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State Income Tax

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Post by Demonio Sat Jan 29, 2011 12:16 pm

I no longer consider myself a resident of CA (moved to MX July 2009, and to a second home in NV July 2010) and wonder how I go about not having to pay CA state income tax (approximately $8K per year) on my pension income? I'm in MX on an FM3 and have a Jalisco driver's license. The problem (or not - don't know) is that while no longer a resident of CA, I still have a presence there because of real and personal property. Below are some of the details and would appreciate any insight from those who have been there done that (successfully ended residency in a income tax state).

I have homes in MX, NV (both leased) and CA (owned). My lease in MX covers all of 2010 and in NV (a no income tax state) for the last six months of 2010. I did a "strategic walk-away" (stopped paying the mortgage) on the CA home two years ago, since it's no longer worth what I owe (figured losing $250K was enough! - which BTW can't even be claimed as a capital loss). My girlfriend and her minor children live there (rent free) while my realtor tries to unload it for me as a "short sale". I stay with them when I travel to CA to visit family and friends, and still receive mail there. I own two cars and a motorcycle. One vehicle is registered in SD and the others in CA. All three show garaged in CA for insurance purposes, since I still have a CA driver's license, but not one in NV yet.

What do you guys think - am I clear or not? TIA
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Post by David Sat Jan 29, 2011 12:35 pm

My two cents; Establish residency in Nevada by getting a Drivers License and get your cars registered in Nevada. Register to vote in Nevada and establish a bank account there as well. Those things along with a copy of your lease should suffice to proove to CA that you are a legal resident of Nevada. I had to go through something similar although in reverse. We are from OR but live in Mexico. In order to renew my drivers license from afar I had to proove legal "residency." The DMV official was very helpful and explained that "residency" and where you live (domicile) are two different things. By showing that I was registered to vote and had a bank account that was active I was able to proove that I was a legal resident of OR and thus renew my license.

Here's the caveat; California did have a requirement that all retirements paid by a CA employer (both public and private) were subject to CA state income tax REGARDLESS of where the recipient lived. That was challenged by an OR resident and I believe CA did away with that. However, you'll want to check and be sure that it didn't apply only to residents of OR.
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Post by lunateak Sat Jan 29, 2011 12:42 pm

NOT.
California (and most other states) require you to be a resident to have a drivers license and to register vehicles.
Are your cars 'garaged' in CA for insurance reasons? If so it's because you told the insurance company that CA was your state of residence. Auto insurance rates are based on your home address....
You can't have your cake and eat it too.
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Post by hockables Sat Jan 29, 2011 12:45 pm

Years ago, a friend who was often overseas with the US Airforce, was telling me how overseas armed forces personell would declare certain states as their resident state in order to benefit from lower taxes.... seems Texas was one of the popular places to have their mail sent too....

Requirement was ( if I remember correctly ) mail box & bank account....
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Post by Demonio Sat Jan 29, 2011 1:01 pm

lunateak wrote:NOT.
California (and most other states) require you to be a resident to have a drivers license and to register vehicles.
Are your cars 'garaged' in CA for insurance reasons? If so it's because you told the insurance company that CA was your state of residence. Auto insurance rates are based on your home address....
You can't have your cake and eat it too.
Actually, it would be cheaper to have my cars registered and garaged in NV than CA for insurance and registration fees. I want to make somewhere in MX home (trying different locations) and Lake Las Vegas, NV a vacation home. I've lived in CA all my life (till July 2009) and it's hard to sever all ties.
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Post by Demonio Sat Jan 29, 2011 1:02 pm

David, I think you're right. I read somewhere that CA was forced to do away with the taxation policy of taxing retirement payments regardless of residency. Gringal (on TOB) suggested lawyering up. I think she may be right. I can think of better things to do with $8K per year than give them to CA.
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Post by David Sat Jan 29, 2011 1:57 pm

Exactly. For example you could send half of it to me for the good advice I provided! Buena suerte!
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Post by hockables Sat Jan 29, 2011 2:00 pm

From Wiki:

Seven states impose no income tax. These states are Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming. Additionally, New Hampshire and Tennessee limit their state income taxes to only dividends and interest income

As of May of 2009, both Oregon and Hawaii have the highest rates of state income tax, with a maximum rate of 11%. Of those states which impose an income tax, the lowest maximum rate is that of Pennsylvania, which levies a flat tax of 3.07%.

In 2005, California added a mental health tax of 1% on incomes greater than $1 million, making the marginal income tax rate in that state 10.3% at the extreme income ranges.

