Let me tell you about one of the more frustrating tax dilemmas from the 2021 tax season. I have a client that was a Utah resident. He moved with his family to Nevada for two years for a job. After moving back to Utah he received a tax notice and significant bill from the State of Utah for the tax years that he was in Nevada. As we dug into the tax notice my client had missed a few requirements to relocate his tax residence and owed the additional tax.
In the past year, there has been an acceleration in people relocating around the country. There are a host of reasons for relocating, cost of living, lifestyle, career changes, but for sure one consideration is the state and local taxation. If you are moving to another state there are a few simple steps that if followed can help you to avoid a surprise tax bill.
Make sure to:
- Change your mailing address
- Change the address on important documents, such as passports, insurance policies, and wills or living trusts
- Buy or lease a residence in the new state, and sell your residence in the old state or rent it out at market rates to an unrelated party
- Update your driver’s license
- Register your car
- Register to vote in the new state
- Open and use bank accounts in the new state
- Close bank accounts in the old state
- File a resident income tax return in the new state
- File a nonresident income tax return in the old state
- Update your address with your retirement plan providers
Some other things to consider, make sure that you keep a log that shows how many days you spend in the old and new locations. (You should try to spend more time in the new state, if possible). Also, make sure that you take with you your most treasured possessions. There is a court case from New York that the final fact used to support his Texas tax domicile was bringing his dog with him when he moved from New York to Texas.
As is the case with most tax issues, changing tax residences can be complicated. A qualified Utah CPA or tax professional can help you navigate through the issues. Cook Martin Poulson has qualified professionals that can help.