Tax

How To (Successfully) Change Your State Domicile To Save On Taxes

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The Trump Tax Plan (aka Tax Cuts and Jobs Act or TCJA) was supposed to make filing taxes simpler and cut the tax bills of millions of hard-working Americans. Like many things out of Trump’s mouth, both of these statements appear to be far from the truth. According to new data from the IRS, Americans paid an additional $93 billion in individual income taxes for 2018 compared to the taxes they paid in 2017.  I know I sure paid a whole lot more in taxes.

Is it worth moving to a low tax state to pay less state income taxes?

Many of the taxpayers hardest hit by these increases in tax liability are those living in higher-tax states like California, New York, New Jersey, and so on. With taxes in the news, people have been looking for more ways to minimize their current tax liabilities. Moving from a high tax state is one of the ways some people have come up with to pay less in income taxes.

Can you really just pick up and move states, to save on taxes? The answer is it depends. I recently spoke with a couple who just got hit with a whopping tax bill from the state of California after they tried to game the system. Their attempt to move was lackluster, and they got busted by the tax authorities.  They now owe several years of back state taxes as well as penalties and interest. We are talking several hundred thousands of dollars here.

They lived and worked in California, but tried to use a post office box in Nevada (a state with no income tax) as their home address. With their combined incomes above $1 million per year, they would be hit with state income taxes as high as 13.3% here in California. This is in addition to the federal income taxes they would owe.

The California Franchise Tax Board is not stupid; they will look into whether you have actually moved out of the state.  Moving your primary residence is not a simple as just spending 183 or so days in a low-tax state. Proving you have left a state will require you to demonstrate that you have truly established a new domicile elsewhere…..Read more>>

 

 

Source:-forbes

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