I thought we figured things out, "life" tosses an opportunity aka curve ball.

Current situation: Married, family of 4, living in CA, filing taxes jointly, single income household as DW is SAHM. Two kids in elementary school.

Possibility: DH will be commuting to Texas a few weeks per month, probably for the next 3 years. May or may not continue beyond the 3rd year. Employment is in CA, but can get classified as a Texas resident and become a remote employee to CA employer. DW and kids prefer to stay in CA for another 2 years to finish elementary school.

So, a few thoughts on how this may improve my FI situation.
- Establish residence in Texas, file separate taxes. DW in CA, DH in TX.
- DH avoids state taxes while employed in TX.
- DH avoids state taxes with IRA conversions to Roth in ER which may start in 3 years.
- If DH's company is sold, a real possibility, major RSU and stock options payment will avoid state taxes.

I'm enjoying the work, so I'm entertaining the travel or reverse travel.

Any thoughts on how best to benefit from my situation? Any pitfalls?

 

[REWahoo]

Any pitfalls in a move to TX?

I seem to recall a list somewhere...

 

[MichaelB]

Any thoughts on how best to benefit from my situation? Any pitfalls?

The state of California may not agree with your view on residency and taxes.

 

[braumeister]

The state of California may not agree with your view on residency and taxes.

Yes, that's a big one. California is notoriously difficult about that.

 

[CaliKid]

I would move. The sooner the kids move the sooner they start making new friends. I have had several friends make the move and all have been very happy with it.

 

[Alan]

Yes, that's a big one. California is notoriously difficult about that.

As is Louisiana. I worked for 4 years in Texas while being paid by a company in Louisiana and had to pay LA State taxes on that W2 income.

 

[Aiming_4_55]

The state of California may not agree with your view on residency and taxes.

Well, if my employer updates my status from CA to Texas employee, I buy a home in Texas, utility bills in my name, update driver's license to Texas, what else is needed?

 

[MichaelB]

Well, if my employer updates my status from CA to Texas employee, I buy a home in Texas, utility bills in my name, update driver's license to Texas, what else is needed?

Your family continues in California. The state will argue your long term residency is still Cal, Tx is a temporary relocation and your tax liability continues.

 

[REWahoo]

Well, if my employer updates my status from CA to Texas employee, I buy a home in Texas, utility bills in my name, update driver's license to Texas, what else is needed?

According to this, quite a bit more is needed:

A taxpayer’s residency status is initially determined by one of California’s taxing authorities, the Franchise Tax Board. The FTB determines whether a visit has a temporary or permanent purpose by applying the “Closest Connection Test.” This refers to the state with which a person has the closest connection during the tax year in question. For the FTB, this literally means counting all the California contacts a person has and comparing that number with the non-California contacts. Of course, some contacts count more than others. A job or real estate ownership tends to indicate a closer tie than merely enjoying a few weeks at a beach house. The weightiest factors for residency are as follows:
• Ownership or lease of real estate.
• Business interests or employment.
• Schools used by children.
• Membership in clubs or professional organizations.
• Bank accounts or safety deposit boxes.
• Use of professional services such as accountants, doctors, dentists and lawyers.
• Automobile registration and license.
• Family ties and social life.
• Appearance in telephone or social directories.
• Address used on federal tax returns and other tax documents.
• Social media and website identification of residency.
• Claims of homestead or principal residence tax benefits.
• Local resident discounts taken from business or municipal programs.
• Location of personal belongings such as clothing, family photo albums, fine art, “the good china”.
• Jury duty.

Looks to me like you'll have a tough time convincing them.

 

[Aiming_4_55]

Your family continues in California. The state will argue your long term residency is still Cal, Tx is a temporary relocation and your tax liability continues.

If I'm able to document being out of CA majority of the month, what about part time resident?

 

[Aiming_4_55]

According to this, quite a bit more is needed:



Looks to me like you'll have a tough time convincing them.

The biggie would be kids in school and employer are located in CA. I guess they want their piece.

 

[MichaelB]

If I'm able to document being out of CA majority of the month, what about part time resident?

IANAL

It’s not about how you define residency, it’s how the state defines it. You can work in another state, but if Cal seems you continue to be a resident, you will have tax liability.

The biggie would be kids in school and employer are located in CA. I guess they want their piece.

I wouldn’t call that a”biggie”, more like a showstopper. If your family joined you in Texas and you sold your Cal property, you might have a case.

 

[Scuba]

I would move. The sooner the kids move the sooner they start making new friends. I have had several friends make the move and all have been very happy with it.

Kids that young are usually very resilient. I would move with the whole family, but keep your house in CA and rent it out. That way if you want to come back in a few years, you can either move back into your previous home or sell it and buy another property.

My advice is do not sell your CA property if you think you may want to come back to CA. We made the mistake of selling ours when we were in PA, not knowing when we’d get the opportunity to come back to CA. The market had appreciated quite a bit, and we made a lot of money selling. Fast forward a year - we came back to CA. We bought another place in the same area, but it cost us $250K more than what we sold the previous one for, and our property tax base increased by over $500K, costing us an extra $5K+/year, a cost we will continue to have as long as we live here.

 

[Alan]

IANAL

It’s not about how you define residency, it’s how the state defines it. You can work in another state, but if Cal seems you continue to be a resident, you will have tax liability.


I wouldn’t call that a”biggie”, more like a showstopper. If your family joined you in Texas and you sold your Cal property, you might have a case.

