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Under California law, the definition of a “resident” is unclear. The distinction between a resident and non-resident determines whether California can assess you taxes on income earned in California and in other states. Under Revenue & Tax Code Section 17014, a “resident” is defined as “every individual who is in this state for other than a temporary or transitory purpose.” The definition also includes individuals who are “domiciled in this state” who is outside of California only for a temporary or transitory purpose. Whether an individual is a resident of California (and is only outside of California temporarily) essentially relies on many facts and legal presumptions.
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While residents of California are taxed upon their entire net income, non-residents are only taxed on income from California sources. Individuals who have California source income typically do not get out of paying income taxes simply by changing their residence. Franchise Tax Board will scrutinize a change in residence to determine its legitimacy and whether an individual has truly severed his or her connections with the State of California.
If you are receiving income from any of the following sources, they may be considered sources within California:
- Tangible and real personal property within California
- A profession, trade, or business used within California
- Profit from stocks, bank deposits, bonds, notes, or other intangible property that carries taxable situs
- Copyrights, patents, brands, trademarks, and other similar property with taxable situs
- Compensation for personal services performed in California
- Royalties or rentals for the use or privilege within the state
The taxes assessed on part-year residents and non-residents are determined by calculating the tax on all income-regardless of source-as if the taxpayer was a full-year resident. The tax liability is then factored out by applying the ratio of California AGI to total AGI from all sources. This applies the graduated tax rates to all persons, not just those who have lived in the state for the full year. This method doesn’t tax out-of-state sources of income, but takes it into consideration while determining the tax rate that should apply to California-source income.
SAN DIEGO TAX LAWYERS PROVIDING VALUE TO OUR CLIENTS
If you are seeking a San Diego income tax lawyer who can help you minimize your tax exposure in California, look no further than Milikowsky Tax Law. Our team of skilled tax attorneys have extensive experience and knowledge in the field. We are devoted to providing value to our clients.
Contact our firm today to find out how we can minimize your audit risk and tax exposure!