Of course you can offset taxes actually paid, but as a resident you pay income tax on all sources of worldwide income. And if you only paid 2.5% state tax in AZ, that doesn’t help much when CA income tax is up to 13.3%. And then they charge interest and penalties on top.
The offset only applies to CA residents. CA taxes non- or part-time residents only on income earned from CA-based sources. So, if your friend truly moved their domicile to Arizona, income earned in that state would not be taxable in CA. CA 540 NR includes a form whereby you allocate income to the locale in which it’s earned.
I know people who have been questioned - and not just in snowbird states. Although they weren’t audited on these things to start the process, during an audit they used them to prove they were out of state (more than 6 mo)for income tax purposes - travel receipts, credit card statements showing purchases at out of state places like restaurants, personal calendars/records they keep, voting records, doctor visit locations, cell phone records, mailing address. I think there are more. We have learned that car registrations are not one of these; some states advise to have cars registered and insured where they stay.
@ib5, the prior owner of our house also had a house in Key West and kept track of every day and every partial day spent in MA and regularly was question by Mass DOR to justify that Florida was his tax domicile.
My accountant says one should take a couple of years to prepare for a change of tax domicile as NY, MA and CA among others do not want to let their high-end taxpayers go. He also said that they often end up moving back in the last year/years of their lives because the best hospitals/medical are tend to be in Boston/NYC/SF/LA.
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I am a very moderate income person, and most of you here discussing these tax issues concerning second and third homes are very high income people. .Will paying those extra taxes impact your life negatively? I can’t imagine, even at my moderate income, making a decision about where to live because of the taxes….unless I was really low income, and then I might have to. Taxes is what I pay to live in a place which funds its schools, roads, government and health service. And maybe it’s just me, but I think paying taxes is something we should not shirk. I am getting more and more upset with how richer
Americans, especially mega-rich ones, manage to reduce their taxes to almost nothing, when they can well afford to make their tax contributions.
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But my point is that the California Franchise Tax Board challenged his alleged change of domicile and won, because although he had been careful to spend the majority of the year out of state (and move bank accounts, car and voter registration), it was determined that he had not cut domiciliary ties with California. He kept the house he owned, which was much nicer than the small apartment he lived in in Arizona, and stayed there regularly at weekends and during vacations. In addition, his wife wasn’t working but stayed in CA even more of the time, visiting relatives instate etc. Four years of back taxes and penalties were a very expensive lesson…
My takeaway is that unless you sell or lease out your house for an extended period, it is hard to be certain you’ll escape from a high tax state.
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I totally agree that paying our taxes is something we should not shirk, and we here hopefully recognize how lucky we are to be able to afford the taxes we pay. (I say that living in the high tax state of Maryland).
BUT, people can absolutely save lots of money in taxes by (legally/ethically/etc.) moving to another state.
That said, it’s not always as much as people think. It seems like most states get you one way or another. If it’s not income tax it’s school tax or homeowner’s tax or something else.
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I would think the best way to show you aren’t living somewhere is to show physical proof of travel or living. Like monthly gym membership, credit card receipts, doctors visit receipts. Not “this is where my favorite bible is located” or something you cannot prove. I know California in particular is aggressive about getting your money, so renting out your house for awhile sounds like a great idea.
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Yes, but the amount of time is only decisive after you’ve established the change of domicile. You have to do much more than just spend 183 days outside California in order to relinquish your domiciliary ties to the state. Make sure you aren’t visiting relatives, staying in your house etc. Ideally you should buy a bigger better house in the other state, not just rent a condo.
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It has been an interesting 15 days. We just went a river cruise to Vietnam and Cambodia, and kind of felt like we were out of our financial element with the people there. Everyone was super nice and we made what I’m guessing will be long time friends, but it was apparent to me that there was a whole lot of wealth with people in our age group. It’s hard to tell if people are just more willing to spend money on things like 2K/night hotels, first class flights and pricey restaurants, or if they have far more money to burn than we do. Funny, though, I saw one truly wealthy guy haggling with a Vietnamese kid over a dollar. At least he still has an eye for value.
The thing is, I still want nice stuff, but I just can’t bear to pay for it. I use miles, points, free upgrades, and my sister calls me the dealmeister. I wonder if that would change if we win the lottery, or if it would stay the same?
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And some of these other travelers could have done the same…or made the decision for a LONG flight like this that business class was worth every penny spent.
Or it could have been the ONE big trip they have been saving for for years.
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We are in our early/mid 60’s. Just getting used to retirement, retirement spending and worry about not running out of money.
