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Q: Live in one state, business in another (taxes) ( Answered 5 out of 5 stars,   1 Comment )
Subject: Live in one state, business in another (taxes)
Category: Miscellaneous
Asked by: chrisc0527-ga
List Price: $50.00
Posted: 03 Sep 2006 11:12 PDT
Expires: 03 Oct 2006 11:12 PDT
Question ID: 761887
Hi all,

I plan on becoming self-employed soon.  I currently live in
California, and plan to continue residing in California.  However, I
plan to start my business to Michigan.  My wife resides with me in
California and has a job in California.

I would like to change my residency to Michigan and pay Michigan taxes
on income derived from the business.  Is this possible to do?  I will
spend about 2 months in Michigan and about 10 months in California.
Subject: Re: Live in one state, business in another (taxes)
Answered By: taxmama-ga on 09 Sep 2006 19:19 PDT
Rated:5 out of 5 stars
Hi Chris

It's a nice fantasy. And I understand why you would want to do that. 

But if you've got a functioning business in Michigan, and you're
running it from California, and getting business mail in California,
and having business associates, customers, vendors, etc. calling you
in California...

You've heard the old saying, yes? If it walks like a duck, and quacks 
like a duck, and looks like a duck, odds are - it's a duck. 

In other words, you're doing business in California. 

Briefly, the state of California spells out that out of state 
corporations doing business in California, must register here, too.

Now, I know you didn't say anything about a corporation.
But, whatever form of business you open in Michigan, you'll still 
be running it from California. The concept is the same for all businesses.

Of course, you asked about revoking your California residency
by setting up an address in Michigan, while living here 10 months of the year.

Here's what the Great State of California has to say about that:

"A resident is also an individual whose permanent home is in
California but who is outside of California for a temporary purpose.
For example, an individual goes on vacation in another state or works
there temporarily. The individual still maintains residency in
California and intends to return."

In order not to be a California resident, you:

Can't have your home here.
Must register to vote in Michigan.
You drivers license must be a Michigan license.
You can't have substantial connections to the community, like
doctors, advisors, memberships to clubs, religious institutions, etc.
You (your wife) can't have a long-term job here.

Why is it in your best interest not to play games with your residency,
aside from having to pay California's high tax rate?

In order to maintain the illusion of non-residency, all your:

Mail must be sent to Michigan and forwarded here.
   Think of the time you waste and the cost of forwarding it.
If you enter into a contract that doesn't work out and want to sue, 
  you have no standing in a California court. Your case will be thrown out.
You will have to pay for a Michigan phone number or toll-free number
  and all your California friends and associates will have to call you on it. 

You constantly have to be on your guard not to shatter the illusion of
your lack of California residency.

It's no fun. And it can be costly.

So, if you're going to live in California, sit down with a good, local 
tax professional and work out the best way to structure the Michigan
business so you pay the least tax overall - both in Michigan and California.

Sorry to be a downer. But I've seen the mess people have gotten themselves
into doing this, and getting caught.

If you need anything clarified, other than a full tax plan, 
please let me know. 

Best wishes,

Your TaxMama-ga
chrisc0527-ga rated this answer:5 out of 5 stars

Subject: Re: Live in one state, business in another (taxes)
From: ergo30-ga on 03 Sep 2006 16:39 PDT
From my understanding, it's not where your business is registered, but
where a majority of your business comes from.  I was about to register
my business in Nevada, to try an escape some of the taxes in my own
state, like franchise tax.  A majority of my business is done in my
own state.  I came to discover I will still be held liable to all of
my state taxes (even state franchise tax), because this is where a
majority of my business comes from.

The only thing binding us to the IRS is the fact that we're US
citizens.  If you want to pay $0.00 business and personal taxes, you
might have an easier time renouncing US citizenship and becoming a
citizen of another country.  For example, you can pay $125,000 and
become a citizen of a place like St. Kitts.  The problem with this,
after renouncing citizenship, you'll most likely be denied a visa for
re-entry into the US.  You're labeled as a taxpatriate.

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