With so many people working remotely these days, it has become common to think about moving to another state — perhaps for better weather, to be closer to family or cheaper housing. Many retirees also look at an across-the-border move to better control living expenses. If you have found yourself harboring such notions, be sure to consider taxes before packing up your belongings.
Identify applicable taxes
It may seem like a no-brainer to simply move to a state with no personal income tax, but you must consider all taxes that can potentially apply to state residents. In addition to income taxes, these may include property taxes, sales taxes, and estate or inheritance taxes.
If the states you are considering has an income tax, look at what types of income they tax. Some states, for example, do not tax wages, but do tax interest and dividends. And some states offer tax breaks for pension payments, retirement plan distributions and Social Security payments.
Prepare for domicile
If you make a permanent move to a new state and want to escape taxes in the state you came from, it is 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. You do not want to wind up in a worst-case scenario: Two states could claim you owe state income taxes if you established domicile in the new state but did 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.
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. The above items are only a small fraction of all the matters to consider.
RJI CPAs Can Help
The team at RJI CPAs is available to help you navigate the applicable taxes in a destination state and prepare to meet the legal requirements for establishing domicile. We have successfully assisted clients in moving out of state and can help you avoid unpleasant tax surprises. Reach out to us today for a consultation.
