The Great California Tax Exodus

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For years, businesses have been leaving California, if not in droves, at least at a steady and sure pace. The state income tax, business tax costs and high cost of living has driven that change.

With the new Tax Cuts and Jobs Act, the restriction on federal deduction of state and local taxes and property taxes is causing some people to consider moving.

Everyone’s circumstances will vary, but let’s say someone works online and can live wherever they want. They currently live in an average LA 3 bedroom, 2 bath house in a middle class neighborhood. It would cost $700,000 to buy the house and their property tax would be $9,600. That means only a few hundred dollars ($400 to be precise) of their state income tax would be deductible. They have high house payments, or a lot of money sunk into the down payment. Based on net income of $200,000, to afford the the house payments and other expenses, they pay $10,800 in California tax.

They are considering moving to Phoenix. For $240,000, they can have a 3 bedroom, 2 bath home that is larger and on a larger lot. Their property tax is $20,000. With the same income, their Arizona tax payment would only be $4,100.

Let’s look at each of those costs:

                              California        Arizona
Home:                    $700,000       $240,000
Property Tax:         $ 9,600          $ 2,000
State Income Tax:  $ 10,800        $ 4,100

I only picked on California and Arizona because good friends of ours moved from the San Diego area to Tucson area this past week. Why? Restrictive Laws and high costs were making their business almost impossible to run.

The secret to having more money is to either make more money and/or pay less in expenses. Sometimes the smallest changes can make the biggest differences.

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