Escaping the Golden State: A Taxpayer’s Guide to Exiting California

A Snake Plissken-esque Exit is Important for Business Owners to Consider Now

In the classic film Escape from New York, Kurt Russell’s Snake Plissken was tasked with a perilous mission: infiltrate a dystopian Manhattan and rescue the President of the United States.

While your personal situation may not be quite as dramatic, exiting California can feel like a high-stakes endeavor, especially when considering the state’s hefty tax burden.  

Why Now?

In today’s evolving political landscape, it’s crucial to be proactive about your tax strategy. With potential tax policy changes on the horizon, understanding the implications of residency and domicile is more important than ever. By strategically planning your exit from the Golden State, you may be able to manage your tax liability more effectively. 

Domicile vs. Residency

Before we dive into the specifics of exiting California, it’s essential to understand the distinction between domicile and residency.

• Domicile: Your true, fixed, and permanent home to which you intend to return. It’s a legal concept that generally remains unchanged unless you explicitly establish a new one.
• Residency: A more flexible concept that can change based on factors like physical presence, voting registration, and property ownership. 

Key Steps to Exiting California

1. Establish a New Domicile: To successfully exit California, you must establish a new domicile in another state. This involves physical presence, intent to remain, and potentially registering to vote and obtaining a driver’s license in your new state.
2. Sever Ties with California: Take steps to sever your ties with California, including selling property, closing bank accounts, and canceling utility services.
3. File Nonresident Returns: Even after leaving California, you may need to file nonresident tax returns for a certain period. Consult with a tax professional to determine your specific obligations. 

Considerations for California Business Owners

If you own a business in California, exiting the state involves additional complexities.

• Entity Choice: Consider restructuring your business to minimize tax implications.
• Sales Tax: Understand your sales tax obligations, particularly if you continue to have customers in California.
• Payroll Taxes: Ensure compliance with California’s complex payroll tax laws.

  Where to Go: Tax-Friendly States

• No State Income Tax States:
  • Alaska
  • Florida
  • Nevada
  • South Dakota
  • Texas
  • Washington
  • Wyoming

• Low-Tax States:
  • Arizona
  • New Hampshire
  • Tennessee

If Snake Plissken taught us anything, it would be that the key to a good escape is great teamwork. To navigate the complexities of exiting California, it’s crucial to coordinate with your financial advisor and your tax team at Windes. Our financial advisors will collaborate with you to develop a comprehensive tax strategy that will keep you in compliance while helping minimize your tax liability.

We understand that exiting California can be a strategic move to reduce your tax burden and improve your overall financial well-being. By understanding all the nuances, you can make informed decisions that work toward achieving your financial goals. Remember, a well-coordinated approach involving both your financial advisor and accountant is key to making a successful transition.