How to file state tax for US expat using TurboTax?

If you're considered a resident of California for tax purposes (see below) then you should use California as your residence, regardless of whether you reside overseas. Turbo Tax asks for 

residency, so if you're considered a resident of California for tax purposes then you will need to indicate that. 

Which States Require Expats to File Income Taxes?

Generally, most states only require you to file a state tax return if you lived in the state during the year and usually only tax income generated within the state (click here for links to the specific state website to learn more). Sometimes, income from sources received while living abroad may be taxed in the state, such as retirement payments or investment income (interest and dividends). Be mindful of state sourced income when planning your tax for expats, since that income could create a tax-filing requirement for you.

There are, however, four states with less clear rules – these are called “sticky” states because the requirements for filing a state tax return as an expat can be complicated and small nuances related to ending your formal residency can lead to a filing requirement. California, South Carolina, New Mexico and Virginia consider you a resident of the state if you have one or more of the following ties to the state:

• Property ownership
• State driver’s license or ID card
• Bank accounts or investment accounts held in the state
• Voter registration (even absentee ballots)
• Mailing address in the state (P.O. box or a relative’s house)
• Dependents remaining in the state (spouse or children)

All four of these states have very stringent residency definitions in comparison with other states and they tax worldwide income. You would need to report all income on your state tax return and pay taxes to the state, even if you didn’t live in the state during the year! Learn more about these sticky states here.

These four places consider moving abroad as a temporary leave of absence unless you can remove your ties to the state. That’s why it’s critical to properly sever ties before moving abroad, since these states only recognize a change to another state (not another country) as a change in residency. Things like closing or moving bank accounts, selling property and changing driver’s licenses to another state can help ensure you won’t end up paying state tax for expats on your income in these sticky states. There are certainly benefits of maintaining things like a US bank account when moving abroad, so moving it to a different state can help you avoid paying state taxes while enjoying the benefits of keeping a US bank account.

 

Filing US Expat Taxes With California Residency Status

California considers the following factors to determine “the place where you have the closest ties,” which is what they consider as your place of residency.

• Amount of time you spend in California versus amount of time you spend outside California.
• Location of your spouse/RDP and children.
• Location of your principal residence.
• State that issued your driver’s license.
• State where your vehicles are registered.
• State in which you maintain your professional licenses.
• State in which you are registered to vote.
• Location of the banks where you maintain accounts.
• The origination point of your financial transactions.
• Location of your medical professionals and other healthcare providers (doctors, dentists etc.), accountants, and attorneys.
• Location of your social ties, such as your place of worship, professional associations, or social and country clubs of which you are a member.
• Location of your real estate property and investments.
• Permanence of your work assignments in California.

This is only a partial list of the factors to consider. Consider all the facts of your particular situation to determine your residency status.

This is the California web site to determine if you're considered a resident: https://www.ftb.ca.gov/file/personal/residency-status/index.html#Am-I-a-resident-