While California does not have an official “Exit Tax,” the term refers to the ongoing tax obligations for individuals who move out of the state but still have financial ties to California. This includes taxes on capital gains from California property, income from California-based sources, and business revenues.
Additionally, California will continue to tax any income derived from ongoing business operations within the state, regardless of your residency status.
Steps to Reduce California Exit Tax Liability
If you’re planning to leave California, consider these steps to reduce your potential tax liabilities:
- Sell California Property Before Leaving: Avoid capital gains taxes on properties sold after you move.
- Sever Business Ties: Ensure you do not have ongoing business operations in California.
- Update Residency Status: Change your legal documents, driver’s license, and voter registration to your new state.
- Proactive Tax Planning: Consult with a tax professional for personalized strategies.
California Exit Tax: Key Factors
| Factor | Impact on Taxes |
|---|---|
| Property Sales | Capital gains from California properties may be taxed. |
| Business Income | California-based income remains taxable. |
| Residency Status | If classified as a resident, California taxes still apply. |
| Timing of Move | Partial-year residents may owe taxes to both states. |
FAQs on California Exit Tax
Does California have an official exit tax?
No, California doesn’t impose an official “Exit Tax,” but you may still owe taxes on California-sourced income and capital gains after you move.
Can I avoid California taxes by moving to another state?
Not entirely. California can tax income or assets that are connected to the state, even after you’ve moved.
What happens if I sell my California property after moving?
If you sell real estate in California after leaving, the state may still tax the capital gains from the sale.
Will I be taxed on California business income after leaving the state?
Yes, if you continue to earn business income from California, you will still owe taxes to the state.
How can I officially change my California residency status?
To change residency status, update your driver’s license, voter registration, and other legal documents to reflect your new state of residence.
Do I owe California taxes on retirement income after I move?
It depends. Retirement income earned while you were a California resident may still be subject to state taxes, depending on its source.
If you’re considering a move out of California and are concerned about potential ongoing tax obligations, our team is here to help. Navigating California’s tax rules can be complex, especially when it comes to capital gains, business income, and other financial ties to the state. Contact us today, and our specialists will provide the guidance you need to manage your tax liabilities effectively and make your transition smoother.