Shocked

State income taxes are paid in addition to the federal income tax, which currently tops out at 35%, as well as payroll taxes (contributions to Social Security and Medicare). Therefore, the maximum total rate is 35% of income in the states of Florida, Texas, and Washington, but 44.5% of income in Vermont and 45.3% in California


Sounds like it may be worth the effort.... in fact, you may well have given others something to think about!!


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Post by Rolly Sat Jan 29, 2011 2:13 pm

Those tax rates apply to the adjusted income which can be a lot less than the total income.
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Post by Carry Bean Sat Jan 29, 2011 4:01 pm

Gee, you've only lived in Mexico 9 months longer than I have.

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Post by hound dog Sat Jan 29, 2011 4:05 pm

[quote="Demonio"]David, I think you're right. I read somewhere that CA was forced to do away with the taxation policy of taxing retirement payments regardless of residency. Gringal (on TOB) suggested lawyering up. I think she may be right. I can think of better things to do with $8K per year than give them to CA.[/quote]No need whatsoever to hire a lawyer.

California cannot tax one´s retirement payments but I sure as hell woudn´t bet that they can´t if one is a California resident and you don´t want to get into the definition of what that means. When we retired in 2001, we sold off all California real estate and moved the hell out of there lock, stock and barrel. We might have, at that time, been inclined to retire to some such place as the Central California Coast around San Luis Obispo or, maybe, the ultra redneck northern pricincts around places like Redding or Weaverville but ,rather than take any chance that our IRA drawdowns and social security benefits might be taxable by the state - and, believe me folks - the California Franchise Tax Board borders on criminality; we made the decision that in no way would we maintain a California residence or keep significant personal assets there.

We originally designated parts of Arizona, New Mexico, Northwest Coastal Florida, Coastal Alabama and the Loire Valley in France as alternative retirement places but then, out of the clear blue, realized that, in North America or Europe, Mexico was far superior to any other place imaginable in terms of cost of living, climate and overall ambiance. Back then we had no idea how pleasant life would be in Mexico versus those places we had considered in the United States or France.

For ten years now since retiring, we have resolutely paid our federal income taxes in the U.S. in substantial amounts but not a single dime to those crooks running the California state government. If any of you are paying California state income taxes while no longer living there then I suggest you rethink your strategy. You are throwing money down the toilet. No way you should ever be paying any income tax money to those ladrones.
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Post by Rolly Sat Jan 29, 2011 4:52 pm

I love the way HG writes -- never any equivocation.
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Post by Demonio Sat Jan 29, 2011 6:26 pm

I think I may still have too much of a presence in CA to stop paying income tax there. It's mostly due to convenience and laziness :( I still have too many ties there - like friends and family. Plus, I was born and raised there, and lived there most of my life. The roots are deep. Time to take the bull by the horns and completely abandon the good ship California.
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Post by lunateak Sun Jan 30, 2011 8:44 am

I understand your emotions. I'm a third generation CalGal and have a lot of memories and family still there. But I don't live there and see no reason to support the state any further.
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Post by Intercasa Sun Jan 30, 2011 9:57 am

Here are some thoughts...

Your using a California address may subject you to certain taxes or make a rebuttable presumption that California is your tax home.

With a short sale, depending on how you structure things, you may be in a tough spot. If you claim the home as a primary residence then you may be able for certain programs to forgive the debt written off by the bank as there are programs for primary residences only, this would further "admit" to California being your tax home. Then again, if you didn't say or do that you could receive a 1099 for forgiveness of debt and owe the IRS a huge sum, no big deal but you'd have to file Chapter 7 BK or if too many assets, be forced into a Chapter 13.
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Post by gringal Sun Jan 30, 2011 11:09 am

You are in the classic rock and a hard place dilemna, D.
There are convoluted ways around this mess, especially the short sale part, but it's going to take a good lawyer to help extract you.

What Spencer is telling you is good free advice: you're in a sticky situation and it's probably going to get expensive.

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Post by Peter Sun Jan 30, 2011 10:51 pm

Looks like you may be up it without a paddle, Demonio. I think I have California off my back having not set foot there or out of this country since '07.

Despite Change of Address forms that they ignored for all other purposes the DMV managed to send me a threatening letter in Mexico to pay registration on my car or.... behead my dog, etc., so I paid them for '08 and never heard another word from them since.

I still have a few acres around the back door foothills to Big Bear but my annual tax statement goes to my mother's address in CA, and my credit union where my retirement goes and which lists my Mexican address is in CA. Other than that, no more ties to Cali and they don't seem to mind my land and bank there. I don't pay them taxes. But knowing California I can't help suspecting they are just waiting for a time to make a stink about back taxes, etc., etc., and try to get something big from me.

My other concern with them is that I inherited some money last year that was paid from my aunt's estate in CA to me direct to my CA credit union. They may want some of that. Who knows?

