2024-05-09_How_to_Not_Get_Nailed_by_a_State_Income_Tax_Auditor
00:00:00.000 | Say goodbye to your credit card rewards.
00:00:02.840 | Greedy corporate megastores, led by Walmart and Target,
00:00:06.300 | are pushing for law in Congress to take away your hard-earned cash back and travel points to line their pockets.
00:00:12.940 | The Durbin-Marshall Credit Card Bill would enact harmful credit card routing mandates
00:00:17.480 | that would end credit card rewards as we know it.
00:00:20.240 | If you love your credit card rewards, tell your lawmakers, "Hands off my rewards."
00:00:25.700 | Tell them to oppose the Durbin-Marshall Credit Card Bill.
00:00:30.080 | Welcome to Radical Personal Finance, headline of today's articles from Bloomberg.
00:00:33.280 | New York's rich get creative to flee state taxes. Auditors are on to them.
00:00:39.280 | At New Jersey's Teterboro and Long Island's Islip airports,
00:00:42.980 | dozens of private jets destined for Florida take off at times such as 11.42 p.m. or 11.54 p.m.
00:00:51.680 | Over at JFK, a regular flight from San Juan, Puerto Rico, arrives at a seemingly purposeful time,
00:00:57.180 | about 15 minutes after midnight.
00:01:00.280 | Meanwhile, tax attorneys tell stories of clients idling in their luxury SUVs
00:01:04.580 | near the New Jersey entrance to the George Washington Bridge shortly before 12 a.m.,
00:01:09.680 | waiting for the clock to turn before crossing the state line to New York.
00:01:13.680 | When it comes to taxes and the wealthy, every minute matters,
00:01:17.180 | especially for those who have left New York and declared residency elsewhere.
00:01:21.680 | At a time more high earners are departing, or at least are claiming to,
00:01:25.280 | state officials are stepping up already intense scrutiny to make sure former residents have actually moved.
00:01:31.380 | It's a complex operation that involves cutting-edge artificial intelligence
00:01:36.180 | and tracking everything from travel to the location of people's pets.
00:01:40.880 | We'll continue in a moment, but the basic outline of this article is something that you need to be aware of
00:01:45.880 | if you are wealthy and you are trying to manage your tax costs properly.
00:01:50.980 | One of the most important concepts in tax planning is to pay the taxes that you owe,
00:01:56.780 | but not to inadvertently create a tax obligation through short-sighted behavior.
00:02:03.780 | And one such behavior is spending a significant amount of time in a high-tax jurisdiction in an unplanned manner.
00:02:11.580 | Now, we'll talk here in just a moment more about the timing,
00:02:14.280 | but one of the most important features that causes a state taxing agency to think that they can tax you
00:02:21.980 | is whether or not you spend significant amounts of time in the territory of that government taxing agency.
00:02:29.380 | Historically, the number has been something like 183 days.
00:02:33.080 | The idea was that if you spent more than 183 days inside of a certain jurisdiction,
00:02:38.480 | then you would automatically be considered a tax resident of that jurisdiction,
00:02:42.580 | and the government there would believe that they were entitled to take a share of your income.
00:02:47.680 | Now, internationally and globally, that has become much more complicated.
00:02:52.880 | It's somewhat uncommon in today's world to find countries that have just a simple 183-day test,
00:02:59.880 | although they do still exist.
00:03:01.880 | But this does exist in many places in the United States,
00:03:04.580 | and so for Americans, being aware of where you spend time is a very important component
00:03:10.880 | in order to minimize your tax liability,
00:03:14.180 | especially if you are moving from a high-tax jurisdiction to a lower-tax jurisdiction.
00:03:21.280 | Let's continue with the article.
00:03:22.680 | For the ultra-rich, even just an extra day in the wrong place could mean millions in income tax liability.
00:03:28.380 | Quote, "The minute you file a partial return, you're going to hear from New York State,"
00:03:32.280 | said Jonathan Mariner, who created TaxDay,
00:03:35.280 | an app that tracks users' locations so they don't overstay the threshold of days that would trigger residency status,
00:03:42.080 | which is typically 184.
00:03:45.280 | The whereabouts of the wealthy are particularly important to New York,
00:03:48.880 | a high-tax area where the loss of even a handful of rich residents can have an outsized effect on budget revenue.
00:03:56.680 | The state has been especially hard hit by departures since COVID-19 fueled the rise of remote work.
00:04:02.580 | The number of taxpayers earning more than $1 million who moved out more than doubled in 2020 from 2019
00:04:09.380 | and has continued each year to be well above pre-pandemic levels,
00:04:13.780 | according to the Department of Taxation and Finance.
00:04:17.780 | That's leading state officials to try to claw back money wherever possible through residency audits,
00:04:23.080 | an investigation into whether someone correctly identified themselves as a full-time,
00:04:27.480 | part-time or non-resident for income tax purposes.
00:04:32.580 | It's also taking place in California, another relatively high-tax, high-departure state facing budget strains,
00:04:39.680 | where the number of residency audits closed in the first 11 months of 2023 more than doubled from before the pandemic.
00:04:47.680 | There are two states in the United States that are notoriously aggressive with regard to income tax collection,
00:04:54.180 | and these states are New York State and California.
00:04:59.580 | Now, there are other states that also have notoriously high income tax rates and that are also aggressive,
00:05:07.380 | but these two states are especially aggressive.
00:05:10.780 | And so if you are a resident of one of these states, or if you have been a resident of one of these states,
00:05:18.380 | you need to pay careful attention to make certain that when you leave, you leave properly.
00:05:24.480 | And that's what I'm going to teach you about in today's podcast. Continuing with the article.
00:05:28.480 | For some of these people, often accustomed to the privacy and ease afforded by wealth,
00:05:33.280 | a residency audit can be an uncomfortable dive into their daily life.
00:05:37.480 | New York's auditors closely watch travel and apply a standard known as the "teddy bear test,"
00:05:43.380 | looking to see where individuals keep their most cherished possessions to determine whether a home is their primary residence.
00:05:51.280 | "We always tell people the tax audit from New York is like the tax version of a colonoscopy,"
00:05:57.080 | said Mark Klein, a tax attorney at Hodgson-Russ.
00:06:00.280 | "I've had cases that have hinged on a single dog," Klein said,
00:06:04.080 | "and I had a case once that was based on the fact that the person moved their Peloton bicycle to Florida."
00:06:11.980 | There was a famous test a number of years ago with a New Yorker who moved to Texas.
00:06:17.280 | And the taxpayer in question alleged that, "Hey, listen, I fully live in the state of Texas.
00:06:24.180 | I have all this stuff set up there. I just happen to spend a significant amount of time in New York."
00:06:29.080 | And that's what he's alluding to as far as where was the dog.
00:06:31.880 | That was ultimately the final clinching factor that came in to decide
00:06:37.080 | whether or not he had actually moved out of the state of New York or not.
00:06:40.880 | And in a little bit, I'm going to teach you how to go ahead and make certain that you don't wind up in a situation
00:06:47.180 | where it comes down to a specific dog's location, though, because that's not safe for you.
00:06:52.680 | Let's finish off the article, though.
00:06:53.680 | Counting days. Residency audits have long been big business in New York.
00:06:57.580 | The state collected roughly $1 billion from 15,000 audits between 2013 and 2017,
00:07:04.080 | according to data obtained through a Freedom of Information request.
00:07:07.280 | While California lags behind New York in the scale and complexity of its residency audit operation,
00:07:12.780 | the Golden State collected $85 million in residency audit income last year through November,
00:07:19.080 | the largest single-year tally in at least a decade.
00:07:22.980 | Both states are still recording overall growth in the number of millionaires thanks to income and stock market gains,
00:07:28.080 | but the key for tax officials is making sure they've genuinely left.
00:07:31.780 | Since the pandemic, higher-income people moved out at a faster pace than they moved in.
00:07:35.880 | Data from both states show.
00:07:38.280 | While wealthy residents have long pretended to leave to dodge taxes,
00:07:42.080 | tax experts say COVID brought more legitimate moves as companies embraced flexible work
00:07:47.080 | and set up outposts in places such as Florida and Texas, which have no state individual income tax.
00:07:53.380 | New York's tax laws are notoriously tricky.
00:07:55.980 | Typically, someone who lives there will be considered a resident for tax purposes,
00:07:59.880 | paying levies on their income from all sources, even those outside of the state.
00:08:04.380 | But the state considers someone a resident even if they don't live there,
00:08:07.380 | as long as they've spent more than 183 days in New York
00:08:10.580 | and maintain a permanent place of abode, which could simply be a vacation home.
00:08:15.480 | A few hours spent in New York qualifies as a whole day.
00:08:18.980 | Getting off the highway in New York for lunch while driving from New Jersey to Connecticut can count.
00:08:23.480 | So can getting outpatient treatment at a New York hospital.
00:08:26.680 | When you can't prove where you were on a given day, New York auditors may assume you were in the state.
00:08:31.980 | Quote, even though you have a Florida driver's license, Florida voting record,
00:08:35.980 | Florida home, it does not matter, said Mariner,
00:08:38.780 | who created his app after facing his own residency audit after moving to the Sunshine State.
00:08:43.380 | You could be on vacation in New York and they'll pull you back in.
00:08:47.580 | New York's Department of Taxation and Finance has 300 auditors dedicated to conducting residency audits
00:08:53.080 | and they are notorious for their thoroughness.
00:08:56.280 | Bank records, phone bills, and family photos are under the microscope.
00:09:00.280 | Auditors are backed up by sophisticated artificial intelligence-fueled tax monitoring systems
00:09:05.080 | that flag inconsistencies in return.
00:09:09.980 | The point of the article, you can read it if you like, is that auditors are looking for money.
00:09:16.880 | Many, many states in the United States, especially high-tax states,
00:09:20.080 | are finding that in our current era of significant geographic flexibility,
00:09:26.880 | it's harder for them to keep people in a high-tax jurisdiction.
00:09:31.380 | Now, that may not be the case across all income classes.
00:09:37.080 | So it's not that common that you might have somebody earning $80,000 a year who says,
00:09:41.380 | "You know what? I'm just going to go ahead and move to a different state."
00:09:44.380 | But for the very rich, it is more common.
00:09:47.180 | Given the changes that have happened in the last couple of decades with connectivity,
00:09:51.680 | meaning the ability to reach out and talk to anybody, anywhere, at any time, anywhere in the globe,
00:09:56.780 | given the improvements in transportation infrastructure,
00:09:59.680 | the fact that flying around the United States and really around the world these days
00:10:04.180 | is pretty fast, pretty simple, pretty inexpensive,
00:10:07.980 | it's just relatively easy for people to do business in more places.
00:10:12.880 | It's not uncommon if you're living in Florida, you can fly up to New York,
00:10:15.880 | spend half the day there, have meetings, have lunch, whatever you need to do,
00:10:19.880 | and you can be back home in your own bed at dinnertime.
00:10:22.580 | The flights going back and forth between South Florida and the Northeast are legion.
00:10:27.980 | There are many, many, many of them available.
00:10:30.680 | And so people are taking advantage of this and availing themselves of it.
00:10:34.080 | And one component of that is lowering their income tax rates.
00:10:38.180 | Now, the places, the times in which this really affects you is,
00:10:41.380 | especially if you have some kind of property that you would like to sell,
00:10:45.080 | something like the sale of a business, something like the sale of stock,
00:10:49.280 | because whereas it can be difficult to move to another state just to shelter income taxes,
00:10:56.380 | if your income tax, if your business operations are in another state,
00:11:00.780 | in the high-tax state, what can be more challenging,
00:11:04.680 | excuse me, what can be simpler is when you are moving prior to the sale of a business,
00:11:10.180 | prior to the sale of a stock, things like that.
00:11:12.180 | And this is very, very common.
00:11:13.880 | Even just down to a simple 401(k), you may work in a high-tax state, a high-income state.
00:11:19.480 | You may contribute to your 401(k).
00:11:21.180 | Your 401(k) contributions can bypass the state income taxes
00:11:26.480 | because they're pre-tax contributions.
00:11:28.680 | Then in retirement, you may move to a no-income tax state.
00:11:31.780 | And in that no-income tax state,
00:11:34.180 | you have the ability to now put yourself in a situation
00:11:37.580 | where you don't ever pay income tax on that money.
00:11:40.880 | And that can be helpful.
00:11:42.180 | It can be, in many cases, several percent of your income,
00:11:44.580 | which can be substantial over time.
00:11:46.780 | So let me give you some suggestions and tips as to how to arrange your affairs
00:11:50.780 | so that you don't face a significant risk of audit.
00:11:54.380 | First and foremost, I don't think it makes sense to do any move in your life
00:11:59.680 | exclusively for or even primarily for tax planning.
00:12:05.080 | I really don't.
00:12:05.980 | I don't think that you should move from New York to Florida
00:12:08.780 | exclusively or primarily for tax planning.
00:12:12.380 | I think the people who do anything primarily for tax planning
00:12:15.380 | are being short-sighted in their long-term outlook and in their long-term plans.
00:12:20.380 | After all, taxes, what we're talking about here with income taxes,
00:12:24.280 | taxes exclusively affect those people who are earning high income.
00:12:28.880 | The fact that you're earning high income means that you have more choices.
00:12:32.880 | You have more freedom.
00:12:34.480 | The entire reason you earn high income or the entire reason you build wealth
00:12:38.980 | is so that you have choice, so that you have freedom.
00:12:42.480 | And it doesn't make any long-term sense for you to now abandon your freedom
00:12:47.580 | and allow an external government taxing authority to be the one
00:12:51.080 | who primarily or exclusively controls your decisions.
00:12:54.880 | What's the point of getting rich if you can't live where you want to live
00:12:57.380 | and live how you want to live?
00:12:58.880 | What's the point of being wealthy and earning high income
00:13:01.680 | if you're looking over your shoulder trying to dodge the taxman all the time?
00:13:05.080 | It's a silly way to live.
00:13:06.980 | It doesn't lead to freedom and happiness.
00:13:09.780 | It's a very high-risk game and it's just flat-out not worth it.
00:13:13.280 | Pay your taxes.
00:13:14.380 | It's an extortion fee that the government requires in order for you to stay out of jail.
00:13:18.780 | So if you want to stay out of jail, you have two choices.
00:13:21.380 | Either option A, pay your taxes or genuinely leave
00:13:24.980 | and don't play any games with the taxing authorities.
00:13:27.980 | I've already now showed my hand on the second point.
00:13:30.280 | First point is don't make taxes your primary or exclusive choices.
00:13:35.280 | They are perfectly reasonable as a secondary criteria.
00:13:39.880 | So if you really want to move where it's warmer and sunny
00:13:43.680 | and where your friends live in Florida or Texas
00:13:46.180 | and you want to move out of New York, then great, go for it.
00:13:49.580 | And if you want to enjoy the fact that you have lower tax bills as one piece of the puzzle,
00:13:55.580 | that's a wonderful extra reason to help.
00:13:59.080 | And it may be the thing that pushes you over,
00:14:01.280 | but it shouldn't be a primary reason
00:14:03.480 | or there's a very good chance you'll be back in California within a few years.
00:14:06.280 | You'll be back in New York in a few years.
00:14:08.180 | You'll probably be priced out of the market.
00:14:10.080 | You can't buy back in. You'll have lost relationships.
00:14:13.680 | Just stay in the place that you want to be and keep taxes as secondary consideration.
00:14:18.280 | Now, if you do move or if you do want to change your tax situation,
00:14:23.580 | the secret to all of this is genuinely change your tax situation.
00:14:28.880 | Don't play games with the taxing authority.
00:14:30.880 | If you're going to move from New York to another state, to Florida,
00:14:35.380 | then move from New York to Florida.
00:14:38.480 | And make sure that when you're moving from New York to Florida,
00:14:42.280 | your lifestyle is going to allow you to genuinely live in New York.
00:14:47.180 | Excuse me, I apologize. My brain is at half capacity this morning.
00:14:51.880 | It's going to genuinely allow you to live in Florida.
00:14:53.780 | So if you think you have to be in New York possibly 180 days this year,
00:14:58.980 | that's probably a good sign that you should stay in New York as a tax resident.
00:15:02.480 | But if you can genuinely move to Florida, just genuinely move to Florida.
00:15:06.380 | If you read the law and consult with relevant authorities to make certain
00:15:11.880 | that you understand how the state that you're dealing with assesses tax residency,
00:15:19.480 | and if you can satisfy those conditions, then just go and satisfy the conditions fully.
00:15:23.680 | Don't play games with them. Genuinely move.
00:15:26.480 | That will solve basically everything that you need solved.
00:15:31.280 | The most important thing is making sure that you're not a tax resident of a place
00:15:37.680 | that you don't want to be. Even in an international context,
00:15:41.080 | I teach this, especially for Americans. So Americans traveling abroad,
00:15:44.680 | Americans are always tax residents in the United States
00:15:47.180 | because we have citizenship-based taxation.
00:15:49.680 | So there's not really any question about that.
00:15:52.880 | It's one of the benefits of being an American is we have citizenship-based taxation.
00:15:57.580 | So either you're a citizen or you're not. And if you're a citizen,
00:16:00.680 | you pay tax no matter where in the world you are,
00:16:02.480 | according to the relevant exclusions and things like that.
00:16:06.680 | But if you're not, you're not. Now, the key is, however,
00:16:10.080 | don't become a tax resident of a place that you don't want to become tax resident.
00:16:14.680 | So when I covered the pop singer's issues with the state of Spain
00:16:18.380 | when she's just hanging out in Spain and a massive multi-million dollar settlement,
00:16:22.880 | the problem is that she allowed herself to become a tax resident of a place
00:16:26.680 | he shouldn't have been a tax resident of. And this is your choice.
00:16:29.780 | You don't have to do this. You can control your activities.
00:16:33.980 | So make sure that you just control your activities
00:16:36.280 | and make sure that you're genuinely not a tax resident of the place
00:16:39.780 | that you previously were. Here's where the biggest danger is.
00:16:44.480 | There's very little danger of someone like me who's never lived in New York,
00:16:48.180 | spent very little time there, of me going there and spending a few months there
00:16:52.480 | and then having any kind of trouble. After all,
00:16:54.480 | my footprint in New York is relatively light.
00:16:57.580 | And while the state tax auditors can access mobile phone records
00:17:00.780 | and bank records and things like that,
00:17:02.580 | I would have to do something that would bring me to their attention.
00:17:06.480 | But if I had lived in New York for a good number of years
00:17:09.780 | and then I was strategically moving out of New York
00:17:13.080 | with the goal of changing my tax residency
00:17:15.380 | so that two years from now I can sell my business
00:17:17.380 | or sell some assets and avoid the issues,
00:17:21.880 | now it's a much bigger deal because now I'm on their radar screen
00:17:25.780 | and they have a reason to want to keep me there.
00:17:28.980 | And I find this frequently with consulting clients that I work with,
00:17:31.680 | California and New York.
00:17:33.380 | If you are leaving one of those states and moving elsewhere,
00:17:35.980 | you need to genuinely leave and every fact matters.
00:17:41.280 | So here is what you want to pay attention to.
00:17:44.480 | If you are going to go up against an auditor,
00:17:47.280 | the first thing is you want to make sure that all of the facts are on your side.
00:17:51.480 | So if they say don't spend more than 183 days in the state of New York,
00:17:56.080 | you better make sure first and foremost that you are not in New York
00:17:59.680 | for more than 183 days and be smarter for you if it were significantly less.
00:18:04.680 | But the person who's going to win in court
00:18:07.280 | is going to come down to who can put the most paperwork down
00:18:11.080 | proving that I'm not a tax resident.
00:18:14.980 | And you're going to be going up against the other side
00:18:17.980 | that's going to be trying to put paperwork down
00:18:20.780 | demonstrating that you're a tax resident.
00:18:22.880 | So what you want to do when you leave a place,
00:18:25.280 | especially if a place like California or New York,
00:18:28.680 | is that you want to genuinely demonstrate
00:18:33.180 | full and complete intent to move elsewhere
00:18:37.280 | and you want to create a long string of paperwork
00:18:40.480 | that you could use to demonstrate your involvement in a new place.
00:18:44.780 | What does that mean?
00:18:45.780 | Well, the first thing is obviously you want to make certain that you have a home.
00:18:49.980 | So you want to go from California or from New York to a home in another place.
00:18:55.780 | Where I often hear this is people who go RVing,
00:18:58.280 | somebody who's doing well, wealthy, living in California,
00:19:02.180 | says, "Okay, I want to move into an RV and I want to go and be a nomad."
00:19:05.180 | All right, well, that's a fairly straightforward thing to do
00:19:07.880 | if you're from Florida or Texas.
00:19:09.780 | But if you're moving from a state,
00:19:10.880 | by the way, this is inclusive of any other state,
00:19:12.880 | any state that has a state income tax,
00:19:16.480 | you probably should consider putting in place an in-between step.
00:19:20.780 | You should consider genuinely moving to a new place
00:19:24.080 | outside of your previous high-tax state.
00:19:28.980 | Check the laws of each state.
00:19:30.180 | I'm using California and New York because they're the most aggressive.
00:19:33.480 | Each state has different laws that they use to determine residency
00:19:37.280 | and you should check the laws of your state.
00:19:38.780 | Some states are clear, some states are less clear.
00:19:41.180 | But the first most essential factor that determines your domicile
00:19:45.080 | is occupancy of a home and ideally ownership of a home.
00:19:49.980 | So where you own or rent a home
00:19:52.180 | and as well as the relative size and nature and use of the home
00:19:57.580 | is largely going to determine your domicile.
00:20:01.180 | If you have a big, beautiful home on the coast of California
00:20:05.480 | that you've lived in for many years,
00:20:07.480 | but now you go and you rent a tiny little studio apartment in Las Vegas,
00:20:12.580 | that is going to be the primary factor
00:20:14.480 | that is going to mess you up
00:20:16.980 | when it comes to actually being in tax court.
00:20:19.080 | You can't just convince the court that,
00:20:20.880 | "Well, I rent this studio in Las Vegas and that's actually where I live
00:20:23.980 | while I still own this big, beautiful home in California."
00:20:27.480 | So if you're going to keep that big, beautiful home in California,
00:20:30.080 | you probably need a bigger and more beautiful home
00:20:32.180 | in Nevada or Texas or wherever you're going
00:20:35.080 | in order to make certain that it's believable
00:20:39.080 | the home in California is your vacation home
00:20:41.480 | and the new home is your primary home.
00:20:44.580 | So you need to think very carefully about your housing situation.
00:20:48.580 | The simplest thing to do is to amputate
00:20:52.080 | all of your connections to the state in question.
00:20:55.380 | And in some countries, people who want to become tax residents,
00:20:59.280 | become non-tax residents, let's say you're Canadian
00:21:01.880 | and you want to become non-tax resident in Canada,
00:21:04.880 | then you probably want to sell all of your property
00:21:09.180 | because you're dealing in that situation
00:21:11.080 | with a very aggressive taxing agency
00:21:12.980 | and so you want to go through the steps
00:21:15.280 | to position yourself as genuinely ending
00:21:18.680 | your connections with the state.
00:21:21.080 | And similar for people from California or from New York.
00:21:24.080 | Now, if you're from Michigan or Ohio,
00:21:26.780 | some state that has state income taxes,
00:21:28.580 | but they're not as aggressive,
00:21:29.980 | you may have a little bit more leeway.
00:21:31.680 | But the biggest, most important function
00:21:34.380 | is going to be the home that you own
00:21:39.280 | and the home that you occupy.
00:21:40.880 | And you want to make certain that your big,
00:21:42.780 | beautiful primary residence is in the other state.
00:21:46.680 | Now, there are other things that have to do.
00:21:49.280 | For example, your employment records.
00:21:50.880 | If you're serving as an employee of a business
00:21:53.580 | that's in California, but now, of course,
00:21:55.680 | you move to a small studio in Nevada,
00:21:57.280 | that's not going to work.
00:21:58.780 | And so if you're an employee or an officer of a business
00:22:02.280 | that's domiciled in the high-tax state,
00:22:04.580 | you need to change that relationship.
00:22:06.180 | You need to become an independent contractor
00:22:08.180 | and you need to move your independent contracting entity,
00:22:11.980 | if existent, to another state.
00:22:15.680 | Another huge factor is children.
00:22:17.780 | Where do your children go to school?
00:22:20.080 | So if somebody's investigating your domicile
00:22:23.380 | and they find out that,
00:22:24.780 | "Hey, I've got this modest house in Nevada,"
00:22:27.880 | but in reality, these children are attending
00:22:31.280 | a school in Los Angeles,
00:22:32.680 | well, that's going to be a key factor
00:22:35.080 | to show that, no, you actually still live in California
00:22:37.680 | because your center of life is in California.
00:22:40.580 | After all, this is where the children go to school.
00:22:43.380 | So you want to make certain that
00:22:45.180 | if you're trying to move outside of one of these states,
00:22:47.780 | you want to enroll your children in school in the new state
00:22:51.680 | or you want to homeschool them
00:22:53.880 | or make sure that they're staying with other friends and family
00:22:56.980 | until you fully have changed the situation.
00:23:00.680 | Otherwise, wait till after they graduate.
00:23:03.280 | Now, if your children are older,
00:23:04.480 | their college age are older,
00:23:05.780 | then, of course, they're more independent
00:23:07.680 | and it's less of a big deal.
00:23:08.780 | But K-12 minors,
00:23:10.980 | you want to make certain that you arrange their schooling
00:23:15.480 | so that it doesn't indicate your tax residency
00:23:17.880 | in the high-tax state.
00:23:19.580 | Next is going to be just your days spent in the state.
00:23:21.980 | So California is a ratio.
00:23:25.980 | I believe California uses a ratio
00:23:28.280 | of how many days in California versus other places.
00:23:31.380 | New York may have a strict days test,
00:23:33.180 | but this is why check your specific state.
00:23:35.680 | And what you're trying to come up with
00:23:37.280 | is what is the clear line indication.
00:23:41.080 | So if memory is right, I should have checked this.
00:23:43.180 | Forgive me for not checking this with California.
00:23:45.880 | But the key is that you don't have more connections
00:23:49.580 | with the state that's high-tax
00:23:51.680 | than you do with another place
00:23:53.180 | and don't spend more time there.
00:23:55.180 | This is also very common in international planning,
00:23:57.780 | that if you spend more days in the high-tax jurisdiction,
00:24:01.580 | let's say that you spend lots of time in Spain,
00:24:04.580 | and even if you're not passing the 183 days rule,
00:24:08.180 | you're just spending, say, 150 days in Spain.
00:24:10.580 | Then you're spending 30 days, 30 days, 30 days, 30 days,
00:24:13.380 | 30 days, 30 days in five other countries.
00:24:16.480 | Then now there's a good argument
00:24:18.580 | that the government can say, all right,
00:24:19.880 | well, we appreciate the fact that you were only in Spain
00:24:22.480 | for 150 days a year,
00:24:24.380 | but the fact that this is your strongest point of connection
00:24:27.380 | indicates to us that Spain is actually your tax home,
00:24:29.780 | and that can be a factor
00:24:31.180 | that is considered depending on the country.
00:24:33.380 | So pay carefully attention to that.
00:24:35.680 | You also want to think about where you receive income from,
00:24:40.580 | because in many states,
00:24:44.880 | income that is generated in the state is taxable
00:24:47.580 | regardless of the actual location of the taxpayer.
00:24:51.380 | So think carefully and research the laws of your state
00:24:54.780 | as to where income is generated.
00:24:57.680 | Those are the most important ones,
00:24:59.680 | and you want to genuinely establish yourself
00:25:02.980 | as non-resident in the high-tax state.
00:25:05.980 | Then after those important ones,
00:25:08.180 | because we recognize that there can be things that can change.
00:25:10.680 | So here would be an example.
00:25:12.080 | Let's say that you genuinely left New York,
00:25:15.680 | and you genuinely moved to Florida,
00:25:17.580 | and you're in Florida for two years,
00:25:20.180 | but then all of a sudden
00:25:21.480 | something's going on with your business,
00:25:23.080 | and you have a period of time
00:25:24.080 | in which you need to spend a significant amount of time in New York.
00:25:27.980 | You can genuinely have moved to Florida,
00:25:29.880 | but now you find yourself genuinely spending time in New York,
00:25:33.580 | and you're watching your days carefully,
00:25:35.380 | but something happens.
00:25:36.280 | Again, hospital stay or emergency in a business or opportunities,
00:25:40.080 | and now boom, you're sucked back into the tax net all of a sudden
00:25:43.180 | because of a genuine reason.
00:25:45.080 | But these other factors can play in
00:25:48.280 | if you have them properly aligned.
00:25:50.680 | So you want to create a stack of paperwork
00:25:54.280 | that you can take into an audit meeting
00:25:56.680 | or into a court case
00:25:58.180 | that's going to demonstrate
00:25:59.480 | that I'm genuinely truly resident in another state,
00:26:02.680 | so that if you're ever unanticipated in a questionable scenario,
00:26:07.480 | then the paperwork is on your side.
00:26:09.480 | So first thing, driver's license.
00:26:11.380 | Anybody in your family who's a driver
00:26:13.380 | should go and get a driver's license in another state.
00:26:16.280 | Not just one person,
00:26:17.580 | not just dad gets a license in Florida.
00:26:19.580 | Get everybody to get a license in Florida.
00:26:22.080 | Voter registration.
00:26:23.380 | Registration is an important component.
00:26:25.380 | So if you're going to register to vote,
00:26:26.780 | register to move your voter registration.
00:26:28.980 | Move your vehicle registrations to the new state.
00:26:31.880 | Make certain that everything is properly tagged and titled
00:26:34.180 | and your property is there.
00:26:35.680 | Update the billing addresses on all of your banking accounts,
00:26:38.580 | all of your investment accounts.
00:26:40.280 | Make sure that everything is in the new state.
00:26:44.280 | Go through all of your banking and financial accounts.
00:26:46.680 | Make certain that you've changed your residency address
00:26:50.380 | with all of those bank accounts.
00:26:53.080 | You need to find new family doctors,
00:26:55.680 | dentists, consultants, people who you're working with.
00:26:58.780 | And go and change your primary care provider
00:27:01.580 | with your health insurance.
00:27:02.680 | Go and find a new doctor.
00:27:03.880 | Go for a checkup.
00:27:05.180 | Visit the dentist in the new place.
00:27:06.780 | Make sure you keep those records showing.
00:27:08.880 | I don't go to the same doctor
00:27:10.380 | that I've gone to for 30 years in New York.
00:27:11.980 | I've gone to this new doctor in Florida.
00:27:15.180 | Move your professional memberships.
00:27:17.280 | Remove your name from the bar association
00:27:20.080 | or from the certified financial planners list
00:27:23.080 | or anything like that that's in the state.
00:27:25.080 | Move it all to the new place.
00:27:26.780 | Any kind of community involvement
00:27:28.380 | or volunteer organizations.
00:27:29.980 | Move your church membership to a church in a new place.
00:27:32.980 | Move your charity records and donations
00:27:35.980 | and all of that to the new place.
00:27:38.080 | Attend social events in your new location
00:27:41.280 | and make certain that those social events are documented.
00:27:44.380 | