How to Avoid a Tax Audit When Moving to a Lower-Tax State

Share on facebook
Share on google
Share on twitter
Share on linkedin
St-Pete-FL-Waterway

If you’re a financial advisor with clients looking to relocate from a high-tax state to a lower-tax one, know this: The state your client plans on leaving may very well be watching, ready to pounce with a state tax audit to collect some of the tax revenue it will be losing.

New York state, for example, conducts roughly 3,000 non-residency audits annually and has collected approximately $1 billion in revenue between 2010 and 2017 as result of these audits.

The incentive for residents to relocate to lower-tax states and for audits by high-tax states like New York, New Jersey, Connecticut and California has increased after the passage of the massive 2017 tax cut bill, which instituted a $10,000 limit on state and local tax deductions, starting with the 2018 tax returns.

“My clients typically want to become a Florida resident where there’s no estate tax, no income tax and lower property tax rate,” said Eugene Pollingue Jr., a partner in the West Palm Beach, Florida, office of the Saul Ewing Arnstein and Lehr law firm.

They key to avoiding a tax audit when they make the move, says Pollingue, “is complying with the rules of the state they’re leaving from so that state doesn’t still consider that person a resident but one who has moved their domicile … You can’t just buy a condo in Florida and say you’re a Florida resident,” Pollingue said. “You really have to be a Florida resident.”

States have different qualifications for taxpayers to establish their residency.

The most common qualifications are based on time spent in-state within one year, often coupled with owning a home there. New York state, for example, will consider an individual a resident subject to full state income taxes if among other criteria the individual person maintains a permanent place of abode in the state for more than 11 months of the year and spends more than 183 days in the state — just over half a year. New Jersey and Connecticut have similar rules but use one year for their definition of permanent place of abode; Maryland uses six months.

Read full article on ThinkAdvisor.com

About Us

After 25+ years in financial, investment and other tax related services, I realized most business owners and successful employees weren’t getting specific actionable advice that was improving the bottom line results for themselves, their business or profession and their family. We think differently because we know that’s where value is created that benefits our clients.

Recent Posts

Follow Us

This website uses cookies to give you the best, most relevant experience. Using this website means you are okay with it.

Scroll to Top Skip to content