A worked example
The sale, and where you are living when it happens
Ana, 43, single, in California. She founded her company six years ago and holds qualified small business stock she expects to sell in two years. She earns $185,000 in the meantime and spends $110,000.
“My federal tax on this sale is zero because of QSBS. What does California do to that — and what if I establish residency in Nevada first?”
What the projection shows
That the two returns disagree completely about the same sale. Federally §1202 excludes the whole gain and the sale is untaxed. California repealed its §1202 conformity in 2013 and taxes the gain as ordinary income, so the same year carries $1,211,485 of state tax against a federal figure of nothing. Establishing residency before the sale removes that entirely, and the plans finish $6,294,558 apart in wealth after the tax still owed on it. What the projection does not decide is whether the move worked: California applies a domicile and closest-connections test rather than counting days, and the year of a real move is split between two states.
What the projection also found
Nothing here was left blank. These follow from the figures above, under the assumptions this example states.
- §1202 excludes $8,985,000 of the $8,985,000 gain on the federal return, and the state charges $1,211,485 that year against $14,391 without the sale.
The planner arrives with this household already filled in. Change anything — the balances, the ages, the assumptions — and run it as yourself.
A projection under stated assumptions, not financial or tax advice.