Hidden Costs of Leaving CA – Residency Audits & Tax Traps

For many individuals, the idea of leaving California comes with the promise of lower taxes, reduced cost of living, and a fresh start. States like Nevada, Texas, and Florida – with no personal income tax – often are at the top of peoples’ lists for relocation. However, before you start packing, it is essential to understand that the California Franchise Tax Board (“FTB”) closely monitors residency changes. Failing to plan properly can expose you to costly audits, unexpected tax bills, and potential tax penalties.

Why Residency Matters

California tends to tax residents on their worldwide income, while nonresidents are taxed only on income sourced to California. The line between “resident” and “nonresident” is blurred and often confusing in practice. By obtaining a driver’s license or signing a lease in another state, is not enough and could prove to be problematic. FTB looks at the totality of your life such as where your family lives, where you own property, where your business is located, and where you keep your valuables.

Common Traps in Residency Audits

If you maintain a residence in California, even if you claim another state as “home,” the FTB may argue that you remain a resident. If you are operating a business or earning significant income from California sources, this could trigger ongoing tax implications. If you have memberships, doctors, financial accounts, and social media activity showing continued presence or ties to California, you could be considered a resident. If you relocate mid-year without careful planning, you could create a split-residency situation which could increase tax filing complexity.

Why Legal Guidance is Critical

Every move is unique, and the consequences of missteps can be significant. Proper planning – ideally before moving out of California – can make the difference between a smooth transition and years of litigation or document production with FTB. At Wilson Tax Law Group, APLC, we help clients to structure their move in compliance with FTB standards, prepare documentation that supports nonresidence, and defend against aggressive residency audits.

Final Thoughts

Relocating out of California may reduce your tax burden, but only if done strategically. The FTB has the resources and authority to challenge your move, and the hidden costs of being unprepared are often higher than staying put. If you are considering leaving California, consult with a qualified tax attorney to protect your financial future.

If you have any questions regarding your individual or businesses’ state and/or federal tax return(s)/tax liabilities or received a notice from the IRS, FTB, EDD, CDTFA or any other regulatory agency, please call or email Wilson Tax Law Group, APLC, to setup a consultation with our firm.

Wilson Tax Law Group, APLC is a boutique Orange County tax controversy law firm that specializes in representation of individuals and businesses before federal and state tax authorities with audits, appeals, FBAR, offshore compliance, litigation and criminal defense.  Firm founder, Joseph P. Wilson, is a former Federal tax prosecutor and trial attorney for the IRS and California Franchise Tax Board.  Wilson Tax Law Group, APLC, is comprised of former IRS litigators & Special Agents, and Assistant US Attorneys from the US Attorney’s Office, Central District of California, Tax Division, which at the time handled both civil tax lawsuits and criminal tax prosecutions on behalf of the United States of America.

For further information, or to arrange a consultation please contact: Wilson Tax Law Group, APLC

Tel: (949) 397-2292 (Newport Beach Office) 

Tel: (714) 463-4430 (Yorba Linda Office)

Disclaimer: This blog post is for informational purposes only and does not constitute legal, tax or financial advice. Please consult with a qualified attorney, accountant or financial advisor for specific guidance related to your circumstances.

 

IRS Finalizes Catch-Up Contribution Rules: What Retirement Savers Need to Know

The IRS recently issued final guidance on regulations implementing one of the most anticipated elements of the SECURE 2.0 Act: catch-up contributions. While marketed as a way to boost retirement savings, these rules come with detailed compliance requirements that employees, employers, and plan administrators must carefully navigate.

What Changed

Catch-up contributions allow workers age 50 and older to make additional contributions to their 401(k), 403(b), or similar retirement accounts beyond the standard annual limit. Under SECURE 2.0, higher-income earners – those making more than $145,000 (don’t forget to consider inflation), are now required to make their catch-up contributions on a Roth (after-tax) basis rather then pre-tax basis.

The IRS final regulations clarify how this rule applies beginning in the 2026 plan year, providing a brief window for employers to update payroll and plan systems. In addition, the regulations outline how plan sponsors must track participant wages, designate contributions correctly, and handle administrative errors.

Why this matters to Employees

For employees approaching retirement, catch-up contributions can significantly increase savings. But the new Roth-only requirement for higher earners changes the tax picture: instead of receiving an immediate deduction, contributions are taxed up front but can grow tax-free. Whether this shift is beneficial depends heavily on an individual’s broader tax situation, projected income in retirement, and estate planning goals.

Why this matters to Employers

Employers sponsoring retirement plans now face heightened compliance duties. They must determine which employees are subject to the Roth requirement each plan year, update plan documents and payroll systems to properly handle Roth designations, and provide clear communications to participants so they understand their options. This could be problematic if misclassification or administrative missteps occur as this may result in qualification issues or IRS penalties.