We might feel differently in 10 or 15 years knowing that we have only a few more trips left. We might be more secure that the money isn’t going to run out. We might have inherited money that we hadn’t included in our retirement plan.
My mil, who always has spent like they are poor because that’s how she grew up, was talking about a friend of hers who takes road scholar trips and told me that they can’t be expensive because this woman isn’t rich. That may be true but when I looked, the trips were on par with other trips I’ve priced out. This person probably has money to travel because she lives an otherwise frugal lifestyle.
And then there are those who are rich, take lavish trips and have multiple homes. It’s hard to know which is the correct answer.
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To add on to what I am thinking.
I feel very not rich when I read any wedding topics or gifting the kids topics. Because we are trying to figure out how not to go broke in retirement
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I am taking a Roads Scholar trip, but it is a city ‘signature city tour’. For what is included, it is what it is and I believe it is costing what it costs to do this travel. Our group is specifically from our community, and one of our travelers is helping lead the trip (city she grew up in). I most likely will have to pay a $400 extra cost as single unless I get matched with another female for the room (5 nights and 4 full days, 13 meals, expert lead lectures and field trips with all logistics, gratuities, taxes and destination fees).
They are on par with other travel. I can concur that some people do value travel and live an otherwise frugal lifestyle - some more extreme than others. One couple has very modest house, auto, clothes - they spend it all on travel.
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I agree. It seems to be a source of pride to pay as little as possible even to the point of it not being a wise financial decision. (And, the states with no income tax still try to get your money. We’ve had tax clients move from MN to FL and complain about all the toll roads, and one who moved to Texas had an incredibly high property tax and was shocked. Roads and schools aren’t free.)
We had one client trying so hard to stay under the income limit for zero capital gains tax, they decided to do a deductible IRA rather than a Roth, to avoid a couple hundred bucks in cap gain tax. Meanwhile people pay a ton of tax on Roth conversions and wish they could have chosen Roth to begin with!
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My male friend does many Roads tours.they seem to attract a different crowd then the Taulk or Crystal cruises. For $400, I definitely would take a single room. I hear too many incompatibility stories.
Now that I’m single again, I need to take the plunge. You are fortunate that you can go with a grou. A single room will give you a chance to relax and get from the group mentality. IMHO
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I doubt that I have been matched up, but I did get matched up years ago on a group trip, and my roommate and I got along great. I don’t mind paying the additional money. I can handle snoring with ear plugs and can work around the other with the bathroom. I am a very social person. Our household is pretty quiet - DH has his activities and not a huge amount of conversation, but we get along great.
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My dad always said something that is true - two things you cannot escape, death and taxes. He did plan to pay the taxes he owed and also avoid unnecessary taxation with estate plans in place. He took Social Security at age 62 (his health and other considerations caused him to sell his business at age 60), and he died 2 days before he turned 64 from cancer. Mom died at age 77, and she did not ‘spend down’ the estate due to the excellent cash flow. He had high premiums for his health care insurance, but was glad for the insurance, while mom’s health insurance was not so costly out-of-pocket before she turned 65.
Agree some have this pride or ‘penny wise dollar foolish’ mentality with some things.
Since our DDs live in TX and FL, we see the toll road charges but also these are needed for the growth and necessary roads. Our friends and cousins in TX have discussed their property taxes, and they did have a bit of relief legislatively. Some changes in TX will see how it affects public schools if they have the private school vouchers go through. DD1/SIL pay quite a bit for private school (and currently are not homeowners) so they may find some financial relief for when they do purchase a home. How it affects their rent price on the home they rent, we shall also see. We will see DD1/SIL purchase a home before we do (and move from AL to TX).
We plan to go from our go-go years beyond living near the family closest to us (DD1/SIL/grandkids). If and when DD2 has kids, we will adapt for that time - but it might be one or two kids, not five. DD2 is a career engineer.
Can you elaborate on this?
I’m a fan of the, “easy,” button when it comes to travel. And, good/fine dining is not super important to me. However, I’m always wary of included meals. They always seem mediocre at best.
We have wealthy friends who do some sort of Four Seasons affiliated travel. I think their trips are in the $125k per person range. Not a typo. Usually around three weeks long or so. Chartered flights for the group in between the spots they visit on these trips. Just not a level of wealth I will ever have. Though I do wonder how much money I’d have to have to do something like that.
Edit: I underpriced them. Here is one they did a couple of years ago:
https://www.fourseasons.com/privatejet/journeys/african-wonders/2026/
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One person’s (on CC or otherwise!) $5000 trip or gift is another person’s $500. The word “expensive” is all relative to your own situation!
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