It is no surprise that residents of high-income tax states are choosing to relocate to other locations that have little to no income tax. Those who choose to take the plunge can find themselves saving thousands in tax obligations. But there is a catch: the state taxing authorities have to agree that you really made the move.
Taxing officials are on the lookout for those who claim a move to reap in the tax benefits but retain contact within their high-income tax state. This is particularly true in New York and New Jersey where residents are choosing to move south to the income-tax free state of Florida. If enough contact remains in New York or New Jersey, these officials will try to establish that you still have residency in their state. If successful, they can still hold you accountable for their state’s tax bill.
The following tips can help you mitigate the risk of a tax bill from a previous high-tax state of residence.
Tip #1: Count the days
Make sure to spend most days outside of the high-tax state. If you spend six months in New York or New Jersey, the taxing authorities will likely hold send you an income tax bill — and this could apply to your entire income, not just the portion earned in that state. In New York, for example, taxing authorities can hold you accountable for income tax obligations if you spend 184 days or more in the state and maintain a permanent place of abode in the state.
Tip #2: Keep records
Keep track of where you spend your time with a diary, a log on your computer, or a calendar. Keep receipts to further establish time spent away from New York and New Jersey. If audited, this can serve as evidence to help establish residency in Florida.
Tip #3: Use Florida services
Taxing authorities will argue that the claim of residence in Florida is a farce if you continue to bank, work, see doctors and other professionals and have a large residence in New York or New Jersey. Having these services in Florida can help you build your case for a change in residence for taxing purposes.
Other tips that can provide additional evidence include keeping items you hold dear like family heirlooms or a personal collection in the new state as well as getting a driver’s license and, if you have children, sending them to school in the new state.
Unfortunately, even with these steps an audit is possible. The attorneys at Goldburd McCone have experience in residency tax audits and can help guide you through the process, including gathering evidence to establish the change of residency.