If you’re an American living abroad who came from California, you may not know whether your former state still considers you a resident. If that’s the case, you may need to file a state tax return along with your expatriate tax return. Pay close attention to how your former state home regards you in order to know whether you should file state tax returns. Otherwise, you may have back taxes in your near future.
Do I Have to File a California State Tax Return If I Live Abroad?
In California, as in most states, residents are taxed on all income no matter where it was earned or where the property is located. Those living abroad who are considered residents of California will have to file California taxes for expats.
You may also have to file California state taxes if any of your income-producing assets are located in California. Even as a non-resident of California, you may have to file a California state return to report your California-sourced income. For example, you would need to report rental income from a property located in California on your state taxes.
If you have to file a California state tax return while living overseas, this will be in addition to your Federal Tax Return each year.
How to Determine California State Residency Laws as an Expat
California state residency laws define “…the place where you have the closest connections.” The state looks at various factors to determine state residency, some of which may surprise you.
If you want to make sure the state of California no longer considers you a resident, you should be careful to read their list of residency factors:
- Amount of time you spend in California versus amount of time you spend outside California
- Location of your spouse/RDP (registered domestic partner) and children
- Location of your principal residence
- State that issued your driver’s license
- State where your vehicles are registered
- State in which you maintain your professional licenses
- State in which 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, etc.), accountants, and attorneys
- 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 estate property and investments
- Permanence of your work assignments in California
California Residents Must File State Taxes
If you left California temporarily intending to return, the state of California will likely determine that your stay outside of the state was not permanent or indefinite. In that case, you would continue to be considered a California resident and would have to file a California state tax return, including all your income.
If you were a California resident for only part of the year, you will still have to file a California tax return for that year.
Keep in mind, your California state tax return requirement is in addition to your federal expatriate tax return.
How to Avoid Paying California Taxes as an American Living Abroad
To avoid paying taxes in California after moving overseas, you’ll need to prove that you are no longer a resident.
Remember, the burden of proof is on you. Your tax records should include evidence that you severed enough of your strongest California ties on this list (or other factors that apply to your unique situation) to prove you are a non-resident of California.
If you have not severed all your California ties, be prepared to defend your position. They may want to use any of your California connections to require you to file a return as a California resident, subjecting you to California tax on your worldwide income.
California States Taxes for Expats and Non-Residents Living Abroad
If you are a non-resident of California and have California-sourced income, you may have to file a California tax return. However, the following kinds of California income are not subject to California tax for non-residents:
- Investment income such as interest, dividends, and capital gains from stocks or bonds. Generally, these are considered to have their source where you are a resident. However, if investment accounts are used in a trade or business located in California, or pledged as security for a loan and the loan proceeds are used in California, then you must file a state income tax return and report the income from these accounts.
- A California retirement plan distribution to a non-resident is not subject to California tax. Since 1995, non-residents are not taxed by California on California-sourced pensions, lump sums from qualified plans, and IRAs.
If all of your California income falls into one or both of these kinds of income, as a non-resident, you do not have to file California state taxs for expats.
If you are a California non-resident and receive any other kind of income from property located in California, such as rental property, income from a California partnership or LLC, gain from the sale of land in California, etc., you should file a California state tax return.
Note that you may be entitled to deductions or exemptions to offset the California income. However, even if you expect not to owe taxes, you should still comply with the filing requirements and file the California tax return.
California’s “Safe Harbor” Rule for US Expats: How Many Days Can I Work in California Without Paying Taxes?
For those leaving California under employment-related contracts, it is possible to break tax residency even if you are still considered domiciled in California (that is, your permanent home is in California).
To do this, you would need to be outside of California under an employment-related contract for an uninterrupted period of at least 546 days (18 months). It is possible to visit the state during this time; however, no more than 45 days per calendar year can be spent in California without triggering your tax residency. Once more than 45 days are spent in California, you would be required to file resident returns again, reporting your worldwide income.
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