Steadily Increasing Tax Efficiency

[Slowtraveler]

Awesome start.

I've been slowly getting more tax efficient in my lifestyle. You inspired a lot of this with your Never Pay Taxes again series.

Here's some of my changes so far:

Left California-
I actually became a South Dakota resident in July last year and left California in September but kept paying California taxes till the year end. I'm wondering if I can claim part year resident and get the October-December California taxes back. Do you have any wisdom in this?

Left USA
Claiming the FEIE as I now live abroad permanently. Funnily, 2 health challenges I experienced previously dissipated with my moving out.

Started a 401k long ago
Great benefits for many in the company.

Just did non deductible traditional IRA contribution for 2 years. Converting this all to a Roth as soon as the funds clear. May do this for some family as well.

All in all, I am very grateful for you helping me save 10's of g's in taxes for me, many in my family, and in the company I work with. If you know at all about the California part year residency, please let me know as it could save me a few more g's to put towards FI.

[gocurrycracker]

Very nice, Slow traveler! Thank you, I'm glad the never pay taxes again series was helpful

California is messy. They are uber aggressive in collecting taxes, even from non-residents. Thus it is very important to be ruthless in severing ties with California.

Their definition of residency is skewed in their favor:
A California resident is any individual who meets any of the following:

• Present in California for other than a temporary or transitory purpose.
• Domiciled in California, but located outside California for a temporary or transitory purpose.
• Domicile is defined for tax purposes as the place where you voluntarily establish yourself and family, not merely for a special or limited purpose, but with a present intention of making it your true, fixed, permanent home and principal establishment. It is the place where, whenever you are absent, you intend to return.
For a complete definition, refer to "Meaning of Domicile" in Publication 1031 - Guidelines for Determining Resident Status.

Source

Note use of the words like permanent & transitory.

The burden of proof that you have departed with the intention of never returning is on you. CA probably won't buy that you were a resident of SD in July if you didn't leave until September. The Oct - Dec period may depend in part on where you were... presumably in SD, but still working for the CA company? Read through the Publication 1031 and make sure you meet the criteria. Pay special attention to the phrase California Sourced Income... even the lawyers debate this (some horror stories in this link..)

Questions they may ask:
Did you have a formal residence in SD, get an SD driver's license, close all CA bank accounts and open new ones in SD, attend church or community activities in SD, registered to vote, found a new Dr/dentist/lawyer, intend to return their as your permanent home, etc...?

If you have definitely cut ties with California, then future income should not be subject to CA tax. The 3 months could also potentially be CA tax free. Assuming you burned that bridge.[/list]

[Slowtraveler]

Thanks to you Curry Cracker. I'm more free thanks to it all.

I actually have been between Thailand and Mexico since then. Haven't even landed in USA on flights. I have seen multiple doctors here and established my home itinerant style but for now in the 2 countries mentioned. I'm sure more will be added to the list in the coming years.

Before leaving, I moved the address of my banks and all that. I actually only spent a day in SD, they have very relaxed residency laws. My Driver's License is there. I've revoked my California voter rights, library card, sold my car, decluttered everything, ended health insurance. I have to no intentions to return to California ever. The company I work for and my parents are there. Nothing else.

The source of income is where the services are performed so I'm clean there. It's a shame though, that link gave me a 403 Forbidden. I'll try with a VPN soon to see if I can access it from Europe or the states.

My accountant said it's looking okay for the last quarter.

Thanks for guidance.

If you ever have any more tax efficiency upgrades, please share them. Thanks for making the world a better place.