How to Establish Dual State Residency: A Guide – PillarWM
In the last few years, many states have significantly increased their income taxes. Nevertheless, there are nine states that still don’t levy any income taxes on their residents. As an obvious consequence of this inequality, an increasing percentage of taxpayers are contemplating changing their state residency for tax purposes. However, before you start thinking of how to establish dual state residency, you need to remember that it can have some problems. For instance, it can result in dual taxation. Owing to the complexities involved in this process, it’s highly recommended to seek help from an expert. In addition, if you are planning to invest $5 million or more, you should request a free copy of our new book, 7 Secrets to High Net Worth Investment Management, Estate, Tax, and Financial Planning, and get some valuable insights that will help you make the right investment decisions.
STRATEGIES FOR FAMILIES WORTH $5 MILLION TO $500 MILLION
The insights you’ll discover from our published book will help you integrate a variety of wealth management tools with financial planning, providing guidance for your future security alongside complex financial strategies, so your human and financial capital will both flourish.
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.
If you need clarity on how to establish dual state residency, feel free to speak to the wealth advisors at Pillar Wealth Management. Our financial and wealth management services are perfected to assist families and individuals with $5 million to $500 million with holistic financial planning and tax planning. We are fully aware of how imperative tax minimization strategies are to sustain and safeguard your wealth. Our team will formulate a tailored plan for you that matched your unique financial needs and circumstances.
What Is the Meaning of Dual State Residency?
A dual state residency is when you reside in two separate states; that is, you are a resident of two different states. Basically, your permanent residency also referred to as the domicile, is essentially your place of legitimate residency.
While every state has its own specifications for defininga resident, a resident is generally an individual who lives in that state for long-term purposes.
Relinquishing your state residency in a state with high taxes with the objective of saving on taxes isn’t an easy process. As per thestate’s tax legislations, you can be liable for double taxation if you are a resident of both states. In addition, certain states can levy taxes on your total income, irrespective of how or where you obtained it. This can also entail the profits generated from your investments.
All in all, you need to be extremely careful when planning your taxes. In our new book,7 Secrets to High Net Worth Investment Management, Estate, Tax, and Financial Planning, we explore techniques that financial advisors use to reduce the tax burden of high-net worth individuals who have wealth in the millions. Feel free to request a free copy of the book to learn about these techniques yourself!
High net worth and ultra-high net worth individuals are highly likely to partake in investment and business practices. They can enjoy the tax deductions and incentives accessible to other taxpaying individuals involved in such activities.
In the same way, certain financial planners recommend individuals to invest their wealth in financial securities that are taxed at a lower rate. Our financial advisors at adept at enhancing the investment portfolios of wealthy individuals who wish to invest $5 million to $500 million. You can get more information on how they attain this by perusing our handy guide here.
How to Establish Dual State Residency?
As per the 183-day rule for state residency, you are regarded a resident of a state if you spend 183 or more days within a year in that specific state. This entails residing in a particular state but traveling to another for work purposes.
If you haven’t been to your place of legal residency, you can be regarded as a dual resident. Thus, you can be liable to pay taxes in two states.
To ensure you don’t have to pay dual taxes, you need to establish residency in the new state. Here are the steps you need to follow to establish residency in another state for tax purposes.
Step #1 – Deicide Which State You Want to Move to
The first step you need to take to change your state residency is deciding which state you wish to move to. Each state has its own set of laws and requirements for establishing residency. Therefore, you need to do comprehensive research on it.
For example, Texas provides a number of benefits with regards to income, estate planning, and in-state tuition. Moreover, there are no inheritance or gift taxes. Establishing residency in Texas is quite simple in comparison with other states.
In plain terms, having a clear knowledge of the laws and requirements can help you decide which is the right state to relocate to in accordance with your specific financial requirements.
Step #2 – Buy or Lease a Residence in The New State
After deciding which state you want to move to, you need to find a place to stay there. It doesn’t matter if you buy or lease a residence in the new state. All you require is a permanent address.
Step #3 – Set Up Your Domicile in the New State
Once you buy or lease a home in the new state, you will need to establish it as your legal domicile. This allows you to avoid double taxation. Certain states might expect you to fill out the “Declaration of Domicile” to declare the new state as your permanent state.
Step #4 – Change the Address on Important Documents
After you have leased or bought a home in your new state, make sure you update your mailing address on essential documents such as bank statements, social security cards, ID cards, etc.
Contact the USPSto change your address. You will also have to make sure that the mail from your residence in the old state is forwarded to the new address. Head over to the USPS website and update this information at your earliest.
