If the grass is greener in another state, consider these tips if lower taxes are driving a move.
Mobility has become increasingly more important. Since the pandemic, remote workers have moved home—or across the country. For those with significant assets, or those looking to save on state and local taxes, a move to a tax-advantaged state could boost your bottom line.
If you are looking for liberation from income taxes, there are several states that fit the bill—Alaska, Florida, South Dakota, Texas, Tennessee, Wyoming, and Nevada. Of those, Washington continues to collect taxes on investment income over a certain threshold. If making a move solely based on taxes, be sure to research how much your sales and other local taxes will add to your bill when you move.
If you are a high-wealth earner, you may be thinking of purchasing a residence in one of these states for the tax advantages—or you may already have property in that state. In order to reduce your tax burden by moving, you must be able to prove your domicile is also established in your low-tax state of choice.
What is a domicile?
The location of your domicile is not established purely on the address. Your domicile is your primary home. It may be where you do business, or where your children go to school. It is generally the place where you return on a usual basis. While you may have one or more residences, you will only have one domicile for U.S. tax purposes. Some factors that play into domicile designation include the presence of possessions, voting location, vehicle licenses, and even where a divorce is filed.
For residency and tax purposes, a state may define what it considers a “domicile.” In New York State, you are considered a resident for tax purposes if you have a permanent home in the state for most of the taxable year as well as spend at least 184 days in the state, or about six months. Be sure to understand the tax rules of your destination state—and the state from which you are moving your domicile—if you lived there for a substantial portion of the year.
Before deciding on a move for tax reasons, speak with a knowledgeable tax attorney who can offer guidance on the move and options to consider.
Tax lawyers provide strong representation when you face a civil audit or tax controversy
The tax group at Robert J. Fedor, Esq., LLC represents business and individual clients responding to tax controversy, offshore tax allegations, residency concerns, or litigation over foreign bank accounts. When experienced tax advice is needed locally or internationally, call 800-579-0997 or contact us for a free consultation. We have offices in Chicago and Cleveland.