Living In Two States
Can You Have Residency in Two States: State Taxes–PillarWM
Wealthy investors can have multiple properties in numerous states, and depending on where you spend most of your time; you can be eligible for residency in more than one of these states. This may lead you to wonder, "Can you have residency in two states, and is it a smart move?" The truth is, having residency in two high tax states can leave you with a hefty tax bill. As a high net worth or ultra-high net worth investor, you have likely spent a lot of time learning about tax avoidance strategies, one of them is moving to a no income tax state. However, the process can be complicated, which is why you should work with an expert to help you iron out the fine details. Our exclusive Ultimate Guide can help you hire the best advisor for the job!
STRATEGIES FOR FAMILIES WORTH $5 MILLION TO $500 MILLION
7 Secrets To High Net Worth Investment Management, Estate, Tax and Financial Planning
The insights you'll discover from our published book will help you integrate a variety of wealth management tools with financial planning, providing guidance for your future security alongside complex financial strategies, so your human and financial capital will both flourish.
Clients frequently share with us how the knowledge gained from this book helped provide them tremendous clarity, shattering industry-pitched ideologies, while offering insight and direction in making such important financial decisions.
At Pillar Wealth Management, we work with clients who have a liquid net worth of 5 million to 500 million in investable assets. This gives us the relevant experience in guiding wealthy investors on an array of wealth management aspects. If you would like to enlist our services, you can call us to schedule your first consultation.
In this article, we will discuss everything from what is it called when you live in 2 different states to what is the fastest way to establish residency and what are the pros and cons of no income tax states.
What is Dual State Residency?
Your place of legal residency, i.e., your permanent home, is known as your 'domicile.' A resident can be defined as a person who is in a particular state for reasons that are not temporary or transitory. Keep in mind that each state can have its own definition of who constitutes a resident.
So, you might be wondering, "What is it called when you live in 2 different states?" A dual residency is attained when you are a resident of two states. Depending on where you are classified as a resident, you can get caught up in the trap of dual taxation. Most states can impose taxes on 100% of a resident's income regardless of where or how it was earned, including their portfolio income.
How is a Change in Residency Established?
Now that you know the answer to "Can you have residency in two states?" you might want to know "What is the fastest way to establish residency?" Ideally, you should consult with a financial advisor who can advise you on your residency status and how it is related to your tax bill. Our Ultimate Guide to Choosing the Best Financial Advisor can help you find the right professional for the task.
Certain factors are used to establish your residency status for income tax purposes. This includes evidence of:
• Where you are employed
• Whether your employment is permanent or temporary
• Where your business relationships or transactions are located
• The property where you reside, or whether you have rented it out or sold it
• How much time you spend in the state
• Which state you are registered to vote in
• In which state your driver's license or permits were issued
• Memberships in clubs or organizations
Changing your residency is a proactive process that requires planning and careful documentation. If you want to know more about what you need to obtain residency in another state, you can consult with a professional expert. Our wealth managers can help you determine where you stand in terms of your tax management and financial management. To get in touch with our team, you can schedule a free consultation.
What is the 183-day rule for residency?
The 183-day rule is used to determine whether a person can be considered a resident of a country or state for tax purposes. In the U.S., the Internal Revenue Service (IRS) has a complicated formula to determine residency, which considers the two previous years in addition to the current year when applying the 183-day rule.
When it comes to state residency, you are considered a dual resident even if you live in one state (your domicile state) but commute to another state for work. In such cases, you spend more than a majority of the year, i.e., more than 183 days, in the other state. This makes you liable for dual taxation on your income.
Can You Have Residency in Two States and Avoid Income Tax?
Now that you know what is it called when you live in 2 different states, you might have concerns about dual taxation. As a wealthy investor, you want to protect your assets, not lose a large amount to taxes every year. We talk more about protecting assets in our book,The Art of Protecting Ultra-High Net Worth Portfolios and Estates – Strategies for Families Worth $25 Million To $500 Million.
By moving to a no income tax state, such as Alaska, Tennessee, Florida, Texas, or Washington, you can avoid the dent that taxes can leave on your income. However, as a high-earner, you might need to work or travel to other states frequently. In many states, you can file a nonresident return in the state where your business is, exempting you from being taxed in that state. As you can tell, the laws and restrictions are unique to each state, making this a complicated process. Working with a professional who is knowledgeable about state taxes can help you figure out if and how a dual residency is the right move for you.
