It’s official, I’m Texan! Even though I’ve loved living in California, I hated paying state income tax, especially since I’ve been traveling and out of the country for most of the year anyways as a digital nomad and can technically live anywhere I want. For the first few years after I quit my corporate job and started traveling full time I never made more than $10,000 a year anyways so I didn’t worry about taxes. But now that I’m making over $100k it’s time to re-evaluate and see how I can lower my tax burden.
One of the biggest sources of tax that could be completely eliminated was by switching my residence from California to a tax free state such as Texas. In the post I talk about why I chose Texas over places like Nevada and Florida and how I managed to become a resident in just one day.
So why Texas and not somewhere closer or easier like one of the six other states that don’t collect state income tax like: Alaska, Florida, Nevada, South Dakota, Washington, or Wyoming?
The easy answer is because I actually plan on living in Texas. Since my LLC is already set up in Wyoming it would have made sense and been easier to set it up there, and places like Seattle, Las Vegas or Florida are ideal to live in because they are cool places to visit and possibly live full time, but for me personally, I actually want to live in Austin.
Also, don’t f#@& with the IRS or the government as they will come after you. You should only legally move to a tax free state if you actually plan on making it your main place of living when you’re in the U.S. You can still visit friends and family in California but it’s not a good idea to simply claim another state while living in another as it’ll catch up with you and be a pain in the ass. Luckily for us digital nomads, we have the freedom to move and choose.
This scene sums up the culture of live music, Sunday brunch, local craft beer and the laid back attitude of Austin.
Step 1: Mailing Address
The first step to becoming a Texas resident was to establish a Texas mailing address and get all of my mail forwarded and sent there.
I looked into different mail scanning and forwarding services but ultimately decided that I wanted one with a bit more of a personal touch than just a big company that has multiple state locations and does everything automatically. I found out that they have dedicated mail services designed mainly for retired RVers who need a legal domicile (place of residence) and mailing address while they are driving around the states in their RVs.
I looked into Escapees RV Club and liked them because they are well organized, have clear rates, and lots of info but ultimately signed up with Texas Home Base because I liked that they were a small personal company that only has one location. Either way, you’ll want to ask for a “lease agreement” that shows your name and new address.
My new address is the following:
Johnny FD
1530 Pb Lane #J3403
Wichita Falls, Texas
76302-2612
Feel free to send me a letter or postcard, I just might not receive it for a few months as I have to wait for it to be forwarded.
Austin is a mixture of old school buildings and the slow pace of life and the new tech startup scene.
Step 2: Texas Bank Account
The reason why you need to setup a local Texan bank account is because you need something that shows proof of your new address on a legal document such as a utility bill. Since it’s a lot more complicated to actually get utilities set up under your name, especially if you’re going to be traveling around as a digital nomad, getting a bank printout with your name is the easiest way to go.
You can even simply change your address with Chase or whatever national bank you have already to your Texas address and get that printed out, which should qualify, but just in case I wanted to make sure my money was in a Texas only bank account to really prove that I’m no longer living in California.
Getting the bank account was pretty easy, I just had to show my lease agreement from the step above, two forms of ID (passport + driver’s license) and enter my social security number. You can even apply for your account online at GTFCU.org
My only requirements for choosing a local Texas bank account was that they couldn’t have any locations outside of Texas, and especially not in California (to keep the separation) and they had to have online banking.
Surrounded with rivers and parks, downtown Austin is the opposite of tumbleweeds and horses
Step 3: Getting a Texas Driver’s License
The biggest factor in proving that you are now a Texas resident is surrendering your current state’s driver’s license for a new Texas one. Everything so far above can be done online, even though I applied for my bank account in person as it was only 1 block from the Austin DMV so it was easy to do both in one afternoon. Getting your license is the only thing that requires you to do in person. But luckily, Austin’s DMV has an online queue system so you no longer have to waste hours waiting in line for your number to be called.
Just go to the Texas DMV website and get a spot in line for the North Lamar – Austin location as it’s the closest to downtown.
You can just take a Lyft or Uber there as it’s less than a $15 ride. You can use coupon code UberTravelBoss to get your first ride for free.
For Lyft you can get your first 5 rides for free currently as they are trying to take market share from Uber, so use this Lyft Coupon for $50 in credit.
What to bring:
Passport
Current Driver’s License (to surrender)
Social Security Card
Residential Lease Agreement (from step 1)
Bank Statement (from step 2)
You’ll need to fill out a form once you get to the DMV so make sure you get there 10 minutes before your number is actually called, then simply tell them you moved and want to get a Texas license. You’ll take a new eye exam, get your photo taken, and be issued a temporary paper license until your new one arrives. You do not need to retake the driver’s exams.
My temporary Texas Driver’s License!
Step 4: Delete All Traces
After getting your Texas driver’s license, you are pretty much considered a resident. You can even take a few extra steps and register to vote in Texas by simply checking a box when filling out the paperwork for your new license.
Now it’s important to make sure you have no traces of your old state anywhere. So if you had an old California’s reseller’s license for your drop shipping store, other bank accounts with your old state’s address on file, make sure you either close out all of those accounts or update them to your new address. That’s pretty much it. Check with your accountant or whoever does your taxes to see if you even need to submit a state income tax return this year but you should be good to go starting in the new tax year as a Texan.
I’m really looking forward to physically moving to Austin when I get back from my travels, but it’s good to know that even while i’m in Europe or Thailand and making money location independently I won’t be racking up state income taxes in California especially since I haven’t actually lived there in almost 7 years!
Travel Like a Boss representing rainy street in Austin, TX!
How Much Will I Save?
The entire move costed me around $25 for the license itself, and $5 for a new savings account at my credit union. I wanted to visit Austin for New Year’s eve anyways and to hang out with some friends so physically going there to get my driver’s license was a multi use trip. My mail service is only $15 a month so for a grand total of $110 a year I get to save between $5,000 – $10,000+ by simply being a resident of Texas instead of California.
The best thing is, as I plan on making more and more money each year, I won’t have the stress of needing to pay California income tax. Check it out yourself, calculate how much you’re making now to see how much you’ll save. Then calculate anything over $140,000 a year, which should be all of our aims and goals for 2016-2017 and see how much we’ll save then!
Best of luck to everyone with your entrepreneurial journey! Being location independent and having the luxury of traveling the world while being based in a tax free state like Texas is just another benefit of being a digital nomad.
Let me know how it goes and if you have any tax saving tips yourself!
Update:
A few people have asked if this stacks with the Foreign Earned Income Exclusion that allows you to save on income tax for the first $100,800 you earn every year as long as you are out of the country for at least 330 days of the year.
The good news is YES it does. Since the FEIE is only for Federal income tax, normally you would still have to pay California or your State income tax. Now by living in Texas AND being out of the country I’m saving on both federal and state income taxes.
This article first appeared on JohnnyFD.com
The post How To Legally Move to Texas and Save $10,000 a year on Taxes appeared first on Borderless.