Truly successful entrepreneurs are more than just business savvy — they are financially savvy. They know how to build capital and invest wisely; they know when a move could signal a better market or financial reward.
This later part, the potential for a move, has caught the attention of those in high-tax states. Although there is potential for financial reward, it is important to take a few considerations into account before taking the steps to move forward with this decision.
#1: Does it make financial sense?
The answer depends on many factors, including your current home state for tax purposes. Some states have notoriously high tax rates. California and New York are the most well-known, so this conversation is relevant for those with business interests in these states.
It can help to get a better understanding of the potential reward by looking at a hypothetical example. In this example, a founder of a business with a $10 million exit could save over a million dollars by leaving New York and reestablishing residency in a tax-free state, like Florida, before finalizing the sale.
#2: What does it take to reestablish residency in a different state?
Establishing residency in a different state is not as easy as it once was. State taxing authorities have cracked down on moves it believes taxpayers are using solely to reduce their tax obligations. Because of this, the moving party must establish that the move results in a true change of home, not just a front to save on taxes. This can include a review of more than just the location of the taxpayer’s primary residence; the state taxing authorities could look at where your kids go to school, where your dog goes to the vet, who you use for medical appointments and even where you keep your prized Corvette.
Although not always an easy move, the financial benefit may be worth the change. Those who have made the move and are under investigation by a state taxing authority are wise to act to protect their interests.
These investigations are intrusive, and the authorities are motivated to find evidence that you never truly changed your domicile for tax purposes. As such, it is wise for those in this situation to seek legal counsel. The attorneys at Goldburd McCone have experience with these types of cases. They can review your situation and discuss options to help better ensure a more favorable outcome.