Thinking of Changing Your Residence to Florida?
There are several different factors that determine whether an individual’s income is taxed in a particular state. Often times, this is easily determined by where your home or your job is located. It may be advantageous for several reasons to change your domicile to another state without income tax, but individual state requirements can be strict especially when one or more residences are involved. Daszkal Bolton Family Office would like to point out that the burden of proof regarding residency is on the taxpayer and the evidence supporting it must be “clear and convincing.”
Key Point: Be prepared to jump through some hoops!
As every state is different, concentrating on a change of residency from New York to Florida makes a good example because New York State is known as one of the most aggressive states for trying to maintain your nexus and tax reporting requirements. If you can meet New York’s requirements and stay within their audit guidelines, you have a good chance of meeting other states’ requirements.
The process begins with a change in domicile. An individual’s or couple’s domicile only changes when their move to a new location is with the bona fide intention of making their fixed and permanent home in that new location. To effect a change of domicile there must be not only intent to make such a change, but also actual physical residence taken up at the new location. Often a new residence is acquired when there is a trigger or life changing event such as a new job, marriage, retirement or death. But the mere abandonment of a former residence does not result in a change of domicile.
A person can have more than one residence but only one domicile! An individual’s or couple’s lifestyle is analyzed by state auditors using five factors to determine where the domicile is located and if it is fixed and permanent. However, it is important to note that no single primary factor is determinative. Please see the list below:
1) Home. This factor is analyzed in terms of size and value, as well as purpose, such as vacation home vs primary home. The surrender of a residence in one location, which coincides with the acquisition of one in another location, is not in and of itself determinative. The auditor reviews the use and maintenance of the New York residence in comparison with the nature and use patterns of the non-New York residence.
2) Location of Active Business Involvement. The key here is “active” not passive activity. This factor considers an individual’s pattern of employment and the compensation derived from that employment. It will also examine active business activity other than direct employment. An individual may be actively involved in a New York business even if they are not physically located there.
3) Time Spent in Various Locations. This factor is the most objective as it is a measure of time. The Guidelines expect a taxpayer to spend more time at the new home than in New York.
4) Location of “Near and Dear” Items. Where is the location of those items that are of significant value to you? While these items may have great economic value, such as art collections, cars, or boats, they are just as likely to be items of sentimental value.
5) Location of Family. Historically, the family factor has referred only to spouse or partner and minor children. Occasionally, though, the location of other family members (siblings, parents, etc.) may be determinative in a person’s choice to change domiciles. The regulations are clear that spouses may have different domiciles.
Daszkal Bolton Family Office has provided a short checklist of questions you will need to consider and documentation you may have to present to help establish a new domicile.
Below is a list of questions you will need to answer:
- If you own multiple residences, which one was owned first or occupied first?
- Is one property owned and the other a rental?
- What is the value and size of each residence?
- What actions did you take to remove yourself from the old community?
- Have you established roots in the new community?
- Where do your children go to school?
- Where does your family spend holidays and special occasions?
- Is one residence used seasonally while the other is used year-round?
- Where do you receive your mail?
- Where are you registered to vote?
- Where are your boats and cars registered?
- Where are your doctors and dentists located?
- What is the address of record used for your will or other legal documents?
- Where is your attorney?
- Where is your CPA?
- Where are your financial advisors?
- Where do you work on a day to day basis?
- Where is your primary office?
- If you are a partner or shareholder, in what state is that entity located and what is your level of participation in the day to day management?
Below is a list of some documentation you will need to keep:
- Closing statements and/or leases
- Moving bills
- Insurance policies
- Descriptions of the properties
- Confirmation of enrollment for children’s school
- Photos of the properties (especially those showing family gatherings)
- Proof of voter registration
- Driver’s license
- Copies of your diaries or appointment books
- Copies of expense reports
- Credit card statements
- Utility bills
- Frequent flyer statements
- Passport
- Before and after photos from the old home and the new home
Finally, “Statutory Residency” may apply and needs to be considered. For example, a taxpayer not domiciled in New York, but who maintains a permanent residence (like an apartment in Manhattan) in which they spend 183 days or more, is considered a resident for state income tax purposes!
Start organizing now if you are considering changing your residency to Florida. Whether dealing with New York or any other state, keep in mind that no matter how thorough you are in your documentation, there is no guarantee that you will be safe from an audit. “But better documentation makes it more likely you will win an audit,” advises Jennifer Ridgely, Principal-in-Charge of Daszkal Bolton Family Office. Jennifer suggests, “Be proactive, as this could save you money, time and heartache”!
Contact Us: The rules used to determine the location of a person’s domicile are quite subjective, but the quality and quantity of documentation maintained by the taxpayer influences the outcome of the audit. Jennifer Ridgely, Principal at Daszkal Bolton Family Office, suggests that you contact an attorney who specializes in residency defense to help you put together a plan before you move and not wait until you are audited. Jennifer can be reached at 561-367-1040 or [email protected]
