Are you living between a high-income state (CA) and a low-income state (FL) and confused about navigating taxes? Read below!
In this article, we will talk about:
What is a part-year resident
How CA defines a 'part-year resident'
Examples!
1 - First things first, determine your states and your dates!
First and foremost, it's important to know exactly what states (i.e. CA, FL) you established residency in and exactly what dates (i.e. Jan-June, June-Dec) such residency was established. Consider this the 'when and where' test.
When were you a resident and where were you a resident? Those will be the two biggest questions when navigating multi-state taxes because all other answers such as tax liability and income sourced to each state are based on the when and where test.
Example: Stephanie lived in CA from January to June. In July, Stephanie moved to FL. So now we know what states we're working with and what dates we're working with.
If you need help determining how to properly review your dual state residency for taxes, schedule a free consultation with our Tampa Accountant to review your situation so we can help make sure you're not overpaying or underpaying taxes. We have tons of clients who moved between high-income tax states (NY and CA) and low-income tax states (FL), and there are many nuances to research and consider before taking a tax position either way. Make sure to keep reading to learn more!
2 - How does California determine a part-year resident?
After you determine the 'where' and the 'when' the next piece to know is the 'how'. i.e. How exactly do the states determine what constitutes part-time residency? Better stated: part-time residency means your income is not 100% sourced to either state, but multiple, therefore is prorated as such for tax purposes.
Example: If Stephanie worked remotely in CA from January through June, then remotely in FL from July through December, her income should be sourced accordingly. i.e. she should not be 100% taxed by CA. (* there are exceptions to this however which we will detail below)
However, it's important to research the determinations of the specific state on part-year residents because not every state requirement is the same. Below we will review the most common questions on CA with regards to part-year residency.
How California determines part-year resident and nonresident status:
CA's governing tax body is the FTB (Franchise Tax Board).
According to the FTB:
CA Part-year resident
If you lived inside or outside of California during the tax year, you may be a part-year resident.
As a part-year resident, you pay CA taxes on:
All worldwide income received while a California resident
Income from California sources while you were a nonresident
Example of a CA Part-year resident: Stephanie lived in Tampa from January to June. i.e. her main home was in FL, she was registered to vote in FL, she paid utilities in FL, Etc. In July, she moved to CA. She established a lease in CA, enrolled in college classes in CA, Etc. During year 1, Stephanie is considered a CA Part-time resident.
Important note: As a part-year resident, you pay tax on all worldwide income while you are a resident of California. So if Stephanie travels to FL and works there 3 months AFTER establishing residency in CA, that is still considered CA-sourced income even though she is physically present in FL.
CA Nonresident
A nonresident is a person who is not a resident of California.
Generally, nonresidents are:
Simply passing through
Here for a brief rest or vacation
Here for a short period to complete:
A job
A transaction
Contract work
Example of a CA Nonresident: Stephanie lives in Tampa but travels a lot for work. Sometimes she goes to CA to meet clients in person but it's merely for a weekend here and there. She doesn't establish a lease, utilities, etc. substantial presence in CA. She is just passing through for a beach vacation mixed with a little work. Stephanie is considered a CA nonresident.
Important note: As a nonresident, you pay tax on your taxable income from California sources. i.e. you are NOT exempt from CA taxes just because you're not a resident of CA.
Sourced income includes, but is not limited to:
Services performed in California
Rent from real property located in California
The sale or transfer of real California property
Income from a California business, trade, or profession ** This is a MAJOR exception.
Example: Stephanie lives in FL but has clients all over the country, including CA. Although she services those clients from her laptop in FL and never even travels to CA, because the clients are CA Businesses, that income received by Stephanie is subject to CA Income tax.
3 - Establishing part-time residency with CA
So, the million-dollar question is how does California define a resident? i.e. What do you need to prove you have in another state to be exempt from being classed as a full-time/part-time CA resident? If you have any of the below in CA, you are a CA resident:
Factors to consider are as follows:
• Amount of time you spend in California versus the amount of time you spend outside California.
• Location of your spouse/RDP and children.
• Location of your principal residence.
• State that issued your driver’s license.
• State where your vehicles are registered.
• State where you maintain your professional licenses.
• State where you are registered to vote.
• Location of the banks where you maintain accounts.
• The origination point of your financial transactions.
• Location of your medical professionals and other healthcare providers (doctors, dentists, attorneys, and accountants)
• Location of your social ties, such as your place of worship, professional associations, or social and country clubs of which you are a member.
• Location of your real property and investments.
• Permanence of your work assignments in California.
If you don't have the above qualifiers for the 2nd state (i.e. FL, you are NOT a resident of FL, you're just there for transitory purposes and therefore still a full time CA Resident)
The most common misconception: spending 183 days in another state = automatic dual residency and or part-time residency in CA. Wrong. As stated by the FTB:
Example 1: You are a business executive and reside in New York with your family. Several times each year you travel to other states for business purposes. Your average stay is one or two weeks and the entire time spent in California for any taxable year does not exceed six weeks. Your family usually remains in New York when you are traveling for business purposes.
Determination: Under these circumstances, you are not a California resident because your stays in California are temporary or transitory in nature. As a nonresident, you are taxed only on your income from California sources, including your income for services performed in California. The same example holds true if you live in CA but travel to FL. You are NOT a FL resident. To classify as a nonresident, an individual has to prove that they were in the state for less than 183 days and that their purpose for being in the state was temporary.
Example 2: Until September 2023, you were a resident of California. At that time, you declared yourself to be a resident of Nevada, where you have a summer home. You continue to spend six or seven months each year at your home in California, which you have retained. You spend only three to four months in Nevada and the rest of the time traveling in other states or countries. You transferred your bank accounts to Nevada. However, you continue to maintain your social club and business connections in California.
Determination: Your declaration of residency in Nevada does not establish residency in that state. Your closest connections are to California and your absence from California is for temporary or transitory purposes. You are, therefore, a resident of California and are taxed on your income from all sources.
If you need help determining how to properly review your dual state residency for taxes, schedule a free consultation with our Tampa Accountant to review your situation so we can help make sure you're not overpaying or underpaying taxes. We have tons of clients who moved between high-income tax states (NY and CA) and low-income tax states (FL), and there are many nuances to research and consider before taking a tax position either way. Make sure to keep reading to learn more!
Our firm believes in transparency above all else. We never want to walk into tax season with any client with uncertainty. For those reasons, not every client may be a good fit for us. If you're looking for just tax preparation and not tax planning, it's unlikely we can provide much value to you outside of what a TurboTax/H&R Block advisor could do. However, if you're looking for more hands-on tax planning with a firm that prioritizes value-add to their clients, then we'd love to talk to you!
If you have any questions on non-profits, tax planning, or tax preparation contact a Tampa Accountant and we can walk you through it!
Have more questions on non-profit compliance and owner compensation? Click Here!
Why Work With Taxes Tampa?
For over a decade, Taxes Tampa has sought to be a communication-focused Tampa Accounting firm. We don’t operate on a volume-based business model which allows us to check in with our clients more than the average accountant in Tampa and offer our clients a more hands-on and advisory tax experience. We want to ensure you understand the ABCs of LLCs, Taxes, and everything in between. Contact us today for a free tax consultation with one of our Tax Accountants in Tampa!
Foot Notes:
Interested in learning more about tax planning?
How we saved our clients $192,868! 4 Tampa Tax Planning Case Studies
Ready to meet with a Tampa Accountant? Click Here