Tired of High State Taxes? (Changing Your State of Residence)
When you have decided to change your residence, whether for abusive state taxes, goofy politics or you simply want a better environment to live in, you must sever major ties to your former state. If you try to merely make it look like you left your former state, you are guaranteed to be open to tax claims by your former home state.
You Must Leave
High income tax rate states are very aggressive when challenging claims by former residents claiming they have moved out of state and changed their tax domicile. These states will likely attempt to use any ties a former resident maintains with the former state to justify continuing to tax the former residents.
For your move to be recognized by your former state, you really have to move so you do not leave yourself open to claims by your former home state that it can continue to tax you. You also must establish a true domicile in the new state. Merely being absent from your former home state is inadequate. Moreover, domicile for tax purposes is a matter of intent which is proven by your actions.
So How do You Leave?
Changing your residence or domicile is a legal matter, so you must contact your independent legal and tax advisors before taking any action. What follows is a partial checklist to consider. There are no clear rules to make this change but the more items you change, the more likely it is that you will be successful changing your residence or domicile for tax purposes.
- Change your driver’s license to your new state and cancel your old state’s driver’s license
- Register your car in your new state and notify your auto insurance company of the change
- Register to vote in your new state and cancel your old state’s registration
- Buy a home in your new state—and ideally, sell your home in your old state (or transfer it to another entity); if you can’t buy a home, then rent (with a long term lease)
- Claim a homestead exemption in your new state (if applicable), and relinquish any homestead claim in your previous state
- Revise your estate planning documents (wills, trusts, powers of attorney, health care powers of attorney, advance care directives, etc.) to recite your new state, and use your new state’s forms
- Change your bank accounts to your new state
- Don’t retain bank accounts in your former state. Open new accounts in your new state
- Move your safe deposit box to your new state
- Change your address with the IRS—list your new address on your tax returns
- Notify credit cards, brokerage, etc. of your new address
- Get engaged in your new state
Pay Attention to Time Spent
There is a general rule of thumb that you want to stay out of your former state more than 183 days in a calendar year; however, this number may vary by state. For example, North Dakota wants you here for 210 days. The best thing to do is spend your time outside of your former state; otherwise, your former state will want you to prove that you were outside of that state for more than 183 days, or whatever they determine is the time you need to be outside of the former state. I like my clients to keep a daily calendar (with receipts when possible) showing they were outside of their former state. The first year you claim non-resident status in your former state, you will more than likely experience a residency audit regardless of how close you are to the minimum time outside of your former state. Fear not, if you really do move out and pay attention to the checklist, you increase the probability of overcoming a residency audit as you will have no problem proving you really made the change of residency.
If you wish to move to a friendlier state for any reason and want to discuss your plans of moving to a new home state, contact our team at Borkuslaw Group today and make an appointment!
Lastly, if your Estate Plan is over 3 years old it may be time for an Estate Plan “check-up.” Please click here to access our Estate Planning Check-Up Checklist
Please note that information contained in this news alert is not and should not be construed as legal advice or opinion nor does this information alert create an attorney-client relationship.