How to Change State Residency for Taxes–PillarWM
If you’ve considered changing your residency, you’re well aware that some states have lower tax rates than others. For example, retirees and taxpayers could consider moving to Texas or Florida when trying to reduce their tax burden as they do not have an income tax. While moving to another state might sound simple enough, cutting ties with your previous state and establishing the new one as your domicile state is more complicated. Hence, it is advised to work with a professional who is well-versed in how to change state residency for taxes. Of course, other factors can influence your decision to move. That is why tax planning and financial planning are necessary. You can request our book, 7 Secrets to High Net Worth Investment Management, Estate, Tax, and Financial Planning, if you are planning to invest more than 5 million dollars in liquid assets.
STRATEGIES FOR FAMILIES WORTH $5 MILLION TO $500 MILLION
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Clients frequently share with us how the knowledge gained from this book helped provide them tremendous clarity, shattering industry-pitched ideologies, while offering insight and direction in making such important financial decisions.
Wealth managers are financial experts who can help you plan your finances according to your life circumstances, financial objectives, and goals. Pillar Wealth Management offers fiduciary, fee-only wealth management services to clients who are looking to invest between 5 million to 500 million dollars in liquid assets. We have over six decades worth of experience in helping high-net-worth and ultra-high-net-worth investors manage their investments, their taxes, and their wealth. If you are interested in talking to someone from our team, you can book a meeting through our website.
How Is Residency Determined for State Income Taxes?
Before we go into how to change state residency for taxes, let’s take a look at how residency is defined. The phrases domicile and resident are critical when it comes to state income taxation. They determine where you will be taxed, and your domicile does not necessarily have to be where you live.
Your resident state will subsequently be able to tax all of your earnings, regardless of whether they were earned in another state or even another nation. As a result, taxpayers should take as many actions as feasible to establish their new residency while simultaneously terminating their previous one. While each state has its own set of criteria for who qualifies as a resident, there are many similarities.
For example, California defines a resident as someone who is in the state for any reason that is not temporary or transitory or someone who is domiciled in the state but is temporarily outside the state. Maryland, on the other hand, considers you a resident if you are domiciled in the state on the last day of the taxable yearor if you have a place to live in for more than six months in the state and have been physically present for 183 days in the taxable year. In contrast, Oregon requires you to be physically present for 200 days a year.
If you want to know, “How is residency determined for state income taxes?” you first need to understand what non-resident taxes are and what is meant by being a part-year resident.
What are Non-Resident Taxes?
In order to know how is residency determined for state income taxes, you should be aware that even if you move out of your domicile state, they can charge you with state income taxes if you fail to establish residency in another state or cut all ties with your previous state. Some states are stricter in this matter than others, for example, New York or California. California can even charge you through non-resident taxes if you have any income-generating from within the state.
Even if a taxpayer relocates to a new state, tax obligations to the previous one can be retained. It’s not uncommon for a former home to generate income through rent while it’s being sold. In that instance, the income is taxed in both the previous state where the property was situated and the present state, which taxes your total income irrespective of where it is earned.
Your new state can normally grant a tax credit to avoid double-taxation, and residents will generally have to pay taxes to the higher-taxed state. Professionals who travel fairly frequently for work are likely to be aware of the obligation to file in various states. High earners, in particular, are more at risk of being charged with high taxes and facing tax audits if they decide to relocate. Protecting your assets should be your priority. You can read more about wealth protection and safeguarding your assets in our book, The Art of Protecting Ultra-High Net Worth Portfolios and Estates – Strategies for Families Worth $25 Million To $500 Million.
What is Part-Year Residency?
People who move states in the middle of the year are often perplexed by the 183-day minimum. When there are numerous potential residences, meeting the required number of days is critical. Individuals do not, however, need to stay in a state for 183 days before claiming residency. When a new domicile is created, and if you meet the other requirements as per state laws, residency in a new state is created.
Any income generated after the date of your relocation is taxed in the new state rather than the old one, and each state requires you to file a part-year resident tax return. A schedule of total income and the portion assigned to that state is usually included in this form.
Working with an investment advisor can help you identify the details needed for dividends, interest, and capital gains, but you should also maintain meticulous records that allocate deductions and other income gains. Investment advisors can also assist you in enhancing your portfolio performance. If you would like to read more about improving your portfolio’s performance, you can gain valuable insights from our Performance Guide,Improving Portfolio Performance: The Shifts Multi-Millionaires Must Make to Achieve Financial Security and Serenity.