The Value of Legal Guidance

While these regulations provide clarity, they also add complexity. Employers and high-income employees alike should consider seeking advice from a trusted tax attorney to analyze tax implications of Roth versus pre-tax savings strategies, ensure plan amendments and payroll processes meet IRS requirements, and avoid inadvertent compliance failures that could trigger audits or penalties.

Final Thoughts

SECURE 2.0’s catch-up contribution rules are designed to encourage stronger retirement enthusiasm, but the fine print makes careful planning essential. With the IRS final regulations in place, both employers and employees should take proactive steps to align their strategies with the new framework. Consulting a trusted tax attorney can provide peace of mind that your retirement savings and compliance obligations are being managed correctly and effectively.

If you have any questions regarding your individual or businesses’ state and/or federal tax return(s)/tax liabilities or received a notice from the IRS, FTB, EDD, CDTFA or any other regulatory agency, please call or email Wilson Tax Law Group, APLC, to setup a consultation with our firm.

Wilson Tax Law Group, APLC is a boutique Orange County tax controversy law firm that specializes in representation of individuals and businesses before federal and state tax authorities with audits, appeals, FBAR, offshore compliance, litigation and criminal defense.  Firm founder, Joseph P. Wilson, is a former Federal tax prosecutor and trial attorney for the IRS and California Franchise Tax Board.  Wilson Tax Law Group, APLC, is comprised of former IRS litigators & Special Agents, and Assistant US Attorneys from the US Attorney’s Office, Central District of California, Tax Division, which at the time handled both civil tax lawsuits and criminal tax prosecutions on behalf of the United States of America.

For further information, or to arrange a consultation please contact: Wilson Tax Law Group, APLC

Tel: (949) 397-2292 (Newport Beach Office) 

Tel: (714) 463-4430 (Yorba Linda Office)

Disclaimer: This blog post is for informational purposes only and does not constitute legal, tax or financial advice. Please consult with a qualified attorney, accountant or financial advisor for specific guidance related to your circumstances.

California’s Cap-and-Trade: Balancing the Budget and Climate Goals

California’s cap-and-trade program, first launched in 2013, is once again in the spotlight. Lawmakers and Governor Newsom recently reached an agreement to extend the program through 2045, ensuring it will remain one of the state’s key tools for cutting greenhouse gas emissions. But beyond its environment impact, cap-and-trade plays an increasingly important role in the state’s revenue stream and in managing California’s persistent budget deficit. This move underscores both the state’s climate leadership and reliance on this program as a revenue stream with broad financial, operational, and legal implications.

Why does this matter?

This matters because California is facing a budget gap of approximately $25 billon. While cap-and-trade revenue is not a silver bullet, it is a consistent funding stream to soften the blow of shortfalls. It allows lawmakers to avoid deeper cuts to core services while still investing in climate resilience. For legislators, it is both a climate tool and budget stabilizer. This means Californians may feel the policy’s effects in higher utility bills, fuel prices, or product costs, even as the state balances its books.

Extending the cap-and-trade program through 2045 signals California’s long-term commitment to tackling climate change while maintaining a unique funding mechanism that supports both climate initiatives and budget stability. The program’s dual role highlights the constant balancing act of state policy, using financial tools to push industries toward a cleaner future, while ensuring the state can meet its fiscal obligations.

What Businesses Need to Watch

For businesses operating in California, compliance costs and reporting requirements tied to the cap-and-trade program are only becoming more complex. Businesses with multi-state or multi-national operations face apportionment challenges, potential overlaps with federal rules, and evolving disclosure obligations. Any missteps could be costly – not only in penalties but in interest and lost opportunities for use of available tax credits or deductions.

While the cap-and-trade program is often positioned as environmental policy, at its core it functions much like a tax. It affects revenue forecasting, expense planning, and ultimately, the bottom line. For businesses and even high-net-worth individuals with investments tied to regulated industries, the new extension raises important questions: How will compliance costs be treated for tax purposes? Can certain expenditures qualify for credits? What strategies are available to mitigate exposure?

These questions are not meant to be handled by most taxpayers without consulting with a trusted tax attorney. Seeking legal advice from a tax attorney will help with navigating the intersection of climate policy and tax law, ensuring compliance along the way. It’s also a chance to identify opportunities in reducing risk and managing costs.

Final thoughts

As the debate over deficits and climate policy continues, one thing seems to be clear which is that the cap-and-trade program is not just focused on emissions. It is also focused on how California funds it future.

If you have any questions regarding your individual or businesses’ state and/or federal tax return(s)/tax liabilities or received a notice from the IRS, FTB, EDD, CDTFA or any other regulatory agency, please call or email Wilson Tax Law Group, APLC, to setup a consultation with our firm.