The Advantages of Having Residency in States with No Income Tax
The states with no income tax have certain advantages over other states, such as:
You Can Purchase Commercial Real Estate
Commercial real estate, such as office spaces or buildings,has a much cheaper rate in no income states as compared to states with high taxes. This is partly due to the lower costs of living in these states.
High net worth and ultra-high net worth investors often have multiple businesses that they run, which makes it beneficial for them to invest in cheaper commercial properties. With the added benefit of lowered expenses, this opens up more opportunities for you to save your wealth and use it for different avenues.
You Can Retain Your Wealth
High taxing states have progressively increased taxes, which increases according to your wealth. Moreover, these taxes are focused on the income you generate from your investments. For many rich investors, this is a major income source, making it difficult for them to achieve their goals to enhance their wealth.
High tax rates affect your financial status and standard of living since they can bring down your portfolio performance. We discuss why moving to states with no income tax is a great strategy to improve your portfolio performance in our guide, Improving Portfolio Performance: The Shifts Multi-Millionaires Must Make to Achieve Financial Security and Serenity.
They Have Better Economies
The states identified as having no income tax have a far better economy, job market, and economic opportunities than the states which charge high taxes. This allows entrepreneurs and business owners to reap the benefits, and the profits, from a better economic environment.
To make the best of these opportunities, you can implement strategies that help you maximize your returns. Our guide, 5 Critical Shifts for Maximizing Portfolio Growth Strategies – For Families Worth $5 Million To $500 Million, can tell you how.
They Are Ideal for Retirement
When you retire, your active source of income is no longer there to generate money. You rely solely on your passive income sources and your savings. Now, if a high tax state claims a large chunk of the money every year, you might find yourself in trouble.
Retirement planning helps you prepare for these challenges to a great extent, relying on investment strategies and portfolio management to carry you through challenging times. To avoid excessive taxes, many financial advisors and financial planners advise their clients to consider relocating to states with no income tax.
Capped Tax Deductions
No income tax states cap their tax deductions at 10,000 dollars on state and local deductions from your federal tax returns, even on property taxes. This means that you can receive your income at the state level without worrying about it being affected by tax deduction caps. On the other hand, the highest taxes states would leave high net worth and ultra-high net worth individuals very little room to save anything from their federal taxes.
The Disadvantages of Having Residency in States with No Income Tax
With so many advantages, you might wonder why more people don't move to states with no income tax. The truth is, the process can be long and tedious, and many people choose not to due to personal circumstances.
If you want more clarity on which move is right for you, we suggest that you work with a financial professional. As an investor with over 10 million dollars, you can learn how to find one of these experts through our exclusive Ultimate Guide.Meanwhile, we'll talk about some of the disadvantages of having residency in states with no income tax here:
The Process is Complicated
Moving to another state is not easy as it sounds, especially for wealthy individuals. If you work in a high tax state, shifting your business and residence to a state with no income tax can take very long. Your residency status case can take months in court, or you might end up having more property taxes or income taxes imposed on you.
Moreover, if you move to another state with no income tax but choose to continue working in a high tax state, your income will still be taxed at high rates. We understand that this process can be a little confusing with so many factors to consider. Hence, you can contact one of our wealth managers for clarity on this matter and other financial matters.
They Can Impose Other Taxes
Just because a state is not charging you with income tax, it doesn't mean you can enjoy living there without paying any taxes. They still need to maintain a revenue stream to fund their projects, which means they will tax you through other means.
Some states might charge you higher property taxes or sales taxes to meet that requirement. Therefore, you might find yourself not saving as much as you'd hoped. A tax attorney can help you better understand the tax laws in your particular state of interest.
Seek Advice from a Professional
If you are concerned about the amount of money you lose to taxes every year, it is reasonable to wonder, "What is the fastest way to establish residency in a no income tax state?" The process can be time-consuming and complicated if you tackle it on your own, and with millions of dollars at stake, you don't want to make hasty decisions. That is why we recommend that you reach out to a professional in the field.
Our team at Pillar Wealth Management can assist you with any financial questions you have, including "Can you have residency in two states?" Our wealth managers have extensive experience in helping wealthy clients with 5 million to 500 million in liquid assets manage their wealth. We can advise you on tax mitigation strategies to help you preserve your wealth. If you're interested in learning more, feel free to set up a meeting with someone from our team of experts.
Source: https://pillarwm.com/asset-management/can-you-have-residency-in-two-states/
0 Komentar