Elon Musk Is Moving – Should You Also Move From California?

Elon Musk Is Moving – Should You Also Move From California?

Elon Musk

Elon Musk, the founder of Tesla TSLA and Space X, recently announced that he is leaving California for Texas. While Musk claimed his move is mostly due to COVID-19 restrictions, it likely also has to do with the difference in taxes at the state level. The question is, should you follow suit, leaving California for a lower-tax state?



While 2018 may seem like distant history, a significant tax change that year made paying state taxes much more painful for high earners (and many homeowners). 2018 was the year the Trump Tax Plan went into effect, which amounted to an unfortunate tax increase for many middle-to-high earners in higher-tax states like California, New York, and New Jersey. The new cap on deductions for state and local taxes (SALT) seems to almost be targeted at states that overwhelmingly didn’t vote for Donald Trump in the 2016 presidential election.

As a Los Angeles financial planner, I have a few clients who are in the process of moving out of California this year and several who made the choice to leave in previous years. I want to point out that none of these three couples are moving because of taxes. All three had out-of-state job opportunities, which helped advance their careers and increase their gross income. Of course, moving to another city with a lower cost of living, and lower state taxes, was a bonus when they eventually chose to accept the transfer out of state.



Moving from California to another state won’t always solve your high-tax problems. Some workers may even see their taxes increase after moving to another state. California has a progressive tax system, where your marginal tax rate increases as your income does. Some other states may have lower flat tax rates, but that rate begins from the first dollar of income, resulting in a higher total tax bill. There are seven states with no income taxes.

While you may be able to buy a much larger home for less in another state, you may also end up with a higher property tax bill. States with lower income tax rates often have higher property tax rates. It doesn’t take much real estate and income to hit that $10,000 SALT cap (the maximum amount an individual is allowed to deduct in state and local taxes under the Trump Tax Plan).

Should You Move from A High-Tax State to a Low-Tax State?

Look, I don’t want you to pay more taxes than necessary, but I also want you to live your most enjoyable life. With that in mind, I would not recommend that you move from one state to another simply to lower your taxes. Keep reading for a few more things to consider helping you make the right decision on whether leaving a high-tax state could make sense for you and your family.   



Look at your net income and cost of living numbers. Will your income increase or decrease in another state? What will be the total cost of housing, not just the mortgage payment? If you change climates and have to run the AC full blast six months a year, that could mean a huge electric bill. Will you be subject to higher property taxes? What about higher sales taxes? What will it cost to sell your home and move? What is the next after-tax benefit for moving?

Taxes aren’t the only thing to think about when considering a move. Can you handle living through winter? I get cold in California winters and wouldn’t want to live through winters in Maine. Also, saving money is great but at what cost? Do you have friends or family in your potential new city? If you will be miserable in another location, is it worth it to move? Will your kids need to move schools? Will your spouse be able to find meaningful work?

Make an informed decision about where to base your family. Where do you want to live? Can you afford to do the things you want to do while living there? Taxes are just one piece of that puzzle. If taxes were the only consideration, California and New York would be empty. Elon Musk is leaving California, but it’s likely, you shouldn’t be following him to Texas.

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