California State return - Help Please!

Last question,,....honest!

I really do need help on this issue. My preparer has really not been able to explain/clarify this for me, and im losing faith.

My situation -

Left California in August 2005 and have lived and worked in the UK since. Now I am going back to California.

I was originally going to file a 540 NR, as in fact I was only a part year resident of California for 2005 (Jan 05 - aug 05) However, I have now been told that because of the reason I am moving back to California (in one month - oct 06) I can no longer file that form. This would mean I will get taxed twice on the income earned in the UK in 2005!!

This is confusing to me - as for one, I was not a resident of California for the whole year so why cant i file a part year resident form? - and two, I moving back to California in the next tax year of 2006, not 2005 which is the return I am preparing.

Could anyone or our lovely tax expert Lizzit please clarify which form I should be using. Just as a note - I did maintain a California driving license.

As a last note - Is the return for year 2006 going to be just as painful as I can no longer qualify for the foreign tax exclusion for the income earned in the UK during 2006 as I will be living in California. In other words, will I get taxed twice on the income earned in the UK from January to August 2005?

Help!!!!

You are correct in thinking that California will indeed tax you on worldwide income for the time you were not there because California will regard you as a California resident throughout.  Consequently you will owe California tax on your UK earnings on top of UK tax.  Sorry.

California will not give you any reliefs under the double tax treaty between the UK and US, because it was not a signatory to the treaty.  Your main hope for saving money comes therefore from making sure you claim as much UK tax relief as possible.  For example you may qualify to deduct all of your housing and commuting costs in the UK, depending on what you have already filed in the UK and of course your facts and circumstances.

Thanks Guya,

How very dissapointing! Due to the fact that I will get taxed on worldwide income, I will owe the State over 2000 dollars for year 2006, and I dont even earn alot. All my income is going towards taxes and tax preparers. At this point, all I want to do is just stay put in the US and go back to the EZ forms.....Dream..those were the days, when I could just telefile and just punch numbers into the phone.

First I have to survive tax year 2005 and 2006 ....aaagh!!

The only other tax saving idea I can come up with is to make sure you keep receipts for moving expenses so you can deduct them!

Just don't forget that you can't expense your meals for moving...  Silly rule.

My understanding is you can expect to be taxed in California unless you cut your ties to the state... pretty much anything unless its an "investment" for 2 continuous years.

Now I understand why the Bush family clings on to that Texas residency