telecommuting to california

Hi

I am a full time employee at a California company and worked in California till Aug 2009 I am a US citizen Moved to India and telecommuting from there for the same job as full time employee

I expect to pay CA taxes (in addition to US fed and India) for 2009 and for 2010 at least till may

But now, I am planning to stop being a full time employee and work 1099 basis.

Do I have to pay CA taxes

I am guessing the answer depends on the answer to the following questions

  1. Am I a CA resident for 2010? I would consider NO (I don't own any real estate, I rented in CA, and have changed addressees on all my bank accounts)
  2. Is it CA source income? I don't know

-Antony

Reply to
Antony
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Antony wrote: > I am guessing the answer depends on the answer to the following questions

Forgot to say - I do not have any intention of returning back to CA

Reply to
Antony

It's not something you plan or choose. In an audit, various facts and circumstances will be used to determine your status as an employee or independent contractor. You can request the CA EDD department or the IRS to help you correctly determine your status.

The fact that you were an employee in India, and now expect to be an independent contractor with no change of circumstance, seems very weak and questionable to me.

-Mark Bole

Reply to
Mark Bole

Have you established a new domicle? You don't lose the old one until you do.

Regardless, you may well be subject to withholding if you are a non-resident (haven't researched the details).

-Mark Bole

Reply to
Mark Bole

I and my wife are staying in India (leasing an apartment) and my kids are going to school in india. Does this establish a domicile in India?

-Antony

Reply to
Antony

Not by itself. Do you intend to stay in India? If not, just what are your plans? If you don't plan to stay in India, California may still claim you as residents even though you have no intention to return.

Reply to
Stuart A. Bronstein

Please read California FTB publication 1031 at

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A resident is any individual who is: ? In California for other than a temporary or transitory purpose; or ? Domiciled in California, but outside California for a temporary or transitory purpose. (See ?Meaning of Domicile?? on page 7).

In your other post you said that don't intend to return to California, so that's suggests you no longer have a domicile in CA (see page 7 of the publication).

They have a list of guidelines to determine residency as well, and pay attention to where you're registered to vote and your driver's license.

Factors to consider: ? Amount of time you spend in California versus amount of time you spend outside California; ? Location of your spouse and children; ? Location of your principal residence; ? Where your driver?s license was issued; ? Where your vehicles are registered; ? Where you maintain your professional licenses; ? Where you are registered to vote; ? Location of the banks where you maintain accounts; ? Location of your doctors, dentists, accountants, and attorneys; ? Location of the church, temple or mosque, professional associations, or social and country clubs of which you are a member; ? Location of your real property and investments; ? Permanence of your work assignments in California; and ? Location of your social ties. Caution: This is only a partial list of the factors to consider. You must consider all the facts of your particular situation to determine your residency status.

Wage income is not CA source income. So it may be free of CA tax. Income from a CA S-Corp or CA rental or capital gain from sale of CA real estate is CA source income.

Remember, as a US citizen you have to file a US tax return. You may claim the foreign earned income exclusion to exclude about 90k of salary income from US taxation, although for 2009 your FEIC might be like 45k because you're in India only half of the year. But I think you can only use the FEIC if you paid Indian tax on your income. I think you should arrange for your company to withhold Indian taxes, but if they can't do it then withhold no taxes and pay taxes to India. I'm no expert on this, so talk to an expert about it.

You can also use the foreign tax credit (for taxes paid to India) to reduce your US income. Of course, you cannot use the FTC for that part of the income that you excluded from income using the FEIC.

It is possible to give up your US citizenship, but be aware that since

2008 there is an expatriation tax. It applies to high-income earners, or people with a high net worth. They basically assume that you've sold all your stocks and houses on the day you expatriate, compute the capital gain, and pay tax on the amount above about 600k.

Part of your CA stocks options are subject to CA tax. See page 6 of publication 1004

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Example 3 On July 1, 1999, while a resident of Texas, your company grants you nonstatutory stock options. On July 1, 2000, your company permanently transfers you to California. On July 1, 2003, you leave the company and permanently move to Florida. From July 1, 1999 through July 1, 2003, you worked for the company a total of 700 days in California and 300 days in other states. On August 1, 2003, you exercise your options.