Step #5 – Inform Utility Providers Regarding the Change in Address
In this step, you need to speak to your utility service providers, including your water, electricity, gas, sewer, phone, internet, and cable providers, and inform them about your updated address.
In addition, you also need to speak to your insurance provider. Its strongly advised to search and compare insurance plans from several insurance companies in the new state.
Step #6 –Change the IRS Address
You also need to change the IRS address at your earliest to ensure there aren’t any delays in receiving important correspondence and tax refunds. Form 8822 allows you to submit your new address information at any time.
Step #7 – Register to Vote
When relocating to a new state, you have to register to vote as soon as possible. You can visit or callthe local town hall to get more details regarding this.
Step #8 – Get a New Driver’s License
If you possess a valid driver’s license in the old state, getting another one in the new state will not be too much of a hassle. However, check all the requirements before applying for it. For instance, you will probably have to take your social security card, proof of residency, previous driver’s license, along with other identification documents.
When applying for a new driver’s license, don’t forget to register your car and get an updated license plate as well.
Step #9 – File Taxes in the New State
Paying taxes is a complex process and of course, relocating only complicates matters. To establish residency in a new state, you will have to file your tax returns in that particular state. It’s an excellent idea to use an accountant for this purpose in the first year of your relocation to facilitate the transition.
Step #10 – Open and Use Bank Accounts in The New State
To establish residency for tax reasons, you need to update your credit card billing address and bank account information soon after relocating. You also need to open a new bank account in the state you have relocated to.
Step #11 – Register Your Pet
If you are taking your pet along to the new state, you might have to register it and get a license within 30 days of relocating. This helps to ensure that your pet is fully updated with vaccines and shots for public safety reasons. Make sure to check with your new state laws for details on registering a pet when moving.
Step #12 – Let Family and Friends Know You Have Relocated
Finally, it’s time to announce to your family and friends that you have relocated to a new state. Thankfully, in today’s super-connected world, it’s pretty easy to communicate with your loved ones. Just post on Facebook or send an email to make it official!
Keep in mind that moving to a new state is a huge decision. It can significantly influence your life, so make sure you don’t make any mistakes. The ideal way to go about this is by consulting with a financial advisor. These professionals have in-depth knowledge regarding tax planning and minimization strategies and can assist you in making the best decisions. You can also sign up for a free consultation with us to determine if relocating to a new state is right for you, depending on your current circumstances.
Pros and Cons of Establishing Residency in No Income Tax States
Relocating to states with no income tax offers certain benefits, including:
1. You Can Invest in Commercial Real Estate
Commercial real estate, including buildings and office spaces, has a much cheaper rate in states with no income taxes.
Affluent investors often have several businesses that they operate, making it advantageous for them to invest in low-cost commercial properties. The additional advantage of reduced expenses opens up more avenues for you to save and build your wealth. Find out more about how you can build and secure your wealth in our guide, Improving Portfolio Performance.
2. You Can Protect Your Wealth
High tax states have progressive taxation, which means the more your wealth, the more taxes you need to pay. In addition, these taxes focus on the income you get from your investments. For many high net worth and ultra-high net worth investors, this is a major source of income, and paying taxes on it can make it difficult for them to attain their financial goals.
High tax rates can negatively impact your financial status and compromise your standard of living, as they can lower your portfolio performance. We have written a book named The Art of Protecting Ultra-High-Net-Worth Portfolios and Estates – Strategies for Families Worth $25 Million to $500 Million for ultra-high net worth families. You can order a free copy today and learn some effective strategies to protect your wealth.
3. The Process Is Complicated
While the benefits of relocating to another state might be great, the process isn’t all that simple, particularly for high net worth individuals. If you reside in a high tax state, moving your residence and business to a state with no income tax can take quite long. Your residency status case can take weeks, or even months, in court, or you might even have to pay a higher amount of income taxes or property taxes.
In addition, if you relocate to another state with no income taxes but continue to work in a high tax state, your income is still going to be taxed at a high rate. We know that this process can get quite confusing as there are numerous factors to account for. Thus, you can sign up for a free meeting with one of our wealth advisors if you need clarity.
Seek Advice from Pillar Wealth Management
Wealth advisors at Pillar Wealth Management can professionally guide you on how to establish dual state residency. Our team has more than sixty years of joint experience in assisting affluent individuals with tax planning.
If you have liquid wealth worth $5 million to $500 million, you should seek our advice if you want to relocate to another state. We will guide you at each step to preserve your wealth in the best possible manner. For further details, register for a free consultation with us today!
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