What does “I ANAL” stand for?

On the expat forums I frequent I see that California is the worst State to retire from as regards getting free of their State taxes.

 

[Aiming_4_55]

IANAL

It’s not about how you define residency, it’s how the state defines it. You can work in another state, but if Cal seems you continue to be a resident, you will have tax liability.


I wouldn’t call that a”biggie”, more like a showstopper. If your family joined you in Texas and you sold your Cal property, you might have a case.

Yes a showstopper in regard to taxes.

If I moved the family and sold my property, and ER'd, CA wouldn't get anything.

 

[ivinsfan]

Could you lay out your and the DW's thinking about you missing around 75% of your young kid's lives for at least the next 3 years. In 2 years at least one kid would be settled in middle school so assume this will just continue.

Are there other factors in play because if you can't relocate a kid in elementary school, when can relocate, quick guess would be never. Talk it over with your DW if you all move Texas residency is not a problem. IMO your tax issue is kind of low on the list of things that should concern you with this plan.


Reading your posts it look like you would separated from your family at least 3 weeks a month.

 

[cathy63]

You need to read IRS Pub 555 and run some tax what-ifs before assuming you will save anything on taxes.

Since both CA and TX are community property states, everything you earn in either place while married is community income. Both you and your wife will report half your salary as income on your federal taxes, even if you use MFS status. Likewise, your wife will be taxed at the higher MFS rates on her CA return which also must include half of your salary. If your CA-resident wife earns any money at all, then you will have to file a CA 540 NR and report half of her income as well. You also have to split and report any other joint income, such as interest, dividends, etc.

If you don't already have it, I recommend that you buy TurboTax 2017 and redo your 2017 return as if you had moved at the beginning of last year to see the results. TTax will ask you whether each item of income belongs to you, your wife, or both and it will split them properly for an MFS return. You might very well find out that you'll pay more rather than less under this scheme.

 

[MichaelB]

What does “I ANAL” stand for?

On the expat forums I frequent I see that California is the worst State to retire from as regards getting free of their State taxes.

I Am Not A Lawyer.

California is aggressive, so is NY. I had multiple encounters with NY state tax authorities due to residency issues.

 

[samclem]

On the expat forums I frequent I see that California is the worst State to retire from as regards getting free of their State taxes.

Yes, California is quite aggressive about collecting taxes from people who they believe to be residents or who made money in California.

 

[Aiming_4_55]

Could you lay out your and the DW's thinking about you missing around 75% of your young kid's lives for at least the next 3 years. In 2 years at least one kid would be settled in middle school so assume this will just continue.

Are there other factors in play because if you can't relocate a kid in elementary school, when can relocate, quick guess would be never. Talk it over with your DW if you all move Texas residency is not a problem. IMO your tax issue is kind of low on the list of things that should concern you with this plan.


Reading your posts it look like you would separated from your family at least 3 weeks a month.

Point taken on family... part of the project is to travel 3 - 5 days a week, so regardless of where I live, my time with family is impacted.

 

[ivinsfan]

Point taken on family... part of the project is to travel 3 - 5 days a week, so regardless of where I live, my time with family is impacted.

That's a rough schedule with young kids. I wish you all the best...

 

[Alan]

I Am Not A Lawyer.

California is aggressive, so is NY. I had multiple encounters with NY state tax authorities due to residency issues.

Perfect - thanks.

Even though I have not lived or even visited Louisiana since I retired in 2010 I still pay some LA State taxes even while living overseas because I have an unqualified pension paid by my ex-employer there, reported on a W2.

 

[Aiming_4_55]

That's a rough schedule with young kids. I wish you all the best...

Thanks. Most in my field travel extensively, at least 50%. I've been fortunate that I haven't for close to 10 years, but the last two months I've been all over the place, i.e. Bangalore & Mumbai, India; Amsterdam, Seattle, San Diego, Chicago, St Paul, and Texas.

It's a rough schedule but looking at how I can make the best of it. Mentally, I'm not ready for full ER and enjoy the work, so I feel fortunate for the time being.

 

[Aiming_4_55]

Kids that young are usually very resilient. I would move with the whole family, but keep your house in CA and rent it out. That way if you want to come back in a few years, you can either move back into your previous home or sell it and buy another property.

My advice is do not sell your CA property if you think you may want to come back to CA. We made the mistake of selling ours when we were in PA, not knowing when we’d get the opportunity to come back to CA. The market had appreciated quite a bit, and we made a lot of money selling. Fast forward a year - we came back to CA. We bought another place in the same area, but it cost us $250K more than what we sold the previous one for, and our property tax base increased by over $500K, costing us an extra $5K+/year, a cost we will continue to have as long as we live here.

Agree on the kids and maintaining CA property. I still have property in other states, so I'm use to being a landlord. Thanks.

 

[DFDubb]

I've done this both directions for both states. We lived in TX and 1 of us started working a bunch in CA. While our home was in TX and the company was based in TX, it was pretty easy to avoid CA taxes. Eventually the time apart got to be too great and we opted to move to CA. Fast forward a few years and 1 of us started working a great deal back in TX while living in CA. We wanted to keep our CA home and officially moved back to TX, bought a house, both employed by TX companies, etc.....CA was relentless on proving that we were trying to cheat the system. For us, it was easier to simply sell our CA house and be done with it.

What you're wanting to do simply won't work and will be a huge fight that you ultimately won't win. I too would just move your family here.