Relocate Without Worry Amid Increasing Tax Audits

Is spending time in different locations important to you??While travel is both fun and stimulating, I advise clients to carefully choose where “home” is, especially in retirement.?Below are some considerations that clients and I talk about regularly as we develop their financial plans and fine tune them over time.?If you are interested in this kind of guidance for your situation, let's talk.

Domicile Versus Residence?

Two terms are essential to understand when describing where you spend your time:

• Domicile – your permanent home.?This is your main residence that you return to after traveling or spending time in other locations.
• Residence – where you live for periods of time before you return to your domicile.?

You can own multiple properties in various states; you can retain residence in more than one state.?However, you only have one domicile.?Once you establish your domicile, it remains your permanent home unless you change it successfully to a new domicile.?

Why Domicile Matters

Your domicile impacts you in a variety of ways.?When clients contemplate making a new state their permanent home, I encourage them to consider four aspects in particular that may change:

• State income taxes
• Health care access and costs
• Estate planning and legal matters
• Lifestyle factors

Changing Domiciles and Residency

The decision to change domicile or residency needs to be carefully planned and implemented so that the states that you are leaving respect the move.?It’s more than just getting a new driver’s license or going to a new doctor.?If you change residency in high tax states, pay close attention to the state’s residency rules; some states are known to be aggressive in auditing whether you meet residency requirements. When changing domiciles, it is important to demonstrate “intention” and evidence in a consistent and compelling way that you have left your old state and plan to remain in the new state permanently.?To set yourself up for a smooth and successful transition, I often recommend clients work with me as well as a tax advisor and an attorney so that their legal, tax, and financial needs are covered.

How Bad Can It Be If Someone Doesn’t Prepare For This Change?

Let’s consider one real life scenario that highlights how critical it is to carefully plan and manage these changes.?Married taxpayers Jane and John* were audited by New York State (NYS).?They claimed that they changed their domicile from New York to Florida in the same year that they sold a non-New York business for a $42 million gain.?The taxpayers’ existing accountant provided the NYS audit team with both business and family information that was not necessary.?Additionally, the taxpayers did not strategically plan their travels; they celebrated all holidays and special events in NY and spent too much time in the state.?As a result, NYS issued them a bill for $10 million and no change of domicile was granted.?After this took place, the taxpayers then engaged an experienced legal team with a concentration in NYS tax controversies.?This firm reduced the taxpayers’ exposure to $6 million.?Had this team been involved from the beginning of the audit – or, better yet, involved with the taxpayers on properly planning their change of domicile especially considering a significant financial event – the taxpayers’ exposure would have been close to zero with an agreement on a change of domicile date out of NY.?

For More Information

Interested in learning more??Tune in to my upcoming ZOOM on Wednesday May 22 at 12pm Eastern: “High State Taxes Have You Looking Elsewhere?”?I will have a conversation with Marisa Friedrich, a Tax Attorney experienced in advising NY Residents how to navigate NY State Residency considerations.?For further information and to RSVP visit this link: https://us02web.zoom.us/webinar/register/WN_A_VRIStzSHyPtztgcuSu1Q#/registration

Caroline Wetzel is a CERTIFIED FINANCIAL PLANNER TM (CFP?) and Vice President, Private Wealth Advisor with Procyon Advisors LLC. Procyon Advisors, LLC is a registered investment advisor with the U.S. Securities and Exchange Commission (“SEC”).?This article is provided for informational purposes and may also include opinions and forward-looking statements which may not come to pass. Information is at a point in time and subject to change. Procyon Advisors, LLC does not provide tax or legal advice. https://www.procyonpartners.net/team/caroline-wetzel/