7 ms·

He moved to WA to dodge CA income tax If he waited for the big check before he made that move, CA will find him - it's not where you live when you got the chec

He moved to WA to dodge CA income tax If he waited for the big check before he made that move, CA will find him - it's not where you live when you got the check, it's where you live when you earned it.

thanhhaimai 6y ago
+1, moving intentionally to avoid this is asking for a lot of trouble, especially for a bill that large. I hope he consulted his financial advisors.
- ryandrake 6y ago
  No kidding! CA’s tax man is among the most aggressive I’ve ever encountered. If you move to the Sahara desert to try to avoid paying, they’ll have someone waiting in a sand dune to jump out and hand you the bill as you walk by.
- vmception 6y ago
  > I hope he consulted his financial advisors and if he did, he'd learn that 5 minutes of estate planning makes it ridiculously easy to avoid having any trouble, especially for a bill that large so if you know, you know if you don't, then you might find yourself bombarded by misinformation regarding the music industry, and state taxes on a programming forum
  - Johnny555 6y ago
    What is the 5 minute fix that would allow someone to escape tax liability for income earned (but not yet received) while working in California?
    - vmception 6y ago
      It would take 5 minutes to synthesize the answer after a much longer time of studying the universe of possibilities. The financial advisor should be able to provide that.
      - Johnny555 6y ago
        What is any 5 minute answer to the problem from any of the possibilities?
        vmception 6y ago
        A) Moving to a state with no income tax for half a year. But that just saves upwards of 12%. B) Having more than 7M in already-taxed money and spending that on things that supported his own business. When you are doing something you love it feels no different than consumptive spending on a bunch of toys. The spending is tax deductible against the 7M he earned that year. Nothing goes to the government. Ideally he monetizes it to a greater amount in a future year and pays taxes in that future, but its only his problem if he doesn't monetize. C) Having more than 7M in borrowed funds and spending that on things that supported his own business. Now both the spending and the interest payments are tax deductible against the 7M he earned that year. Nothing, goes to the government. Ideally he monetizes it to a greater amount in a future year and pays taxes in that future, but its only his problem if he doesn't monetize, and maybe the people he borrowed from. D) Constructively structuring the payment as a capital gain, and moving to Puerto Rico under Act 60. This nullifies state and federal tax, while staying compliant under the federal government and the territory and prior state. This would involve talking with the organization that would pay you, maybe they could give you a share grant of the same amount, or of a discounted product they sell. Distinctly not 5 minutes. This actually might be easy since the royalty rights can already be bought and sold separately than the royalty payment. E) Selling the rights to royalties to your own private foundation. 5 minutes if you already have a private foundation. Not 5 minutes if you don't. If you want to be liquid you can always pay yourself a modest or fantastic salary from the foundation, which is taxed. Either way, now you only need tax deductions against the much smaller salary while the rest of the liquidity can be invested or just sit there. (There is something equivalent to a 2% tax on the royalty received, and an annual 5% charitable contribution requirement. Still better than 12% and much better than 37% + 12% + self employment tax%) as you might notice, all of this works no matter what the tax rates are or become, but people in your party that know this will nod and agree with whatever sentiment you have anyway. The politics typically only results in taxing salaried employees slightly higher or slightly lower. so, most people would be prepared for option A) but its not hard to structure your life for the other options to become options. the trickier part is the big payment. its not supposed to be a "tax dodge" its just understanding why the tax rate can be 0%. Many people's tax experience is opening up Turbotax and crossing their fingers for a refund as the numbers spin like a slot machine, others of us know exactly what should be computed and have pushed chess pieces all year for it.
Varriount 6y ago
Perhaps it's naive of me, but I can't help but look down on this kind of behavior. I know that tax money is rarely spent in the most efficient way possible, but (ideally) the point of taxes is that they go to benefit the general public. Moving just so one doesn't have to pay as much, after (presumably) living in the state for some time feels selfish and greedy.
- throwaway1777 6y ago
  Of course it’s greedy, but on the other hand wouldn’t you be crazy to not try to get out of paying millions in taxes?
  - Johnny555 6y ago
    Though it's not millions in this case, the top marginal tax rate in CA is 12%, so he's saving at most $850K if this was a one-time $7M payment. Not sure that 12% is worth picking up my family and moving to another state if that's the only reason to relocate. CA and WA weather and lifestyle is much different than what he saw in Southern California (I'm guessing that's where he lived since he was in the music industry). I made that move (from SF Bay Area to Seattle) about 5 years ago (but for work, not taxes), and I'm thinking about going back to CA for the milder winters.
    - throwaway1777 6y ago
      850k is worth moving to another state for a year, especially if this is not repeatable income, but that’s just me.
      - Johnny555 6y ago
        I think it'd have to be more than a year if you really want to escape taxation. If you leave the state, earn $7M, then move back a year later, California is going to be taking a close look at when you actually earned that money. Though moving is easier and cheaper for a single person living in an apartment than someone with a family and house.
taeric 6y ago
If it is royalties coming in, things have to get complicated. They could have seen that it was going to be good, and then moved. In which case... I am genuinely curious what the legal rules are.