How To Change State Residency For Taxes
A financial expert or a tax expert can best guide you on how is state residency determined for taxes, as the requirements can differ with each state. Professionals such as financial planners or wealth managers can help you plan for your taxes, as well as help you determine whether relocating is the right move for you and your family. You can read about our expert insights by requesting a copy of our book,7 Secrets to High Net Worth Investment Management, Estate, Tax, and Financial Planning – For Families With Liquid Investable Portfolios Between $5 Million and $500 Million. Implementing complex financial strategies requires experience and expertise. If you want one of our skilled wealth managers to help you with your wealth management, you can book a consultation with us.
In the meantime, the following steps can give you an overview of how to change state residency for taxes.
1. Abandoning Domicile in Your Current Resident State
When determining your domicile, your intent is very important and is determined after a thorough analysis of all the facts and circumstances. For instance, certain states might not let you change your residency if they conclude that you’re only doing it to avoid taxes. Other states have more requirements; for example, Maryland requires you to be physically present to establish ties in your new state as you sever ties in the old one.
Since you can only have one legal domicile state, you must sure you abandon domicile in your previous state. If you get residency in two states, you can be considered a dual resident, and consequently, be charged with taxes in both states. Fortunately, there are ways you can avoid dual taxation if you work with a tax lawyer or a tax accountant. For example, you can file as a non-resident in your previous state to avoid paying taxes.
If you’re unsure about whether changing your residency is the right move for you, you can consult with a wealth manager. We can help you identify other means to reduce your tax burden through tax-loss harvesting strategies. Feel free to schedule a talk with us to get started. In addition to tax management, we can help you enhance your wealth by optimizing your portfolio’s growth. You can read more about our strategies in our 5 Shifts Guide, 5 Critical Shifts for Maximizing Portfolio Growth Strategies – For Families Worth $5 Million To $500 Million.
2. Establishing a New Domicile State
Forming stronger ties in your new state helps you establish a new domicile. You can take steps to indicate that your intent is to stay permanently in that state. Factors that help you establish residency can be:
• Residences’ location, purpose, and size
• Where you spend your time
• Your profession or employment status
• Closely held possessions
• Active participation in the business world
• Where your family resides, where your children go to school, as well as social, community, and religious associations
• Location of bank accounts, auto registrations, and safe deposit boxes
• Where you got your driver’s license from
3. Cutting Ties with Your Previous State
The following are some measures you can take to demonstrate your intentions to abandon your state residency. Keep in mind, they are not comprehensive and may differ depending on the state:
• Sell your old house and buy or rent a new one in the new state
• Relocate your family to another state
• Join your desired state’s organizations and local clubs
• Find new medical and financial professionals in your new state
• Close existing bank accounts and open one in your new state
• Registering to vote in your new state
• Change your car’s registration to the new state
Proper planning can help you successfully demonstrate that you have severed ties with your previous domicile and help you establish residency in your new state.
How Can a Wealth Manager Help You with Your Taxes?
A wealth manager is a financial professional who has trained in numerous financial fields and subjects to provide high-net-worth and ultra-high-net-worth investors with the best holistic services they can get.
Wealth managers consider your life goals and financial objectives to create a plan that enhances your wealth and secures your assets. They can guide you on how to change state residency for taxes and help you identify alternative tax deduction methods to preserve your income. They can anticipate the needs of high earners while considering your risks and tax obligations. Hence, they are well-versed in tax-saving strategies that can help you bring down your tax bills.
We help our clients with an array of services, from estate planning and financial planning to retirement planning and investment management. If you want to invest more than 5 million dollars, you can benefit by requesting our book,7 Secrets to High Net Worth Investment Management, Estate, Tax, and Financial Planning – For Families With Liquid Investable Portfolios Between $5 Million and $500 Million.
Knowing how to change state residency for taxes is tricky. State residency laws are complicated and diverse, particularly if you have a high or ultra-high-net-worth. Many states resist a change in residency as they don’t want to lose out on the tax revenue they receive from high earners. If you do plan on changing your residency for tax purposes, it is best to work with a financial advisor, a tax accountant, and a wealth manager. Wealth managers at Pillar Wealth Management specialize in helping individuals looking to invest 5 million to 500 million dollars. If you would like an unbiased second opinion from one of our experts, you can schedule a meeting with us.
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