The Place You Call Home: Relocating to a Tax-Friendly State

March 5, 2020

Potential Tax Advantages to Relocation

If you’re retiring and thinking about relocating or have a job that allows you to  live anywhere, it may be worth considering moving to a more tax-friendly state.

For example, many residents of Northeast states have moved to Florida due to its tax-friendly laws. Florida doesn’t have personal, estate or inheritance tax. In addition, the state limits property tax escalation by capping annual assessment increases to 3% of the previous year’s assessment or the Consumer Price Index (CPI) and also has a homestead exemption of up to $25,000 (single filers) or $50,000 (married filing jointly).1 Compare this to marginal individual income tax rates in the Northeast of 5% to 10.75%,2 along with ever-increasing property taxes, and it is not difficult to see the long-term economic benefits of moving to a  tax-advantaged state.

States With No State Income Tax 

Including Florida, these seven states are free of state income tax: Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming. If you are a retiree, it means that in those states, you won’t pay state income tax on Social Security benefits,  IRA and 401(k) withdrawals or pension payouts.

Establishing a Domicile

To gain potential state-related tax advantages, you  first have to establish a domicile in your state of  choice. You can’t simply declare your permanent  home state—you must first establish your intent and  document your domicile. What does that mean?

Simply put, a domicile is your permanent place of  dwelling. And for the purposes of jurisdiction, the  term “domicile” is considered the place you intend  to make your permanent home. It’s defined by a  combination of your residence and your intent to  remain there permanently.3

If a taxpayer has only one domicile and merely spends  short periods away from home, his/her legal residence  is the state where the home is located. However,  taxpayers with two or more homes must provide facts  to document their residency to tax authorities.

It is important to note that it is not unlawful for  two different states to successfully claim you as  a resident for estate or inheritance tax purposes.  Therefore, it could be extremely expensive if your  actions do not fully support your intent. In this instance, an incomplete attempt to change residency  can be more costly than no attempt at all.

Actions Speak Louder Than Words

To help establish your intent to have a new primary  domicile, it’s a good idea to spend at least 183  days—just over 50% per year—in the state. This  may seem easy to comply with, but sometimes fact  patterns jeopardize the results. For example, if your  intent is to be a resident of Florida, but you have a second home in another state and spend a lot  of time there, leaving for vacations from the other  state may indicate an intent that the other state is  your primary residence.

Other Important Actions Include:

There is no single set of facts to establish a domicile  state. Instead, numerous actions taken together  often support the taxpayer’s intent. Below is a list of  just some steps you can take.

  • File a nonresident tax return in your former  state if required or file a final return in your  former state upon leaving.
  • Bank accounts, insurance policies, credit cards  and other bills should have the mailing address  of your primary domicile.
  • Wills should be updated to reflect your  primary domicile.
  • All mail, including magazine subscriptions,  should be addressed to your resident state.  When not in your resident state, have mail  forwarded by the post office rather than  temporarily changing your mailing address.
  • If you intend to spend substantial time in more  than your resident state, maintain a diary  noting the state you are in every day.
  • If your new state has in-state benefits, file for  them. For example, in Florida, you should file  for homesteading with your local county to  secure property tax benefits.
  • Please note, this list is not exhaustive. The general  rule? To change your state of domicile, you should  conduct all aspects of your life accordingly and  keep documentation to show your intent.

Partner With Your Advisor

At Mariner Wealth Advisors, our goal is to assist you in every step of making this type of transition,  from simple steps like changing account addresses,  to the more involved steps like homesteading a  residence properly. We believe that an overall wealth management plan should integrate finances and taxes to help give you the most tax-advantaged strategy possible.

1 “An Overview of Taxes in Florida,” the balance.com.

“How High Are Individual Income Tax Rates in Your state?” taxfoundation.org.

“Distinctions Between Domicile and Residence,” uslegal.com

This article is limited to the dissemination of general information pertaining to Mariner Wealth Advisors’ investment advisory services and general economic market conditions. The views expressed are for commentary purposes only and do not take into account any individual personal, financial, or tax considerations. As such, the information contained herein is not intended to be personal legal, investment or tax advice or a solicitation to buy or sell any security or engage in a particular investment strategy. Nothing herein should be relied upon as such, and there is no guarantee that any claims made will come to pass. Any opinions and forecasts contained herein are based on information and sources of information deemed to be reliable, but Mariner Wealth Advisors does not warrant the accuracy of the information that this opinion and forecast is based upon. You should note that the materials are provided “as is” without any express or implied warranties. Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. Past performance does not guarantee future results. Consult your financial professional before making any investment decision.

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