It sounds like a good idea: moving to a state with a lower tax burden.
This makes particular sense if you’re retiring, but plenty of people with flexible career arrangements can manage it, too. But while everything might seem rosy, there’s always a detractor: in this case, the tax authorities of the state you’re vacating. Not infrequently, they’re ready to spoil the move with an audit.
Our linked article notes that tax-rapacious New York indulges in around 3,000 non-residency audits each year and reaps something like $1 billion annually from its efforts. For people fleeing the state, loopholes often turn into nooses.
In the wake of the federal tax overhaul, high-tax states, led by New York, New Jersey, Connecticut and California are out, and havens like Florida are in. The 2017 tax cut limited future state and local deduction to $10,000, paltry in the eyes of many affluent taxpayers. Florida has no estate or income taxes and relatively low property taxes. For some, the appeal of its shimmering beaches is now no more than a pleasant bonus.
How to avoid a kerfuffle from the state you’re abandoning? Simple: follow the rules, no matter how arcane. The matter isn’t a simple as upping stakes, buying a property in Florida, Texas or any other tax-light state: you need to officially establish residence. Every state has its own rules on determining residency, usually centered around how long you’ve owned a home and how many days you’ve actually spent living there. Usually, it’s not too hard to meet the requirements – a reputable lawyer or financial advisor can probably help.
In California, though, things are different: the rules are opaque and its hard to comply. Cali has the highest taxes in the union and it they really mean business. Truly expert advice is needed for anyone who contemplates making a break for its border.
For more information, please read:
How to Avoid a Tax Audit When Moving to a Lower-Tax State | ThinkAdvisor