Exiting the State of California may appear simple on the surface — pack your bags, load your car, and go. But did you know that there is an exit tax that you may be required to pay?
If you want to avoid paying additional money at the border, you need to learn the facts.
Read on to learn about the California exit tax, things you need to know, and tips to save you or help you avoid paying back taxes on leaving California.
Overview of California Exit Tax
The California Exit Tax is a levy imposed on companies and individuals who are considering leaving the state of California for tax purposes. The tax is based on the individual or company’s net wealth holdings, as well as any gains in real estate or businesses owned in the state.
The Exit Tax was implemented in 2020 as the state’s first wealth tax. Californians who leave the state are required to pay this wealth tax for up to 10 years from the time they leave the state.
How to Avoid Back Taxes?
To avoid back taxes, those who move must timely file their California tax return for the year they move and pay any taxes that are owed. This includes estimated taxes for income that would have been earned if the taxpayer had remained a California resident.
Additionally, California residents may need to apply as a non-resident in the states to which they relocate and pay any applicable taxes. Staying informed and up-to-date on the tax requirements of both the old and new residences is the best way to avoid incurring back taxes.
Are There Any Exemptions?
While there are no exemptions from the exit tax, there are certain conditions that may allow the payment of the tax to be reduced or eliminated. This includes being eligible for a Veterans employment credit, an employment credit for low-income individuals, and the elimination of capital gains tax for certain stocks.
Additionally, those who are married and have an income of less than $30 million are exempted. If the couple is separated, then exemptions would be given to those who are earning less than $15 million.
How to Avoid Delays Before Leaving California?
To avoid delays before leaving California, it is important to be up to date on any payment obligations to the state and file all tax returns that may be due. Before leaving, you should also work with a tax professional if you are unsure of any taxes you may owe.
All taxes due should be paid in full at least five weeks before leaving to avoid any delays at the border. So, if you are selling your house, make sure you find a way to sell a home easily. That way, the tax professional can assist you smoothly, considering you’ll have to pay other California real estate taxes from the sale.
The California Exit Tax is an important law in protecting the state’s income and ensuring that residents and out-of-state investors pay their fair share.
Understand What the California Exit Tax Is
The California Exit Tax is an important but complex concept to understand. Taxpayers should make sure that they are fully aware of all the ramifications it can have.
Those considering leaving the state should contact a qualified tax professional to determine their tax liabilities and obligations. Acting with knowledge and understanding can help ensure their financial future.
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