The West Coast offers very different state tax systems within a few hours' drive. California and Oregon have some of the highest income tax rates in the country. Washington has no tax on wages, and Idaho has a single flat rate. Moving can save a lot, but states you leave don't make it easy.
Residency and domicile
A state can tax its residents on all of their income, wherever it's earned. Residency usually depends on your domicile, the place you intend to make your permanent home, plus time spent in the state. When you move, you need to show that you've genuinely changed your home, not just bought a second one.
California is especially thorough. It looks at the closeness of your connections to each state, and it presumes you're a resident if you spend more than nine months of the year there.
What supports a real move
- Selling or renting out your former home, rather than keeping it available.
- Moving family members, pets and personal belongings.
- A new driver's license, vehicle registration and voter registration.
- Changing your doctors, dentists, banks and professional advisors.
- Moving club memberships, religious affiliations and children's schools.
- Keeping a calendar of where you spend each day.
Your old state may still tax some income
Leaving doesn't end the old state's claim on income earned there:
- Wages for work performed in the state remain taxable there. Oregon taxes Oregon-source wages of Washington residents who commute to work in Oregon.
- Equity compensation is often allocated by workdays. RSUs, options and deferred bonuses earned while you lived in California can remain partly California-taxable when they vest or are exercised years later.
- Business income and real estate located in the state stay taxable there.
- Installment sales of property located in the state can stay taxable there as payments come in.
Time your income around the move
In the year you move, you'll usually file part-year returns in both states. That creates planning opportunities:
- Defer bonuses, Roth conversions and capital gains on investments until after you've become a resident of the new state, where sourcing rules allow.
- Accelerate deductible expenses into the period when you're in the higher-tax state.
- Be careful with the sale of a business or concentrated stock. Selling just before a move can leave the entire gain taxable in the old state.
Know your new state's taxes too
Washington has no wage income tax, but it taxes certain long-term capital gains above a high annual threshold, with an additional rate on very large gains, and it has an estate tax with a top rate of 35%. Idaho taxes income at a flat rate. Neither has the property tax or sales tax profile of your old state, which can change the overall picture.
The bottom line
A well-planned move can save high earners thousands of dollars a year, and much more around a liquidity event. We help clients plan the timing, file the part-year returns correctly and keep the records that hold up if the old state asks questions.
This article is general information, not tax, legal or investment advice for your situation. Rules and thresholds change, so please talk with a qualified advisor before acting.