Wilson Tax Law Group, APLC is a boutique Orange County tax controversy law firm that specializes in representation of individuals and businesses before federal and state tax authorities with audits, appeals, FBAR, offshore compliance, litigation and criminal defense.  Firm founder, Joseph P. Wilson, is a former Federal tax prosecutor and trial attorney for the IRS and California Franchise Tax Board.  Wilson Tax Law Group, APLC, is comprised of former IRS litigators & Special Agents, and Assistant US Attorneys from the US Attorney’s Office, Central District of California, Tax Division, which at the time handled both civil tax lawsuits and criminal tax prosecutions on behalf of the United States of America.

For further information, or to arrange a consultation please contact: Wilson Tax Law Group, APLC

Tel: (949) 397-2292 (Newport Beach Office) 

Tel: (714) 463-4430 (Yorba Linda Office)

Disclaimer: This blog post is for informational purposes only and does not constitute legal, tax or financial advice. Please consult with a qualified attorney, accountant or financial advisor for specific guidance related to your circumstances.

 

R&D Credits Rewired: 2025’s Big Tax Changes and Opportunities

The tax landscape for businesses investing in domestic innovation has shifted dramatically in 2025. These changes present both opportunities and compliance challenges – here’s a breakdown of key updates.

Restoration of Immediate R&D Expense Deductions

Under the new One Big Beautiful Bill Act, domestic research and experimentation (R&E) expenditures can once again, be fully deductible in the year incurred, thanks to the enactment of Section 174A. This reverses the post-TCJA requirement (effective 2022) that domestic R&D costs can be capitalized and amortized over five years – a change that increased the after-tax cost of innovation.

Foreign R&D costs, however, still must be amortized over a 15-year period, keeping the statutory preference focused on stimulating domestic R&D.

Retroactive Relief for Small Businesses & Election Flexibility

Small businesses (generally those with average gross receipts of $31 million or less for 2022-2024) can elect to apply the new full deduction treatment retroactively to tax years beginning January 1, 2022. This means that many innovative startups and smaller businesses can amend past returns to capture refund opportunities or better match deductions with income.

Larger businesses can take unamortized domestic R&D deductions from 2022-2024 all at once in 2025, or may decide to split between 2025 and 2026. It doesn’t appear that there’s a need for a formal accounting method change via Form 3115, as the election is treated as an automatic, simplifying implementation.

Stricter IRS Documentation & Reporting Requirements

For compliance reasons, it’s important to read documentation published by the IRS, including how they continue to tighten reporting requirements for the R&D credits. Businesses with over $1.5 million in qualified research expenses (QREs) must now provide project-level details broken down by components – such as each product, process, software development, or technique with associated R&D costs.

Taxpayers must also clearly articulate the technological “information sought to be discovered” and describe their expense allocation methodologies. The bottom line is that IRS scrutiny is increasing, and weak documentation with the advisement or guidance of a trusted tax attorney, can jeopardize credit claims or trigger audit adjustments.

Planning Ahead & Caution Flags

Taken together, these significant changes can create a powerful incentive environment for innovation. Businesses can accelerate deductions, improve cash flows, and even revisit past tax years for refunds.

However, success under the new regime depends on proactive tracking, timely elections, and robust documentation. Businesses should evaluate whether to amend returns, revise internal R&D accounting systems, and tighten project-level expense tracking. Partnering with a trusted tax attorney, who has a team that understands both legislative and IRS expectations, is not optional but essential to maximizing your tax credits.

Innovation is back in the fast lane – but do not drive without your seatbelt.

If you have any questions regarding your individual or businesses’ state and/or federal tax return(s)/tax liabilities or received a notice from the IRS, FTB, EDD, CDTFA or any other regulatory agency, please call or email Wilson Tax Law Group, APLC, to setup a consultation with our firm.

Wilson Tax Law Group, APLC is a boutique Orange County tax controversy law firm that specializes in representation of individuals and businesses before federal and state tax authorities with audits, appeals, FBAR, offshore compliance, litigation and criminal defense.  Firm founder, Joseph P. Wilson, is a former Federal tax prosecutor and trial attorney for the IRS and California Franchise Tax Board.  Wilson Tax Law Group, APLC, is comprised of former IRS litigators & Special Agents, and Assistant US Attorneys from the US Attorney’s Office, Central District of California, Tax Division, which at the time handled both civil tax lawsuits and criminal tax prosecutions on behalf of the United States of America.

For further information, or to arrange a consultation please contact: Wilson Tax Law Group, APLC

Tel: (949) 397-2292 (Newport Beach Office) 

Tel: (714) 463-4430 (Yorba Linda Office)

Disclaimer: This blog post is for informational purposes only and does not constitute legal, tax or financial advice. Please consult with a qualified attorney, accountant or financial advisor for specific guidance related to your circumstances.