Disclaimer: This is not a financial advice.
Take it with a grain of salt!
I’d like to share a little bit of a back story, so you can better understand my situation. And I’m going to say it once again “Take it with a grain of salt!”, because your situation almost 100% will be different.
I’m a relatively new person to the United States, and especially to California, and even though at that time I’d been in the tech industry for more than 15 years, and even though I have had friends working for FAANG; I had no idea how the FAANG total compensation system works!
I didn’t know much about federal and state income taxes, special RSU vesting schedules, and how it's being taxed. And I had no idea about tax deductions or pre/post-tax accounts. So even though I have mastered the tax code of Russia, that knowledge became completely irrelevant almost instantaneously.
Do Your Homework
Looking back I realize how important it was to just get all of the numbers (those I’m presenting below) together and make a decision that could have saved me a 6-figure number on taxes, rent, gas, daycare, and a bunch of other day-to-day expenses. Among these, the California State Income Tax in combination with the Federal Taxes is the largest one.
Always do your homework!
Researching the Tax Code, Savings, and Cost Of Living
My journey with the US Tax Code is just at the starting point, but I can already tell that it is designed the way the average W2 tech worker can get disappointed pretty quickly. And the more W2 income you make, the more disappointed you are going to be, exponentially more!
The W2 workers do have not so many direct ways to write off taxes: standard and itemized deductions, retirement plans like 401k pre-tax (which is going to be taxed later anyway), and the child tax credits.
And unlike businesses, the W2 workers have no rights to show losses they have accumulated to perform their W2 duties: gasoline, home office, cell phone bills, vehicle depreciation, etc.
The Wealth defining decision
This is exactly why every W2 tech worker should consider making a few wealth-defining decisions:
Moving to a Zero personal income tax state
Moving to the most optimal cost of leaving state (ideally with the highest Opportunity ratio¹)
Maximizing your core W2 write-offs
Starting a side hustle so you can show it as a Non-passive activity and write off the typical business expenses from your W2 taxable income. You can think of a consulting business (via LLC), the short-term rentals tax loophole, and a few other ways.
For the Side-hustle part, I’m planning to write a separate note, so let me know if you will be interested in reading it.
The baseline here will be different for most of you: number of kids, total annual income, number of cars, how much money you spend on groceries, etc. To keep it simple I’ve made a quick research on the California tech workers (mostly FAANG) and around 40% if not more will fall into this category:
Married couple, filing jointly
Have one child
Have one car
Renting 2 bedroom house
Make around $640K of the gross annual income
To make it fit your individual case you can use the calculator that I developed, so it will give you a rough estimate.
(before tweaking the calculator to fit your case, take a look at the case below, to see what most of the tech workers are dealing with)
Family Base Income (Annual)
Family Bonus Income (Annual)
Stock Ticker and Price
Public Education Kids
Family Base Income (Annual)
Private Education Kids
Total RSU Value
Annual RSU Value
Gross Annual Salary
Gross 4 years Salary
Federal Tax Annually
CA Tax Annually
Total Tax Annually
How much you can save
The numbers below show how much you can save every year in compare to Mountain View, CA.
Keep in mind, these numbers do not include potential tax savings! The tax savings estimate you’ll find later in the article.
Boca Raton, FL
Incline Village, NV
The cost of living in Mountain View, CA is almost twice as high as in Austin, Texas, and around 30% higher than in Bellevue, WA. Interestingly this difference is not that high in compare to Incline Village, NV.
Annual Cost of Living
California is a strong “leader” in the cost of Rent, Gas, Electricity, and Private education for children.
The Golden state offers you to pay on average 📈:
45% more for gasoline ⛽ (purposefully excluding Incline Village)
35% more for rent 🏠
50% more for daycare 🍼
and 100% more for electricity ⚡
Rent, Daycare, Car
Electricity & Gas
Taxes & Grand Total
California has its own state income tax brackets at 1%, 2%, 4%, 6%, 8%, 9.3%, 10.3%, 11.3%, and 12.3%.
Also, to those of you who make more than $1M a year, California will apply a 1% mental health services tax. Probably assuming you are going to require mental health support after a conversation with your CPA.
And standard deductions for the state income taxes are not that high either: $4,803 (single) and $9,606 (filing jointly).
With the Gross Annual Salary of
you are looking at
California state income tax rate.
do not look significant enough, look at your combined “Take Home” net profit (after Annual Cost of Living):
Gross Annual Income - (Federal Taxes + CA Taxes + Annual Cost of Living) = “Take Home”
Finally, let’s combine tax and cost of living savings for other states and compare them to California, to get the grant total for a single year and 4 years as well.
Boca Raton, FL
Incline Village, NV
Even though, this 4 year economical difference does not take into account multiple other factors about California, like:
Excessive short-term capital gain taxes;
One of the most expensive housing markets in the world;
The most expensive professional service market in the US, etc.
It already gives you some extra cash to build a well-diversified investment portfolio.
Subscribe if you’d like to get more educational content like this one
Let me know what do you think about the note, if you find it useful, and if you’d like to see more of the notes like this one.
The tables below are used to run individual numbers and render the charts above.
All of the base prices are taken from official and public sources, like:
¹ Opportunity ratio — represents the balance between cost of living, state income tax rates, ability to find a job in tech and grow professionally, access to modern services and entertainment, quality and diversity of the local nature.