With so many people working remotely these days, it’s become common to think about moving to another state — perhaps for better weather or to be closer to family. Many retirees also look at an across-the-border move to better control living expenses. If you’ve found yourself harboring such notions, consider taxes before packing up your things.
What taxes apply?
A state with no personal income tax, has other taxes that can potentially apply to state residents including property taxes, sales taxes, and estate or inheritance taxes.
If the states you’re considering have an income tax, look at the types of income they tax. Some states, for example, don’t tax wages but do tax interest and dividends. Others have tax breaks for pension payments, retirement plan distributions and Social Security payments.
What are the domicile requirements?
If you make a permanent move to a new state and want to escape taxes in the former state, it’s important to establish legal domicile in the new location. Generally, your domicile is a fixed and permanent home location where you plan to return, even after periods of residing elsewhere.
Each state has its own rules regarding domicile. Avoid two states claiming you owe state income taxes in both due to not successfully terminate domicile in the old one. Additionally, if you die without clearly establishing domicile in just one state, both the old and new states may claim that your estate owes income taxes and any state estate tax due.
The simplest and most obvious way to establish domicile is to buy or lease a home in the new state and sell your previous home (or rent it out at market rates to an unrelated party). Then, change your mailing address on passports, insurance policies and other important documents. Getting a driver’s license in the new state and registering your vehicle there also helps. Be sure to take these and other steps as soon as possible after moving.
Another consideration is retirement payments. Will the new and old state claim your benefits? In addition, update your estate documents to conform to the new state rules.
Need help?
When looking into whether the grass is greener in another state, do some research and contact us. We can help you avoid unpleasant tax surprises.
The HoganTaylor Tax Practice
If you have any questions about the content of this publication, or if you would like more information about HoganTaylor's Tax practice, please email Tony Otto, Tax Practice Lead, at jotto@hogantaylor.com. You may also contact Denise Felber, Tax Partner, at dfelber@hogantaylor.com
INFORMATIONAL PURPOSE ONLY. This content is for informational purposes only. This content does not constitute professional advice and should not be relied upon by you or any third party, including to operate or promote your business, secure financing or capital in any form, obtain any regulatory or governmental approvals, or otherwise be used in connection with procuring services or other benefits from any entity. Before making any decision or taking any action, you should consult with professional advisors.
