Many people dream of moving to another state where the weather is better, the cost of living and taxes are lower, or the lifestyle just seems preferable to where they are now. However, making a move is a big decision and some of the information online about relocating may be misleading or not give a complete picture of what to expect. Before you pack your bags, consider these issues.
Taxes are a significant factor for many people. There are plenty of stories about wealthy individuals moving to Florida and other states that have no personal income tax (e.g., Alaska, Nevada, South Dakota, Texas, Washington, and Wyoming). Florida and some of these states also do not have a state estate tax. However, you do still have to pay federal income tax.
While the appeal of more money in your pocket is obvious, do consider how these lower taxes might impact your personal life or business. Taxes pay for public and government functions, and sometimes lower taxes might mean a tradeoff of services that you have historically relied upon. Also, states or local service providers might make up this missing tax revenue with other costs or taxes that are not immediately apparent.
Some states without a personal income tax make up for the lost revenue by increasing other taxes, so you should examine how this might affect you if you move. For example:
While income taxes hit wealthy individuals harder due to the marginal tax rate, these other taxes apply equally to all residents.
It’s important to analyze all taxes to determine how much if any, tax savings you would see. Many wealthier individuals and families will still benefit from no income tax even if their other taxes are higher.
Distance from family and friends should be considered. How likely are you to see your friends and family after the move?
States and localities are not equal in the level and type of public services they provide. You should look closely at what is provided particularly in areas that you may need. For example, if you have children, how are the public schools? What type of social services can you get? Do you have access to high-quality healthcare? Is the infrastructure maintained well and how is it funded?
The weather, amenities, and culture year around will affect how much you enjoy being in your new home. If you only really like the lifestyle for a few months out of the year, you may not want to make a permanent move.
The risk of a state income tax audit shouldn’t deter you from moving, however, once you decide to relocate permanently, it’s important to plan for this possibility. When you move from a high-tax jurisdiction like New York or Connecticut to a low- or no-tax jurisdiction, the state you moved from will likely audit you and challenge the validity of your change of residency. You will need good documentary evidence establishing your new residency (ex. new driver’s license, voter registration, voting records, utility bills, magazine/ newspaper subscriptions, etc.). Former New York City residents may face an additional residency audit from the city.
Relocating can make vast improvements in your life, but make sure you think it through carefully. If you are moving to another state, it is advisable to speak to an attorney about how to properly establish residency and whether you should make any changes to your tax and estate planning.
Our firm works closely with clients to develop a comprehensive plan to meet their individual and business needs. We can help you prepare and plan for your move. Contact us for a consultation.
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