Moving to a low or no income tax state to cash out stock options?

Checkr / Eng money 💰
Dec 24, 2018 11 Comments

Hello Blind,

Is it possible to reduce the tax burden on stock option exercise and sale by moving to a state that has no or very low income taxes?
Is there a minimum time that you need to live in the new state?
For NSOS, when you exercise them, which state is taken into consideration for taxes purpose, the one at grand time or the one at exercise time?
For common shares when you sell them, does the state where you exercise them matters or the state where you sell them for taxes purpose?

Looking for people that have done it or considering it and their experience.

For example: would it be true to assume that the early uber/lyft employees could save about 10% in taxes by moving to Texas now, and then coming back to California whenever they are done selling their stocks?

Thanks and Merry Christmas for those celebrating!


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TOP 11 Comments
  • eBay eYay
    I would pay 10% to not live in Nevada, Washington or Texas, personally. It’s not worth it to me. I’m sure others would think differently.
    Dec 24, 2018 5
    • VMware sam ringh
      What if it's a million bucks in tax savings? Also California's top tax slab is 13.3%, not 10, which is what anyone with a massive windfall will hit with when they cash out
      Dec 24, 2018
    • eBay eYay
      130k, for that amount it may be worth it. If you have family near you, then it wouldn’t make sense, for me any way.
      Dec 25, 2018
    • eBay eYay
      Also, if you have to sell your home,buy a new one, or pay rent for 18 months, it lowers the reasoning to do this.
      Dec 25, 2018
    • VMware sam ringh
      I said a million in taxes, i.e 7.5m in long term gains. Agreed it doesn't make sense for a million dollars in income.
      Dec 25, 2018
    • eBay eYay
      I missed that. Yes, I think in that case it might make sense
      Dec 25, 2018
  • Snapchat FapChat
    You would have to prove to the IRS in court that you had strong ties to one of these low-state-tax places, should there be an audit.

    Furthermore, it would look really shady if you came back to California later.

    I think it’s 18 months to be no longer considered a California resident for tax purposes.

    Doable, but not without some careful planning.

    Not that you asked for this, but you also need to consider if that 10% is worth it. If it saves you $300k or above, probably. But any less than 100k, you might want to look into opportunity cost
    Dec 24, 2018 3
    • Checkr / Eng money 💰
      Thanks, that makes a lot of sense. Did you consider it for Snap's IPO?

      I was thinking about getting a job offer in one of these state and move there for a couple year until liquidity and then maybe coming back to California or maybe not. Would it be considered strong ties if I were to move for a job offer each time?

      Indeed the TC would be much lower in one of these states so I already made some rough estimates on the gains in taxes vs loss in TC.
      Dec 24, 2018
    • Oracle buzzrd
      There are some states which assume that you never left and will keep chasing you for tax every year. If you come back, they'll expect tax for all years in-between based on your federal income. It doesn't matter whether you paid another state or not. You have to prove you had no ties for every year - with nothing in that state in your name.
      Dec 24, 2018
    • Snapchat FapChat
      It’s a gray area. But with proper planning and a good CPA, you are probably okay.

      Do you mean you start in California, and then move out after IPO?

      I think IRS has a publication on what defines “strong ties”. This would be like... you went to school in Nevada. You have friends and family there. You’re registered to vote there. And you even bought a house there. Those all show you have absolutely NO intent on ever coming back to California, so therefore they shouldn’t ever tax you. Otherwise California FTB and NY will send blood hounds after you for trying to evade their taxes
      Dec 24, 2018
  • Pinterest hebxigwbxj
    Your stock option were earned in CA, because of that you will still have to pay taxes. I checked this with a CPA
    Dec 24, 2018 0


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