Part-year CA filing requirements

[JADinAZ]

Client moving to CA in mid-December.  Over 65, single, no dependents, only income Social Security, IRA and broker investment account.  Total taxable income for Federal for 2025 estimated to be about $10,000.  Hasn't received their December SS payment and probably won't until after they move.  All IRA withdrawals have been made for 2025, so the only additional income I see for CA would be any investment income within their broker account.

What are the filing requirements for client for 2025 for CA?  Any chance they don't have to file because they are below an income threshold?

Note gender-neutral pronouns used here but client is Single.

[Jim-from-Ohio]

https://www.ftb.ca.gov/file/personal/residency-status/part-year-and-nonresident.html

[JADinAZ]

Thanks Jim - I started there with my googling and I couldn't find a straight answer.  Maybe I missed it.

[BobKamman]

Moving from where?  Your name suggests Arizona.  Not that it matters, but there is a huge difference between how the two states tax part-year residents.  Arizona says, "we don't care how much income you made before you got here."  California says, "figure your tax on all of your income for the entire year, then if 10% of it came during your period of residence, pay us 10% of that total."  

Are they sure they are moving mid-December?  Domicile is physical presence and intent to stay.  Shouldn't they wait until after the holidays to decide if they really want to make the move permanent?  

[George4Tacks]

MY GENERAL RULE:

Most states want you file the state return, if you must file a federal return. I would rather be safe than sorry. 

[abctax55]

For what it's worth... CA doesn't tax Social Security.

BUT, CA is rather aggressive (!) so even if there isn't a liability filing isn't a bad idea just to placate them.

[Just-Lisa-Now-]

If CA sees that you have a mortgage or state licenses of some kind (nursing, hairdresser, security guard, etc) they expect to see a tax return from you or you'll get a letter...its just easier to file for CA, even if its not required to avoid any hassles down the road.

FWIW the chances of them having enough income the last 2 weeks of December to generate a filing requirement is probably slim, unless they sell stock or pull their RMD the last 2 weeks of the year or something like that., BUT if you're filing a federal return with a CA address on it, CA may send you a letter asking if you should have filed a return.

[JADinAZ]

Bob - yes moving from AZ - and I don't have issues with that part since that's where I practice.  It's the tiny piece of CA residence that I'm concerned about.  Normally I don't do CA returns but I'd like to assist this client for one last year if possible.  And yes - the moving truck and client leave AZ on 12/8 - a clear separation date between states.  House sold in AZ and new residence rented in CA.  Although your logic is reasonable, that's not an issue for this client.  But of course I'm not preparing the return for at least another couple of months.  But the calculation you refer to here is very helpful - I couldn't find anything like that in my research.  That's something that will be easily estimated since they will only be in CA resident in 2025 for 3 weeks.  1 SS payment - apparently not taxable in CA but probably partially taxable on the Fed level, plus whatever small activity the broker statement spits out during those 3 weeks.  AZ house proceeds will not be taxable on Fed because the profit will be way less than $250k.

I'm hoping to get enough information and backup to determine that client will not have to file a CA return for 2025 at all.  Do you think I have to file simply to get to that percentage calculation?  Client will definitely file for Fed and AZ.

[JADinAZ]

Thanks George.  In normal circumstances I'd agree with you.  In this case however, adding a CA return - even a part-year - would probably mean client would have to find a new preparer for 2025 and I'm hoping to avoid that for client if possible.

[JADinAZ]

Thanks Lisa - none of those things apply to my client.  Retired and living mostly on SS.  There will be zero wages or compensation of any kind.  No more IRA withdrawals for the rest of the year (so zero after the move to CA).  One SS payment and any income the broker account throws off after the move (which won't be much).  The AZ home sale may close after the move, but no Fed tax since the profit is (much) less than $250k.

Your last sentence is especially helpful though - it's always nice to avoid a "friendly letter" from CA if possible.  Client will definitely use a CA address on their 2025 Fed and AZ returns.  Something to consider.

[sjrcpa]

Don't forget that mutual funds typically have capital gain distributions in the last few weeks of December.

The percentage calculation for CA that Bob refers to is done on the part year CA return.

"Who Must File" is covered in the instructions.

[George4Tacks]

@JADinAZ I think you are wrong about a new preparer, at least from a CA point of view. https://www.ftb.ca.gov/tax-pros/california-tax-education-council.html shows who needs to registered and the key sentence is 

"Who is required to register with CTEC?

Any non-exempt tax preparer in California who, for a fee or for other consideration:"

I highlighted the key portion of that sentence. I assume you are not IN California, so CTEC  is not an obstacle. 

From you description, they should be able to find a FREE service either through VITA or AARP programs near where they are. Thanks for taking such good care of them over the years, but it may be time to let them fly away from the nest. I have done this for 50 years. I told many of my clients to go away - why pay me if you can get it FREE - Many stayed because of the comfort level, some even because I had a nice different color folder each year.