Moving between different states can be a hectic process, especially if you’ve lived in one state a long stretch. Not only will you have to figure out the logistics of moving, but you’ll also have to get acquainted with the many changes that may occur in terms of finances in the new state, specifically taxes. Due to this, people often move to states that have relaxed taxation policies and lower expenses.
As of today, a lot of people in California are leaning toward living in Texas instead because of the lower cost of living and easy taxation policies. However, if you move from CA to TX, you’ll have to figure out many intricate details. You may have to learn about finances and taxes all over again as these processes differ between the two states.
So, let’s get into some detail and look at what moving from California to Texas would mean for taxes.
Taxes in California vs. Taxes in Texas
One of the biggest reasons why people move from California to Texas is the difference in income tax policies. California, as a state, has the highest sales and marginal income tax rate in the country, more than any in other states.
To top that off, about one in every three Californians can’t afford their rent because the disparity between salaries and living costs is so high. So naturally, people would be averse to living in such a condition, which is probably why you, as well, may have chosen to move.
On the other hand, Texas is one of the very few states that has no personal or corporate income tax. It is the ideal location to be in if you don’t want to give away all your earnings to the state and keep them for yourself. With such an incredible opportunity, many businesses and households enjoy a high standard of living and can save a lot more for future investments.
Similarly, if you are a businessperson and have moved to Texas, you can enjoy the many benefits of having no corporate income tax. This means whatever your business has earned, it keeps. This is the optimal opportunity for entrepreneurs and small business owners since they are the ones who need the most support, something the Texas state tax laws provide.
Texas does have a property tax; it's still lower than that of California. Also, unlike California, the property tax in Texas is collected by its cities, counties, and school districts, not the state itself. Moreover, this tax is also only allowed to be used within the district, city, or county that it is collected. So, it is primarily used for local needs.
Hence, if you own property in Texas, you may have to pay a small tax, but it will only help improve your living conditions. So, it’s not too much of a burden.
How To Manage Annual Tax Returns
Despite the exemption on income tax, Texas does have many other taxes, including but not limited to sales, property, and industry. A lot of these tax systems are carried out under different procedures. While you may be accustomed to a certain way of dealing with your annual tax returns in California, the Texas system is slightly different.
For all the taxes that you filed back in California, Texas has different filing procedures. So, it may be difficult for you to file the tax return for the first few times. This is why it is recommended that newcomers should always refer to a CPA.
Many CPAs give out financial advice and provide other services, but their primary job is to help you deal with your taxation related issues. They will also help you with your financial accounting so that you can look at your credit reports and balances as they get taxed. The CPA will also help you with the paperwork you require to get started with paying taxes in Texas.
The issue most common issue that arises for newcomers is how their older income will be taxed. For example, if you are generating an income through interests and dividends and are worried about how it will get taxed after your move to Texas, you will have to hash out some details at the outset. Generally, if your move from one state to the other is permanent, then the state you currently reside in will tax you on your interest and dividend income.
However, since you have moved from California to Texas, and Texas does not tax income, all the income that was previously being taxed in California will now not be taxed. Even if your bank account is still in California, the income will still not be taxed because of your Texas state residency. This will valid as long as you are a permanent resident of Texas. Once you move elsewhere, you will start getting taxed depending on that area’s laws.
The example given above follows for all kinds of incomes, including bonds, dividends, other investments, and even retirement income. So, your move to Texas should really be a relief from the Californian tax laws.
We may be biased, but moving to Texas is a great decision since it is popularly known as one of the most tax-friendly states in America. You will find great job opportunities and a low cost of living. This means that you’ll be able to maintain a high standard of living and will be able to earn a lot more. Taxes are not a problem in Texas, so you can rest your mind and enjoy your new life in the state. Have any other questions? Feel free to give the team at Hall Accounting an email at email@example.com.
FUTURE IMPORTANT DEADLINES
Deadline for employers to mail out W-2 Forms to their employees and for businesses to furnish 1099 Forms reporting non-employee compensation, bank interest, dividends, and distributions from a retirement plan
Deadline for businesses to mail Forms 1099 and 1096 to the IRS
Deadline for S-Corporate tax returns (Form 1120-S) for tax year 2020, or to request an automatic six-month extension of time to file (Form 7004) for S-Corporations that use the calendar year as their tax year, and for filing Partnership tax returns (Form 1065) or to request an automatic six-month extension of time to file (Form 7004)
Deadline for businesses to e-file Forms 1099 and 1096 to the IRS, except Form 1099-NEC
Deadline to file individual tax returns (Form 1040) for the tax year 2020 or to request an automatic extension (Form 4868) for an extra six months to file your return, and for payment of any tax due, and for Deadline for corporate tax returns (Forms 1120 and 1120-A) for tax year 2020, or to request an automatic six-month extension of time to file (Form 7004) for corporations that use the calendar year as their tax year
Deadline for household employers who paid $2,200 or more in wages in 2020 to file Schedule H for Form 1040
Deadline for first-quarter estimated tax payments for the 2021 tax year
Deadline for second-quarter estimated tax payments for the 2021 tax year
Deadline for third-quarter estimated tax payments for the 2021 tax year
Deadline for S-Corporate tax returns (Form 1120-S) for tax year 2020 for S-Corporations that use the calendar year as their tax year, and for filing Partnership tax returns (Form 1065)
Final extended deadline to file individual tax returns for the year 2020 (Form 1040), and for Deadline for corporate tax returns (Forms 1120 and 1120-A) for tax year 2020 for corporations that use the calendar year as their tax year