Determination: The difference between the fair market value of your shares on August

1, 2003, and the option price is stock option income characterized as compensation for services. The total workdays from grant date to exercise date equal 1,000 workdays (700 California workdays + 300 other state workdays). Your allocation ratio is .70 (700 California workdays ÷ 1,000 total workdays). Therefore, California taxes 70 percent of your total stock option income.
Reply to
removeps-groups

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One of the better appellant cases on this issue is Fox vs CA FTB that went to the Board of Equalization. What I liked about this case when I was a CA resident, is that it addresses all the issues of leaving CA to work overseas and still maintaining some connection to CA. The Board ruled in favor of Fox. My advice is to read it (see link below) thoroughly and see if you fit. Note that the Board has consistently ruled that one's intent to permanently change domicile is not a just matter of statement but a matter of facts.

Also note the following from the CA Rev. & Taxation Code relating to consecutive days of absence and other presumptions of absence that is not temporary:

For taxable years beginning on or after January 1, 1994:

R&TC Section 17014(d) states that an individual who is domiciled in this state but is absent from this state for an uninterrupted period of at least 546 consecutive days (18 months) under an employment-related contract shall be considered outside the state for other than a temporary or transitory purpose and is a nonresident of California. A taxpayer's return to California for up to 45 days during the tax year will be disregarded in determining the 546 consecutive days. This definition applies to a spouse accompanying the taxpayer.

This definition does not apply if:

  1. The individual or spouse has income from intangibles in excess of 0,000 in any taxable year the employment related contract is in effect.
  2. The principal purpose of the individual's absence is to avoid taxes.

If the provisions of R&TC Section 17014(d) are not met:

When a California domiciliary works outside the State, his or her absence will be considered as being for other than a temporary or transitory purpose if the work is expected to last a long, permanent, or indefinite period of substantial duration. See the Appeal of Anthony V. and Beverly Zupanovich, 1976-SBE-002, January 6, 1976. The fact that a foreign assignment ends sooner than expected does not require a conclusion that the assignment was for a temporary or transitory purpose. See the Appeal of Jeffrey L. and Donna S. Egeberg,

1985-SBE-075, July 30, 1985 and the Appeal of William G. and Susan G. Crozier, 1992-SBE-005, April 23, 1992. Permanent departure is not required. The taxpayer only needs to be absent for other than a temporary or transitory purpose. See the Appeal of Basil K. and Floy C. Fox, 1986-SBE-071, April 9, 1986.

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Reply to
Alan

Thank you both. This will take me some time to digest.

-Antony

Reply to
Antony

Yes.

Reply to
Antony

What if you intend to live in a new country every two years -- India, China, Egypt, South Africa. In this case you have no domicile you intend to live in permanently, yet you have given up your California domicile. But the way the law is written it looks like because you don't live in a new place permanently, you haven't given up your California domicile -- which is pure BS to me.

Reply to
removeps-groups

You don't shed your previous domicile until you acquire a new one. You have exactly one domicile at any given time.

Domicile serves important legal purposes beyond just income taxes, see the following:

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-Mark Bole

Reply to
Mark Bole

Antony, the simple solution to your problem is this:

If you are absent from California on an employment-related contract for an uninterrupted period of at least 546 days, you are a nonresident of California regardless of whether you have changed your domicile from California to India. You simply don't have to fight the domicile battle if you meet the statutory "safe harbor" of CRTC Sec

17014(d), which Alan quoted above.

Your earnings from services performed outside California, as a nonresident of California, are not California source income and not taxable in California. No California income tax should be withheld from your salary or other payments. If you are an employee, the employer may continue to cover you for unemployment tax purposes in California; that does not make you a resident for income tax purposes.

In the year in which your residence changes (the year you leave California), you will file a part-year resident California return. After that, if you have no other California source income (e.g., income from real or tangible personal property located in California, or business activities carried on in California, perhaps via a flowthrough entity), you will have no California filing requirement. Of course if the employer insists on withholding CA tax, you'll have to file a nonresident return to get it refunded.

Katie in San Diego

Reply to
Katie

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