Do I Have to File California Taxes If I Live Abroad?
Expats have to deal with a whole host of tax concerns that domestic Americans don’t, not only when filing an income tax return but also when reporting assets and financial holdings. For U.S. citizens living abroad, that means a lot more paperwork – and a lot more potential for costly mistakes or oversights. This is especially true when state taxes are involved, such as for those who lived in California recently. If the Golden State considers you a target for taxation, you may owe a significant sum before you even begin to look at your federal tax burden. Whether you recently moved or left California behind long ago, you may wonder: Do I have to file California state taxes if I live abroad? Continue reading as the international tax pros at U.S. Tax Help provide an answer.
Who Has to File State Taxes in California?
The requirements for filing an income tax return for expats can vary widely from state to state. Aside from those states that don’t have an income tax, most are willing to consider you a nonresident – meaning that you would be largely exempt from state taxes – as long as you can show that you lived elsewhere for at least six months out of the tax year; unfortunately, California does not belong to either group.
California divides people into three classifications for the purpose of taxation: residents, part-year residents, and nonresidents. The first two groups almost certainly have to file a return with the state; for nonresidents, it will depend on whether you earned any income from within California. The state looks at the following criteria when determining a person’s tax status:
The label of “resident” applies to two specific groups in California – those present in California indefinitely, and those with a domicile in California but who are outside the state for a “temporary or transitory purpose.” Under the legal definition, a “domicile” is the place where you have intentionally and indefinitely established yourself and your family.
Pert-year residents exist in the grey area between residents and nonresidents. Basically, if you were a resident of California at any point in the tax year, you are likely considered a part-year resident. This generally means that you will be taxed on worldwide income for the period in which you lived in California, plus any California-based income you might have received while living elsewhere.
If you’re just in California temporarily, you are probably considered a nonresident; this applies even if you come to the state for work but do not establish a domicile. Nonresidents are taxed on their California-based income, but that’s about it.
Safe Harbor Exceptions for Taxpayers Living Overseas
The above categories include general definitions that apply to most taxpayers, but determining a person’s exact tax status can be tricky in certain cases. For example, there are instances where a person with a home in California can be treated as a nonresident, provided they meet certain criteria. This is referred to as “safe harbor.”
Under the California tax code, a resident of the state can be treated as a nonresident as long as they leave for the purpose of employment and maintain a residence outside the state for at least 546 consecutive days. This applies even if a taxpayer living outside the U.S. has a domicile in California or a spouse or children who remain in the state.
One thing to note is that temporary visits home do not interfere with your 546-day count, up to a point. As long as your trips to California add up to less than 45 days in-state during the tax year, you can still qualify for the safe harbor exemption. A knowledgeable accountant can help you figure out whether you can benefit from this provision.
Federal Tax Requirements for American Expats
In addition to any state-based filings you may be expected to submit, remember that you probably owe quite a few forms to the IRS. This includes a federal income tax return for expats, as the U.S. taxes people based on citizenship and not where in the world they live. Those with accounts in a foreign bank will likely have to report those assets to the IRS as well – either through a Report of Foreign Bank and Financial Accounts (FBAR) or Form 8938, Statement of Specified Foreign Financial Assets.
If you have a financial interest in, or control over, one or more foreign bank accounts that had a combined value of $10,000 or more at any point during the tax year, you will have to submit an FBAR to the Financial Crimes Enforcement Network using FinCEN Form 114. Those with more significant financial assets totaling in the hundreds of thousands of dollars may have to also file IRS Form 8938 in compliance with the Foreign Account Tax Compliance Act (FATCA). If you are unsure whether either of these applies to you, or if you’d like to learn more about what exemptions and deductions you might qualify for as an expat, contact the specialists at U.S. Tax Help right away.
International Tax Assistance Available Today from U.S. Tax Help
Navigating the nuances of the U.S. tax code can be challenging – all the more so when you also have a state’s stringent requirements to meet. If you or someone you know lives abroad but is taxed in the U.S., or in the state of California specifically, the team of skilled accountants at U.S. Tax Help are available to provide assistance. With decades of experience in international tax preparation and planning, the team at U.S. Tax Help can make sure you stay in full compliance with the law while working to secure every deduction, exemption, exclusion, and tax credit for which you qualify. To hear more about our services or to speak with a qualified tax professional, visit us online or call (541) 362-9127 today.