Perhaps President Trump's decision to move his permanent residence from New York to Florida sounds like a good idea to you.
Although Trump tweeted that he made his decision because he's been "treated very badly" by politicians in New York, a person close to the president told the New York Times the primary reason was financial. Unlike New York, Florida does not collect income tax or inheritance tax.
Eight other states (Alaska, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming) also do not levy income taxes. And maybe you have your eyes on one of them as a potential new home. Or maybe you just prefer the scenery in this state or that.
If you're considering a permanent move, there are a few things you need to know.
For starters, you must be able to demonstrate that you actually put down roots in your new state. It's not as simple as just opening a bank account there. You need to take steps to demonstrate that your destination state is your permanent new home.
The first step is to establish a residence there as a "domicile." Even though you can have residences in more than one state, you can have only one state of domicile. But it's not as easy as just filling out a form declaring the domicile. You also need to show that you'll be spending at least half of the year there and intend to stay.
But even those steps may not be enough to keep tax authorities in your former state from hounding you. Tax officials in states with a lot of snowbirds — Minnesota and New York, in particular — are aggressive in going after people who they think are avoiding taxes in those states by taking up new residence in others.
In Trump's case, the New York Times reported on Nov. 1 that the same will hold true of him. "(C)hanging one's legal home is not so simple," James Barron wrote. "New York State has a platoon of state auditors who zealously examine whether people are trying to skirt paying its state and local taxes by improperly claiming that they live elsewhere."
Barron noted that there had already been a "surge of departures (to Florida) among hedge fund managers looking to slash their tax bills" after losing a deduction for state and local taxes in the 2017 tax overhaul. By relocating to Florida, they could reduce their tax bills by 13% — for some, that meant $100,000 to $200,000 on incomes of between $2 million and $3 million.
Presidents and millionaire hedge fund managers might be held to a stricter standard for the size of the lost tax revenue they represent, but average Joes and Jills planning to relocate should also be aware that they may be closely monitored as well.
As attorney Patti Spencer writes in The Balance, many people mistakenly believe that living in a state for at least half a year makes them domiciled in the state. While meeting that requirement is important, other steps should be taken to strengthen the claim, she points out. They include: