Suppose you retire to a new state with warm weather and lower taxes. If you keep a part-time home in your original state or you later decide to return, you could have a tax problem. State tax authorities may argue you never really left, and that you owe them a big tax bill for all the income you earned while away. Here are tips to ensure this does not happen to you.
Tax residency is usually based on the concept of “domicile.” You may have many homes, but you can only have one domicile. A domicile is the place you intend to be your permanent home, and where you intend to return after being away. When these cases go to court, they are often decided by determining a person’s intentions regarding their domicile. Consider this hypothetical example: New Jersey resident Steve Seeyoulater moved to an apartment to pursue a lucrative job opportunity in Richmond, leaving his wife and children behind in New Jersey. Steve reasoned that since he spent more than 70% of his time in Virginia, he could file his state return there and take advantage of its lower tax rate. The state of New Jersey could easily disagree with Steve’s assumption, since on the surface Steve intends for his permanent home to remain where his family is, in New Jersey.
Before moving, research the residency rules in your home and destination states. They often vary from state to state. Some states have specific guidelines on the number of days its residents must be in the state, while others are less exact.
If you say you are in a state for a certain period of time, be ready to support your claim. If during an audit your credit card receipts conflict with where you claimed to be at the time, you will have problems.
If you’re going to file as a resident of a new state but also have a potential tax claim in another state, you have to be able to demonstrate your sincere intent to change your domicile. Review our checklist below for some key steps you can take to prepare. The last thing you want is a call from a state auditor looking for income tax. By being prepared, you can greatly reduce the risk of a surprising tax bill. Please reach out to us if you’d like to discuss your unique situation with our tax experts.
The rules may be different depending on the state that you are moving from and the state that you are moving to. For example, if you are establishing a residency in Florida from New Jersey, here are the steps that you will need to follow.
To learn more about establishing a residency in a new state and how your specific move may differ from the general steps to follow, contact an Alloy Silverstein advisor today.
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