By David Keligian on
8/20/2012 11:25 AM
We get frequent questions about how to avoid California’s high income tax rates by claiming residency in another state. Since California is very aggressive in residency matters, it is important to understand the basic rules determining California residency.
BASIC RULES. There are two basic rules you need to keep in mind if you wish to avoid California tax. The first rule is that a California resident pays California tax on their worldwide income.
For example, if you are a California resident and own part of a Nevada LLC, you will pay California tax on your distributive share of the Nevada LLC’s income, even if that LLC earned all of its income completely outside the state of California.
The second rule is that California will tax California-source income, regardless of where you live. Thus, if you live in Florida but own California real estate, you will still have to pay California tax on the California real estate income.
WHO IS A RESIDENT? California has a very expansive definition...