No-Tax State Relocation: Things to Know | Tax Planning and Preparation for High-Net-Worth Individuals | LTax

A married couple with a combined $2 million in wages that is filing taxes jointly would owe the state of California $219,678 in income taxes. If that same couple lived in Florida, they would owe the state nothing. That’s because Florida is a no-tax state, while California taxes income at a maximum rate of 13.3 percent. 

The numbers are staggering. With 60% of the nation's wealth concentrated in six states, including high-tax states like California and New York, it’s no surprise that clients often consider retiring to one of eight no-tax states: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington or Wyoming. 

If you’re considering relocating to a no-tax state after retirement, during retirement or prior to a big capital gain realization, don’t call the moving truck just yet. There are some important steps and factors to consider before packing your boxes and hitting the road. 

State Relocation Tax Analysis

A state relocation tax analysis is the first step in determining whether a relocation makes sound financial sense. During a state relocation tax analysis, we’ll explore things like trust ramifications, estate taxes and trustee issues and quantify the tax benefit of relocating to a state with no income tax.

Although discussions about state relocations typically start with a focus on income tax planning, the process is a collaborative one, as justification for a move is not solely based on income tax. In collaboration with a financial advisor, an estate planning attorney and a tax attorney, we engage in a qualitative decision-making process that informs the costs and benefits of state relocation. 

As the audit rate for individuals leaving New York who are above a certain adjusted gross income is moving closer and closer to 100 percent, understanding the nuances of establishing domicile in a no-tax state is essential. 

What to Consider When Relocating

The saying, “home is where the heart is,” is a mantra worth repeating throughout the process of any state relocation. While establishing domicile could be as simple as spending one night in a hotel and obtaining a driver’s license, requirements are state-specific. It’s important to note that establishing domicile is as much about disassociating from your current state as it is about associating with your new state.

Consider the examples below related to establishing residency in Florida:

These recommendations should be considered for establishing residency in any low or no-tax state.

• File a Florida Declaration of Domicile.
• Register to vote and then vote in Florida.
• Notify tax and voting officials of your previous state that you have become a resident of Florida.
• Apply for Homestead Exemption.
• Titling Homestead property.
• Register your pets with a Florida veterinarian.
• Register your vehicle in Florida and obtain a Florida driver’s license.
• Obtain a Florida resident fishing license and terminate ones from other states.
• List Florida as residence in all deeds and other documents.
• Use your Florida address in filing your federal income tax return with the IRS. If possible, file final tax returns for state of previous residence.
• Use Florida residence/address whenever possible, including hotel and airline reservations.
• Notify the Social Security Administration of your change of address.
• Establish and transfer financial accounts to Florida.
• Establish Florida health- and wealth-based professional relationships—doctors, attorneys, accountants and financial advisors.
• Use Florida address for your passport.
• Use Florida address for your charge accounts.
• Notify social clubs of your Florida address for their membership rolls.
• Join Florida religious and social organizations.
• Obtain a safe deposit box in Florida, and close others.
• Update your Will and/or Trust Agreement(s) to conform with Florida law and declare Florida as your residence.
• Execute a Florida health care surrogate, living will, declaration of preneed guardian and durable power of attorney.
• Transfer your health insurance to Florida.
• Direct that all income checks, pension, dividends and interest are deposited to your Florida account.
• Keep records of time spent in state. Requirement is at least 183 days in a year.

The importance of documentation cannot be overstated when it comes to establishing domicile. Should you be faced with an audit, it might be too late to go back and obtain the necessary documentation.

A Shared Mindset for Growth—Get in Touch with Us

With a proactive tax partner by your side, you can feel confident that you’ll have the information necessary to determine whether a state relocation is right for you. For more information on how our tax advisors can compile a state relocation analysis, contact us here or call us at 561.453.1441.