thanhhaimai 6y ago

+1, moving intentionally to avoid this is asking for a lot of trouble, especially for a bill that large. I hope he consulted his financial advisors.

ryandrake 6y ago
No kidding! CA’s tax man is among the most aggressive I’ve ever encountered. If you move to the Sahara desert to try to avoid paying, they’ll have someone waiting in a sand dune to jump out and hand you the bill as you walk by.
vmception 6y ago
> I hope he consulted his financial advisors and if he did, he'd learn that 5 minutes of estate planning makes it ridiculously easy to avoid having any trouble, especially for a bill that large so if you know, you know if you don't, then you might find yourself bombarded by misinformation regarding the music industry, and state taxes on a programming forum
- Johnny555 6y ago
  What is the 5 minute fix that would allow someone to escape tax liability for income earned (but not yet received) while working in California?
  - vmception 6y ago
    It would take 5 minutes to synthesize the answer after a much longer time of studying the universe of possibilities. The financial advisor should be able to provide that.
    - Johnny555 6y ago
      What is any 5 minute answer to the problem from any of the possibilities?
      - vmception 6y ago
        A) Moving to a state with no income tax for half a year. But that just saves upwards of 12%. B) Having more than 7M in already-taxed money and spending that on things that supported his own business. When you are doing something you love it feels no different than consumptive spending on a bunch of toys. The spending is tax deductible against the 7M he earned that year. Nothing goes to the government. Ideally he monetizes it to a greater amount in a future year and pays taxes in that future, but its only his problem if he doesn't monetize. C) Having more than 7M in borrowed funds and spending that on things that supported his own business. Now both the spending and the interest payments are tax deductible against the 7M he earned that year. Nothing, goes to the government. Ideally he monetizes it to a greater amount in a future year and pays taxes in that future, but its only his problem if he doesn't monetize, and maybe the people he borrowed from. D) Constructively structuring the payment as a capital gain, and moving to Puerto Rico under Act 60. This nullifies state and federal tax, while staying compliant under the federal government and the territory and prior state. This would involve talking with the organization that would pay you, maybe they could give you a share grant of the same amount, or of a discounted product they sell. Distinctly not 5 minutes. This actually might be easy since the royalty rights can already be bought and sold separately than the royalty payment. E) Selling the rights to royalties to your own private foundation. 5 minutes if you already have a private foundation. Not 5 minutes if you don't. If you want to be liquid you can always pay yourself a modest or fantastic salary from the foundation, which is taxed. Either way, now you only need tax deductions against the much smaller salary while the rest of the liquidity can be invested or just sit there. (There is something equivalent to a 2% tax on the royalty received, and an annual 5% charitable contribution requirement. Still better than 12% and much better than 37% + 12% + self employment tax%) as you might notice, all of this works no matter what the tax rates are or become, but people in your party that know this will nod and agree with whatever sentiment you have anyway. The politics typically only results in taxing salaried employees slightly higher or slightly lower. so, most people would be prepared for option A) but its not hard to structure your life for the other options to become options. the trickier part is the big payment. its not supposed to be a "tax dodge" its just understanding why the tax rate can be 0%. Many people's tax experience is opening up Turbotax and crossing their fingers for a refund as the numbers spin like a slot machine, others of us know exactly what should be computed and have pushed chess pieces all year for it.

Varriount 6y ago

Perhaps it's naive of me, but I can't help but look down on this kind of behavior. I know that tax money is rarely spent in the most efficient way possible, but (ideally) the point of taxes is that they go to benefit the general public. Moving just so one doesn't have to pay as much, after (presumably) living in the state for some time feels selfish and greedy.

throwaway1777 6y ago
Of course it’s greedy, but on the other hand wouldn’t you be crazy to not try to get out of paying millions in taxes?
- Johnny555 6y ago
  Though it's not millions in this case, the top marginal tax rate in CA is 12%, so he's saving at most $850K if this was a one-time $7M payment. Not sure that 12% is worth picking up my family and moving to another state if that's the only reason to relocate. CA and WA weather and lifestyle is much different than what he saw in Southern California (I'm guessing that's where he lived since he was in the music industry). I made that move (from SF Bay Area to Seattle) about 5 years ago (but for work, not taxes), and I'm thinking about going back to CA for the milder winters.
  - throwaway1777 6y ago
    850k is worth moving to another state for a year, especially if this is not repeatable income, but that’s just me.
    - Johnny555 6y ago
      I think it'd have to be more than a year if you really want to escape taxation. If you leave the state, earn $7M, then move back a year later, California is going to be taking a close look at when you actually earned that money. Though moving is easier and cheaper for a single person living in an apartment than someone with a family and house.

taeric 6y ago

If it is royalties coming in, things have to get complicated. They could have seen that it was going to be good, and then moved. In which case... I am genuinely curious what the legal rules are.