There are so many things to consider when one is ready to move to a new neighborhood, but one item that should be at the forefront is how to move with taxes in mind.
If you’re thinking about relocating, you’re not alone. Americans are on the move for a variety of reasons, but here are the top two:
- Remote work is increasingly popular and allows employees to live wherever they have access to WiFi.
- Tax changes limited the important SALT (State and Local Tax) deduction to $10,000 for single and married individuals. That deduction had previously made living in high-tax states less costly for affluent individuals.
Those two factors alone make it understandable that people are looking to see where the grass may be greener. There’s also a strong possibility that states may begin adding new taxes to make up for budget shortfalls. So, it’s no surprise that more people are moving where it’s cost efficient to live. Some say this new taxation has already started; pointing to Florida’s net gain of $16 billion in AGI since 2018 as proof. But whether states begin adding new taxes or not, people are relocating more now than ever. And many are making decisions about where to go based on tax considerations. And regardless of the end location, it’s smart to take a 360-degree view of what moving would mean for you.
Non-tax-related considerations include:
- Quality of Life
Quality of life issues include your proximity to family and friends and familiarity with where all your resources are. Also access to mass transportation hubs for those who enjoy travel, culture, and climate. These are just a few things that have a direct effect on your level of satisfaction and enjoyment of life. Moving may leave you feeling isolated and uncertain after years of confidently navigating life from your current address. - Proximity to Medical Care
Availability of state-of-the-art medical care is not something to be taken for granted. Currently live in an area where major teaching hospitals are nearby? If you are considering a move to a more remote location, you may find yourself regretting your decision. Especially as you get older and the infirmities of age start to appear. - High Risk Location / Weather Considerations
Different areas of the country have different vulnerabilities to hurricanes, earthquakes and other types of disasters. If you are moving to an area with a higher risk for weather or naturally-caused damage, it makes sense to investigate insurance expenses. Find out what your homeowners’ insurance costs are going to be. And think about whether you are really willing to put yourself in the path of nature’s wrath.
When making a move with taxes in mind, taxes worth considering include:
Already thought about the non-tax considerations listed above? Still intent on making a move? Then it is time to understand how/if relocating will effect your economic picture. Discuss your plans with your financial advisor(s) before putting your home up for sale if you can. Already in the moving process? It’s still a good idea to contact them. No better time than the present.
Below are a few considerations to help you move with taxes in mind
- State Tax “Fine Print”
There may be more to a state’s taxes then what you are thinking about. States require tax revenue to provide for public services. Though you may think you are considering moving to a no-tax state, there is really no such thing. If they’re not taxing income, they are taxing something else. Make a point to find out what it is to determine how it may affect you. - Trust Income Considerations
Receive income from a trust? Look into exactly how it is taxed at the state level in the state you’re thinking about relocating to. Every state has its own strategy, and you may not be happy with what you learn.
- Increase of Tax Benefits
If your goal is to gain tax benefits rather than to actually move to a specific location, consider taking advantage of friendlier tax laws. For example, consider states like Delaware or Nevada. You may be able to relocate your assets in such a way that limits taxes without the burden of an actual move. Additionally, options may offer confidentiality and creditor protection. This may or may not be possible depending upon your particular situation, but it may be worth exploring. - Deferred Compensation
Does your compensation scheme includes deferred bonuses or salaries that will be paid out during your retirement? If so, it’s important to find out how the state you are considering relocating to treats deferred compensation. Also, find out how your specific pay will be treated.
Your move with taxes in mind is happening. Here are your next steps.
Like most everything else in life, relocating your primary residence to another state is not as easy as Nike proclaims. “Just Do It” takes hard work and time. There are the essential steps to follow so that you can benefit from tax rewards. However, do your “due diligence” and make sure that you have complied with all that is required.
- Change your vehicle registration to your new address
- Apply for a driver’s license for your new address
- Register to vote from your new address
- Find out whether your state requires a “Declaration of Domicile” or similar document. If so, apply for it and file it
- File your federal tax returns from the new address
- Obtain property and casualty insurance at the new address
- File state taxes as a new resident. And file former state tax returns as a non-resident if you earn any income in that state
- Adjust all banking records, legal documents, and credit card records to reflect your new address
- Contact your tax person (if it’s us, call 360-778-2901) to make sure that you have addressed everything as needed and reviewed and updated your estate plan
- Move your belongings to your new address
- Change the address on your passport
- Get established with community, professional, religious and social networks associated with the new address
- Establish relationships with medical providers proximal to the new address
- Host family and friends at the new address
Getting established in a new community is a challenge, but it is an important step. This ensures that you will be able to prove your state residency and get the tax advantages you seek. You may also need to address the particulars of where some of your family members live and go to school to make sure that all of the legal and tax requirements have been met.
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