Making Cents: Thinking of another state to save taxes
By: John P. Napolitano, CFP®, CPA, PFS, MST
We haven’t seen the first frost here in New England yet, but already I hear rumblings of people packing up and making plans to ship their cars south for the winter. Avoiding snow is the main objective of most snowbirds. Eventually, however, many snowbirds learn about the tax advantages of states like FL or TX, and want to declare that state as their legal domicile.
There’s a lot or hearsay about what it takes to be considered domiciled in another state. My first piece of advice is to ignore your friends unless they’re an attorney or CPA with experience in domicile matters. The same is true for your own hired professionals. If they have direct experience in these matters, you may be ok. For my money, I’d want guidance from a professional who’s been in the trenches working and defending others who’ve crossed this bridge.
You may be considered domiciled in your home state even if you don’t own property there. A rental situation may also disqualify your domicile choice. Domicile differs than residency. If you’re in residence for more than 183 days, you may be deemed a resident. Domicile drives the laws of taxation, and it’s a lot grayer than the 183 day test. Courts have ruled that people may have a residence in one place and a permanent domicile in another.
Per attorney Scott Wolf, ‘it ultimately comes down to a factual question of subjective intent as evidenced by the individual’s specific acts and behavior prior to the time of death. In questionable cases, the estate of the deceased has the burden of proving domicile outside of MA.”
Your behavior and actions will be viewed in totality when establishing your intent. I speak in terms of estate taxes as most states taxing authorities will examine a death tax return where a property is the only asset on the return and that state was once your domicile. Income taxes while you’re living is also a hot issue. It will be the 183 day test for both income or estate taxes and unfortunately, the greater the dollars the greater the risk of an audit.
Some of the basics you must consider are:
- Spend as much time out of state as possible
- Have a home or apartment in your new location
- Move your valuable, personal property to the new state
- Open bank accounts in the new location and consider changing ones from the old location
- Make the new location your primary address for everything: autos, insurance, voting, financial accounts, tax returns, employment, social security, doctors, dentists, cell phones….
- Stop doing business in your former state. Either sell it or move it too
There are many other factors that aren’t to be taken lightly. Get competent help to make this choice wisely. Doing it right can save you a lot of money in legal and accounting fee- and if you do it right, taxes.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor. US Wealth Management, US Financial Advisors and LPL Financial do not offer tax advice.
This information is not intended to be a substitute for individualized legal advice.
John Napolitano, US Financial Advisors, US Wealth Management and LPL Financial do not provide legal advice or services. Please consult your legal advisor regarding your specific situation.
John P. Napolitano CFP®, CPA is CEO of U. S. Wealth Management in Braintree, MA. Visit JohnPNapolitano on LinkedIn or uswealthnapolitano.com. John Napolitano is a registered principal with and securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through US Financial Advisors, a Registered Investment Advisor. US Financial Advisors and US Wealth Management are separate entities from LPL Financial. He can be reached at 781-849-9200.