Archive for the ‘taxation’ Tag

Military Taxation in CA Part I – Domicile, Residency, and CA Residents

Originally published in the Cedar Street Times

February 8, 2013

Here in this little part of California that some call heaven, we have a number of military related institutions drawing servicemembers from around the world. The next few articles will focus on military taxation in California.

The first thing we need to do is define a few important terms.

Home of record is a term that indicates the place you were living when you entered the military, and cannot be changed.  This generally does not affect taxation, but can affect benefits.

Your residence is the place you are physically living.

State of legal residence for military purposes is typically synonymous with domicile to be discussed next.  Do not confuse this with legal residence which you see on many non-military legal forms indicating a desire to know your residence address as opposed to your mailing address!

Domicile is the place that you consider your permanent home; if you are living away from your home, it is the place you would return to after being absent for temporary or transitory purposes  (or away on military orders).  It is usually the place you are registered to vote, have your bank accounts, have your driver’s license, register your vehicles, perhaps still own a home and store personal items, etc.  You have the option of changing your domicile by making convincing changes to items such as the above, but you generally have to be present in the state at the time, show that you have abandoned your prior domicile, and notify the military of this change.

Residency more closely determines how you are to be taxed, but is affected by domicile.  For a civilian, residency is a term given if someone is in California for other than a temporary or transitory purpose (generally nine months or more), or conversely someone whose domicile is in California but out of the state for temporary or transitory purposes.

For a military servicemember, residency is even more closely tied to domicile.  A military servicemember whose domicile is California is considered a resident if stationed in California, and a non-resident if stationed elsewhere due to Permanent Change of Station (PCS) orders (not temporary orders regardless of duration).  A military servicemember whose domicile is outside of California but that is stationed in California is considered a non-resident unless he or she works to change his or her domicile to California.  Most people are trying to get out of California taxation, so I rarely see military people changing their domicile to California!

Now let’s start to talk about what this means for tax purposes, including how it affects spouses.  Based on the above definitions we will start with those that are considered California residents (again, those that are domiciled and stationed in California).  It is pretty straight-forward:  these individuals are taxed on all their income including their military income.  The spouse will generally also be considered a resident and will be taxed the same, unless the spouse is also a military servicemember, and has a different domicile.  That spouse would then be a nonresident and taxed differently.

In my next column in two weeks, we will begin talking about nonresident military personnel, which accounts for the majority of servicemembers living in this area.

Prior articles are republished on my website at www.tlongcpa.com/blog.

IRS Circular 230 Notice: To the extent this article concerns tax matters, it is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law.

Travis H. Long, CPA is located at 706-B Forest Avenue, PG, 93950 and focuses on trust, estate, individual, and business taxation. He can be reached at 831-333-1041.

Divorce Taxation – Part I

Originally published in the Pacific Grove Hometown Bulletin

June 6, 2012

Once in a while, I work with clients that are going through a divorce.  And once in a while in those once in a whiles, I work with clients who are both happily going through the divorce process, and seem to get along better than most married couples I know!  Most of the time, however, it seems to be a challenging and confusing time with a lot of mixed feelings on both sides.  Another aspect of divorce that can be challenging and confusing is the taxation in the years surrounding the divorce.

One of the most common themes I see with individuals going through divorce is that many tax issues are not even considered in the process.  People know it is a good idea to hire an attorney, but they forget to consult a competent tax professional about how it will play out, or what they may want to have their attorney negotiate on their behalf.  For many people they think the only tax consideration is who gets to claim the child, if one is involved.  In reality, there are several big issues to consider, and the tax law can sting those who are not aware.

In the next few issues I will go over some of the ground rules and areas of interest pertaining to taxation during a divorce including filing status options, community property laws, splitting income and deductions, crediting tax withholdings and estimated payments, allocating carryforwards, effects of children, transferring assets, and court orders.  It is also important to note that state law heavily governs divorce taxation.  I will be speaking from the perspective of California residents throughout the articles.

Filing Status

A basic question when going through a divorce is “What filing status should I use?”  The answer is that it comes down to your status on the last day of the year.  Taxpayers are considered unmarried for tax purposes if the final decree of divorce or a decree of separate maintenance is obtained by the end of the year.  If either of those two triggering events occurs, they would file Single or Head of Household returns as applicable.  Otherwise, they are still considered married and would file joint returns or Married Filing Separate returns.

One interesting exception, however, is that one or both individuals can claim Head of Household status while still married if they meet the Head of Household rules, and the spouses did not live together during the second half of the year.  These rules are sometimes referred to as the “abandoned spouse rules.” Many tax preparers are unaware of these rules, but they can be quite advantageous since divorcing individuals often do not want to file jointly, and Head of Household status is typically much better than Married Filing Separate.

To be continued next week…

Prior articles are republished on my website at www.tlongcpa.com/blog.

IRS Circular 230 Notice: To the extent this article concerns tax matters, it is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law.

Travis H. Long, CPA is located at 706-B Forest Avenue, PG, 93950 and focuses on trust, estate, individual, and business taxation. He can be reached at 831-333-1041.