Taxpayers generally have to pay taxes to at least two authorities: the Internal Revenue Service (IRS) for their federal tax obligations and state authorities for whichever state they call home. But what is home?
Why does the definition of “home” even matter?
To put it simply: each “home” state has different tax obligations and some states have very, very high taxes. This question of how we define “home,” referred to as residency for tax purposes, was already hotly debated prior to the pandemic. Taxpayers were moving from high tax states like New York and California to low or no tax states to get a break on their tax bills. Those who made these moves found themselves having to establish which state was truly their home state. These taxpayers would gather paperwork to show how many days they spent in each state, copies of their drivers’ license and even bills to show which state they used for vet appointments for their pets.
But that was in a typical year. 2020 was anything but typical and, thus far, 2021 is shaping up to be the same. Families were and continue to work remotely; schools closed forcing parents to tap into creative childcare options such as family members in different states. These unique circumstances led to taxpayers spending more time in other states than they may have intended. Does this mean their tax obligations change? Do they owe taxes to the state they were in solely because the pandemic forced them to reside within that state? This is a question the tax court will grapple with throughout 2021.
What can I do to help properly establish my “home” state?
Record keeping is key. A log to explain the reason you were located in a specific state for a specific period of time will help. Keep copies of bills from these time periods to help establish your location. The answer to this question will continue to evolve. As such, those who are concerned they may face questions about residency for tax purposes are wise to seek legal counsel to help guide them through these questions. The attorneys at Goldburd McCone are familiar with these types of situations and can represent your interests during this process.