Relocating? How to Do It with Taxes in Mind
If you’re thinking about moving from your current locale, you’re not alone. Americans are on the move for many different reasons:
- Remote work is increasingly popular and allows employees to live wherever they have access to WiFi.
- Tax changes introduced by the 2017 Tax Cuts and Jobs Act (TCJA) limited the important SALT (State and Local Tax) deduction to $10,000 for single and married individuals. That deduction had previously made living in high-tax states less costly for affluent individuals
When you combine those two factors alone, it makes sense that people are looking to see where the grass may be greener. There’s also a strong possibility that states may begin adding new taxes to make up for budget shortfalls – so, it’s no surprise there may be a significant number of people moving. Some say it has already started, using Florida’s net gain of $16 billion in adjusted gross income since 2018 as proof.
Whether states begin adding new taxes or not, it seems clear that people are not staying put the way that they used to, and many are basing their decisions about where to go on tax considerations. If you have found yourself starting to think about moving your business, or expanding, or looking at real estate ads in a different state, it’s important that you take a 360-degree view of what moving would mean for you. As attractive as it may seem to pick up your things and go to a state with a more appealing tax scheme, there are other things to think about, including ensuring that if you move, or expand your business out of state, you do so in a way that accomplishes your tax goals.
Here are the different factors you need to make sure to include in your decision-making process.
TAXES ARE NOT THE ONLY CONSIDERATION
Moving to another community is a shock to the system in more ways than one and moving to an entirely different state will have an even greater impact. Not only do you need to think about the quality-of-life issues involved, but also the implications for those who own multiple homes or businesses in multiple states, as they will need to make a choice as to where their primary residence is going to be, and make sure that they can prove that they are compliant. Non-tax-related considerations include:
- Quality of life issues include your proximity to family and friends, familiarity with where all your resources are, access to mass transportation hubs for those who enjoy travel, culture, and climate are just a few things that have a direct effect on your level of satisfaction and enjoyment of life. Moving may leave you feeling isolated and uncertain after years of confidently navigating life from your current address.
- Availability of state-of-the-art medical care is not something to be taken for granted. If you currently live in an area where major teaching hospitals are essentially in your backyard and you are moving to a more remote location, you may find yourself regretting your decision, especially as you get older and the infirmities of age start to appear.
- Different areas of the country have different vulnerabilities to hurricanes, earthquakes and other types of disasters. If you are moving to an area that has a higher risk for any type of weather or naturally-caused damage it makes sense to investigate what your homeowners’ insurance costs are going to be – as well as to think about whether you are really willing to put yourself in the path of nature’s wrath.
THE TAXES WORTH CONSIDERING
If you’ve already included the non-tax considerations listed above and you are still intent on making a move, then it is time to understand what doing so will mean to your economic picture. It’s a good idea to sit down and discuss your plans with your bookkeeper or tax preparer long before putting your home up for sale, as you may have second thoughts after thinking about all of the consequences of a move. Among your considerations are:
- There may be more to a state’s taxes then what you are thinking about. States require tax revenue to provide for public services, so though you may think you are considering a no-tax state, there is really no such thing. If they’re not taxing income, they are taxing something else.
- If you receive income from a trust you will need to look into exactly how it is taxed at the state level in the state you’re thinking about relocating to. Every state has its own strategy, and you may not be happy with what you learn.
- If your compensation scheme includes deferred bonuses or salaries that will be paid out during your retirement, it is important to find out how the state you are considering relocating to treats deferred compensation, and how your specific pay will be treated.
How Precise Books & Tax Solutions Can Help
Getting established in a new community is a challenge, but it is an important step to ensure that you will be able to prove your state residency and get the tax advantages you seek. Make sure to contact our office to make sure that you have addressed everything as needed and reviewed and updated your estate plan as well. You may also need to address the particulars of where some of your family members live and go to school to make sure that all of the legal and tax requirements have been met.
Ready to chat more? Contact Precise!