Have you been considering moving to a different state? Perhaps you’re intrigued by the idea of living in a place without state income taxes. Whether you’re interested in balmy Tampa, Florida or music city Nashville, Tennessee, be sure you add changes in tax liability to your pros and cons list. When making a move to another state, you want to make sure that you look at all the tax differences in that state before you move. Don’t forget that even states without an income tax still have sales and property taxes.
If you’ve made up your mind and loaded up your belongings, wait a beat and assess how you’ll declare this move to the IRS. Keep in mind that maintaining a home or a business in your old state, or moving just before selling a business or valuable asset, or even simply having a higher income could put you at higher risk of an IRS or State Revenue residency audit.
While it may not be possible to avoid the audit, you should document your move as much as possible by doing the following:
Most states have long grace periods for getting new cars registered, but you really want to register your car as soon as possible to show that you have moved and are conducting most of your life in the new state. This can be done with a visit to your new state’s DMV website.
Get a New Driver’s License
Your driver’s license has your address on it, which is a great sign that you have moved. Again, a virtual or in-person visit to the local DMV will help you get this updated.
Register to Vote
Many states ask if you want to register to vote while you are getting the driver’s license, so this should be an easy way to kill two birds with one stone.
Change Address on Banking Records
Updating your address with your bank and investment accounts can be a pain, but don’t let this stop you. Especially when you are keeping a home in the old state, you need to show that you are conducting your primary business in the new state. Changing your address on these records reflects this change in your permanent residency status.
Revise Estate Planning Documents
While this may be good proof to the IRS and state revenue departments that you really have moved, it is also good for estate planning. You should always have an updated power of attorney and health care directive for the state that you are living in. It also may be a good idea to change the situs of a Trust to the new state as well. This will prevent a load of unnecessary complications being handed to your loved ones in the aftermath of any unfortunate events.
These are great first steps to take when moving. For more complicated situations, there are now apps that track your time spent in different states or countries. In one case study we saw, the department of revenue determined that a family did indeed move because their dog was with them. So, maybe make sure your pets are with you too. You never know, it might be the key proof of residency you need if facing an audit.