California is like a disease that is still with you long after the symptoms have gone away.
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Post by BILLBOGEY Mon Feb 07, 2011 7:45 pm

I am thinking of moving to Lake Chapala. I have read some books on Mexico and it seems there is a mail delivery service that you set up a PO BOX in Texas and your mail delivered to you in Mexico, from that PO BOX.
I live in MO, which has state income tax. Could I open a bank acct in Texas, using my PO BOX address, get a Texas drivers license, and then claim Texas residency? This could be topic for a community forum meeting where residency issues could be discussed ( and cussed) as well as ideas provided to resolve the problem.
I believe some of folks reading this could determine if this idea makes sense.
MO also has a county/local personal property tax on your car based on Jan1 of each year.. It will cost me over $300.00 this year, the bills come out in Nov with payment due by Dec 31. My registration (license plates) are good until July 31, 2012. This may be moot since I would probably buy a different car if I moved to Mexico, probably Texas license.
Enjoy your good weather, I shoveled 4 more inches of snow on Sat. Bill

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Post by Rolly Mon Feb 07, 2011 9:56 pm

You need a physical address to open a bank account. A PO box alone is not enough.
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Post by BILLBOGEY Tue Feb 08, 2011 7:06 am

Rolly wrote:You need a physical address to open a bank account. A PO box alone is not enough.
Thanks Rolly,
There is a rich (millionaire) guy, Rex Sinquefeld in MO who is actively pushing to do away with the Mo state income tax and replace it with more sales taxes. Of course this benefits the rich folks more than poorer people like me. However, If I move to Mexico, replacing the state income with higher sales tax, would benefit me. I doubt the sales tax repeal will pass.
I will enjoy my day with a high temp of 16F. but I will be in Ajijic this Sat!! Bill

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Post by oncesubtle Tue Feb 08, 2011 7:49 am

Hola Bill,

Divorced with no kids and an avid golfer eh? I hope you realize you will be one hot commodity on the links as the ratio of single women to men here is way high. Lots of beautiful gringas out there so I figure you'll be changing your screen name to something like BillPar+ soon. Twisted Evil buena suerte amigo
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Post by BILLBOGEY Tue Feb 08, 2011 10:51 am

I must be dreaming to read this email!! Are you pulling my chain?
It would be great to find a lady where we have mutual attraction and love to play golf! That itself may persuade me to move to Lake Chapala. I think I will have an interesting 2 weeks there. One gentleman has arranged for me to play a round of golf with him at Atlas. I know it is a cut or 2 above what I am used to playing. The golf course I work at is a public 27 hole layout. Of course no amenities. No driving range, pool,etc. BUT, I can play free and know a lot of people so it is easy to join a group. One good thing about the Lake Chapala web site is there are groups that like to play poker and pinochle so I will find plenty to do. One downside is I won't have a car when I visit but I can figure out the transportation there. I am still waiting to hear fropm Adobe Walls about emailing instructions (english and spanish) for taxi driver to get me there from the airport.
I sure got off topic here, SORRY, Billbogey

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Post by oncesubtle Tue Feb 08, 2011 11:51 am

Golf and pinochle, Oh lawdy! Well ermano if you like dinner out and can dance you just might need to pack a club for self-defense. Twisted Evil

Best car rental deals locally are from Mark Turford, they're legal, fully insured and he deliverers them to your location. His e-mail address is: markturford(at)yahoo.com ...come to think of it he could probably have one of his drivers pick you up at the airport with a car if you wish.
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Post by David Tue Feb 08, 2011 3:06 pm

First thing to do is change your car title and registration to South Dakota. See Rolly's site for info.
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Post by CanuckBob Tue Feb 08, 2011 5:56 pm

BILLBOGEY wrote:I must be dreaming to read this email!! Are you pulling my chain?
It would be great to find a lady where we have mutual attraction and love to play golf! That itself may persuade me to move to Lake Chapala. I think I will have an interesting 2 weeks there. One gentleman has arranged for me to play a round of golf with him at Atlas. I know it is a cut or 2 above what I am used to playing. The golf course I work at is a public 27 hole layout. Of course no amenities. No driving range, pool,etc. BUT, I can play free and know a lot of people so it is easy to join a group. One good thing about the Lake Chapala web site is there are groups that like to play poker and pinochle so I will find plenty to do. One downside is I won't have a car when I visit but I can figure out the transportation there. I am still waiting to hear fropm Adobe Walls about emailing instructions (english and spanish) for taxi driver to get me there from the airport.
I sure got off topic here, SORRY, Billbogey

He's not kidding Bill. There is muchas hermosas mujeres living at the Lake. You won't be alone for long. That is for sure. Have fun amigo.
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