Are You at Risk of California Residency Audits?

California has long been known to have high taxation, and the Franchise Tax Board (FTB) of that state aggressively enforces the residency requirements. You might also be prone to a residency audit in case you recently moved out of California or have some connections with several states.

Learning the mechanisms of such audits, their initiation, and the ways to deal with them is a necessity to ensure that your financial welfare is not affected. This blog will discuss the audit process, red flags to watch out for, and convenient tactics to keep you safe and out of trouble with the IRS. You can hire a federal tax lawyer for additional guidance.

What Can Trigger a California Residency Audit?

The California Franchise Tax Board (FTB) has been employing data analysis at an advanced level to describe issues that could be of residency concern.

a. The three most common are: the relocation with continued responsibility on their finances to live in California, being a non-resident and maintaining the California address, driver's license, or voter registration, and or a large change in their income reporting.

b. Business relationships, like ownership of a California-based company or being in an active professional license, are also a matter of concern.

c. Also, a lot of travel to the state following the declaration of non-residency may send an alert to the FTB!

How Will We Know If Someone Is at Risk?

The FTB considers a number of criteria to establish residency that include keeping a home in California, keeping family members in the state, and keeping professional licenses. Additional utilization of banks located in California or investment opportunities in the region, as well as participation in local clubs, charities, or membership in religious organizations, are also seen to be strong indicators of continued residency in California even after listing residence in another state.

How to Handle These Matters?

When you get a residency audit notice from the FTB, do not waste any time and do not be sloppy.

1. To start with, get ample documentation to support your new residency as out-of-state leases, utility bills, IDs, travel records, and employment details.

2. Answer the audit notice in a timely manner with all professional tones.

3. Failure to meet deadlines may lead to automatic taxing.

4. You can consider hiring a tax lawyer or CPA who has gone through residency audits before. Hire a tax attorney cryptocurrency to get some help.

5. Above and beyond everything, do not overlook the FTB and do not think that leaving California is sufficient, but one has to leave the state, clearly showing that the departure is permanent.

How to Prevent Residency Audit Issues?

To prevent residency complications, it is best to transfer the licenses, registrations, and healthcare fully. Limit the number of visits you make to the state, and keep records of the ones you do make. When you have changed residence during the year, a part-year resident Income Tax provides a form to report fairly. Since residency rules are complex, it is strongly advisable to seek the services of a tax expert to help one be properly guided.

Auditing of California residency is a serious matter, although it is possible to ensure that you mitigate the risk with some planning. Make sure that your move is authentic, not just a paper move, and maintain good records. In doubt, consult an expert on tax.