Would you stop being a fan of the Yankees, Mets, Giants, Jets, Bills or the Syracuse Orangemen and root for a team in Florida in order to save on your tax bill? It might help!
Many New York State residents planning for retirement expect to maintain a residence in New York, but claim another state as their state of domicile. Their purpose is to reduce their tax burden (state income taxes and/or estate taxes). There are currently nine states with little or no state income tax. The most popular of these for New Yorkers is Florida. Florida has no state income tax and no estate tax. Particularly for those with expected high taxable incomes in retirement, and/or high taxable estates, the tax savings can be considerable.
In the “old days,” if you lived out of New York State for more than 183 days per year, you were not deemed to be a “statutory resident” of New York, and this was thought to be the main litmus test for claiming not to be domiciled in New York and not subject to income and estate taxes in New York. Your domicile is the place you intend to have as your permanent home, where your permanent home is located and the place you intend to return after being away (as on vacation, business assignments, educational leave, or military assignment). You are a New York State resident for income tax purposes if your domicile is New York State or your domicile is not New York State but you maintain a permanent place of abode in New York State for more than 11 months of the year and spend 184 days or more in New York State during the tax year (note – there are special rules for military members and their spouses).
This still sounds fairly straightforward and not difficult to achieve. However, in recent years, New York State, as they have been losing considerable revenue from individuals claiming domicile elsewhere, has become far more aggressive in challenging a change in domicile. From a recent court case, “A domicile once established continues until the individual in question moves to a new location with the bona fide intention of making such individual’s fixed and permanent home there… The burden is upon any person asserting a change in domicile to show that the necessary intention existed… Although petitioners may have registered in Florida, obtained driver’s licenses and registered their cars there, there is little convincing evidence as to petitioners’ intent to abandon their New York State domicile and acquire a new one in Florida.”
New York State, in a residency audit, will examine all aspects it considers indicators of domicile, including your “home,” active business involvement, where you spend your time, where you keep things “near and dear” to you, family factors and so forth. Where you are registered to vote; where your driver’s license is maintained and cars are registered; where you go to church; what clubs you belong to; what charities you support; where your accountant, lawyer, doctors, insurance agent, etc. are located, will all be looked at.
A change in domicile from New York State can be established and defended if you are indeed changing your domicile in substance. It is advisable to consult with a tax practitioner or lawyer with expertise in this area before claiming the change, so that you can properly defend, document and support your position (without abandoning your favorite New York team!).
Other articles filed under Family Finances
May 8, 2018
Last week, we introduced you to our weekly Investment Committee meetings. When we met for class on 4/27/18, we began our discussion on the subject of an "optimal portfolio." The centerpiece of investment management is portfolio construction. Alongside financial planning,...
May 4, 2018
Introduction People from all across the world look forward to Friday. Friday marks the end of a (usually long) work week and the start of what is supposed to be a relaxing weekend. At Rockbridge, we look forward to Friday’s,...
April 23, 2018
Stock Markets Returns from various stock market indices over several periods ending March 31, 2018 are shown to the right. Here are a few highlights: While not observed in these graphs, volatility seems to have come back, which is normally...
April 19, 2018
As another tax season comes to a close, we wanted to draw attention to a number of scams and schemes to defraud unsuspecting taxpayers. We think it is important that our clients be aware of how these scams work, and...
April 17, 2018
It’s common for investors to feel nervous when looking at investments by themselves. Are you saving enough? Are you saving in the right place? Are you holding the right mix of investments? Should you own individual stocks or funds? Are...