Proving You’ve Moved to Avoid Tax Surprises
Have you recently moved out of state? Or are you living in one location but working in another? Are you aware you may be taxed in both states?
With the ability of many employees to work remotely, some families moved from higher tax to lower taxed states in recent times. And in some cases, the employee lived in a different state than their usual job location and remote access has them working from home in a separate state from their employer. This brings about the necessity to prove your residence to reduce your tax bill.
Your income is generally taxed in your home state, but if income is earned in another state, it might be taxed there as well.
With states needing money, if you have not proved your move, your original home state may claim you haven’t truly left and claim tax is due to them. They may prove this through a residency audit.
So, what can you do to support your case that you have moved out of state?
According to Bob Carlson in a recent Forbes magazine article, be aware of the following:
Your defense will be to show you severed all or most of your ties with the old state and made major changes in your lifestyle.
Some states have a rule that if you are located in that location for 183 days or more, you are a full-time resident. If you spend less, you will only be taxed on the income earned in that state. Be aware that traveling into your original home state could count as days towards the residency determination even if you feel you’ve live elsewhere at the time.
Maintain logs that show where you were each day of the year, and receipts to prove this should be kept.
Understand that cell phone records and other technology could be used to track where you were.
Other states may impose tax based on your domicile which is the place you intended to maintain a permanent residence.
The biggest mistakes are continuing to own a home or business in the old state. Some states even consider maintaining valuable items in storage as maintaining residency.
Your driver’s license, auto and voter registrations as well as memberships to gyms or clubs should be changed to your new address.
And be sure to update your vehicle registrations as well.
The basic rule is to update everything that you can use to show you have established your life in a new location and that everything supports your permanent move. An aggressive state will find the inconsistencies and trigger tax due as well as penalty notices for failing to pay what they consider is owed to them.
So, if you have moved, be sure to update all items to help you prove that you are a resident in your new location. Failure to do so could result in huge tax surprises.
If you have any questions, be sure to reach out to your tax preparer to discuss your tax liability.
