Leaving for Vacation from the "Wrong" State Could Make a Big Difference in Your State Income or Estate-tax Bill
Many people who flee high-tax northeastern states for low-tax paradises like Florida return north in the summer. So, where do they legally reside?
If you live in Florida for at least 183 days a year and document it, you probably don’t have to worry about the tax authorities in states like New York, New Jersey, or Massachusetts claiming you’re really a resident there.
But it gets tricky if, say, you live in Florida 165 days, New Jersey 150 and spend 50 days elsewhere. If you depart from New Jersey when you’re jetting off to Colorado or Italy, Garden State officials could make a case that you’re really domiciled there. And you or your heirs could end up paying a lot more in income and/or estate taxes.
No single thing proves you live in one state versus another, so take multiple steps:
• All permanent registrations like passports, voter registrations, automobile registrations, and driver’s licenses should be moved to your desired state of residence.
• All federal income tax returns should be filed from your resident state and mailed to the corresponding regional tax office.
• Financial reports, such as bank accounts, investment statements, credit cards, etc., should all be addressed to the resident state.
• Wills should be updated to reflect your desired residency.
• All mail, including magazine subscriptions, should be addressed to your resident state. When not there, have mail forwarded by the post office rather than temporarily changing your mailing address.
• If you intend to spend substantial time away from your resident state, maintain a diary noting the state you are in each and every day.
• Depart for vacations from your resident state.
Most people think, “I didn’t get audited. I’m fine,” but that’s misleading. When someone dies, revenue-hungry states are more likely to do an audit and try to collect estate and/or income taxes. If you don’t take the right steps, your spouse or executor—who doesn’t have details—won’t be in a strong position.
In fact, two states could both successfully claim you as a resident for estate or inheritance-tax purposes. So a half-baked attempt to change residency could be much more costly than no attempt at all.
Bob DiQuollo is a Certified Financial Planner (CFP), a Certified Public Accountant (CPA), and a Personal Financial Specialist (PFS). He holds BS and MBA degrees from Seton Hall University and is a member of the Financial Planning Association (FPA), the National Association of Personal Financial Advisors (NAPFA), and the American Institute of Certified Public Accountants. Brinton Eaton Wealth Advisors is a fee-only financial-planning, tax-advisory, and investment-management firm in Madison, NJ. Bob can be reached at firstname.lastname@example.org.