Should I Move to a No Income Tax State to Sell a Windfall Play? (trading, dividends)
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Long story short, I recently sold my small business and plan to spend the next few months deciding what to do next - living in the Newport Beach, CA area where I would probably like to settle. However, I may have an upcoming tax issue with a stock position...
A little over two years ago I took a gamble on a stock within an industry I was pretty familiar with (car rentals) when the market sell off was at its peak. I acquired 60,000 shares of Dollar Thrifty for just an average of .70 a share (literally .10 from the all time bottom). As of the close of the market today shares are trading at $79.87, and I feel it's time to sell.
However, if I immediately relocate to CA I believe that I will be subject to the 10.2% income tax rate, selling in my current state is 4.54%, so I'm looking at immediately renting an apartment and becoming a resident of Las Vegas, NV (by the end of this week) where there is no state income tax. I would only plan to live in Las Vegas for a few months to save on the income taxes resulting from this stock sale, and then scoot over to Newport Beach. The move would be very simple since I live in a rented home with my girlfriend (same place for years in Scottsdale, AZ) and we're slowly packing anyways (our lease is up at the end of August).
Location: We_tside PNW (Columbia Gorge) / CO / SA TX / Thailand
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You need to verify the domicile requirements in each state. CA will absolutely want that dough, you may need to PROVE you were not a 'resident' (as they interpret).
AFAIK, SD has the shortest Domicile requirement of all 'income-tax-free' states.
Will you not have any additional 'earned' income this yr. ? I would avoid taking any contracts or apartments / make utilities connections in high tax states. I assume they use cell phone and CC receipts to determine where you were living the majority of the yr. I would find a friend in Lead or Deadwood, SD, but Sturgis or Spearfish, SD may appear more legit to a revenue blood hound. They are a nice location to spend some time anyway. (Take your bicycle or motorcycle).
No, I will not have any other income this year other than dividends paid by other positions, unless I decide to take a job in CA, when I get there.
However, due to the amount that I could lose to taxes - roughly $485,000 in CA or even roughly $215,000 in my home state of AZ - I will gladly live somewhere for even up to a year if needed to avoid the state income taxes, if Las Vegas, NV isn't my best option. The problem is that I want to make this happen this week, Vegas is the closest option.
However, due to the amount that I could lose to taxes - roughly $485,000 in CA or evenroughly $215,000 in my home state of AZ -
assuming that "home state" means things like drivers license and voting registration and probably vehicle registration... I'll stick my neck out and say you owe tax to AZ if you want to realize that gain before it's lost.
I don't see any point in volunteering to pay an extra 260 grand to CA but
you aren't "losing" money in taxes... you're paying what you owe.
Take your gain. Pay your taxes. Keep moving forward.
Most states with income tax ask for a share of a taxable gain. Kind of hard to legally avoid it. Sure if you don't get audited you might get away with it, but it is pretty damn clear you owe Arizona taxes on that gain. You can't move elsewhere, act like all your income came on the day you sold the stock, and then get off tax free. You can try, but the tax authorities would skewer you in court and your intentions are clearly to evade taxes which will get you jail time.
Its not taxed until you sell it, I thought. If he has residency in a state with no state tax he doesn't pay state tax. But the Feds will always get their pound of flesh capital gains tax.
Regardless of where you live you will have to pay Federal tax on the sale. Now to reduce the amount of taxes you will pay the state you live in you can move to a no-income tax state. If you move now and sell July 1st after registering your car and obtained a new drivers license in your new state then the state income tax is prorated to only the amount of time you lived in the state. You could hold your shares till the end of the year, file for the your taxes in two states. You will have to deal with the taxes from the sale of your business and all that. Jan 1st 2012 you can sell your shares, this way you won't have any state income tax in your new state and you won't have any other income from your business sale to report. I think this should reduce your taxes a little. Good luck and keep us posted on what you end up doing. Hope the IRS is not watching this thread :-)
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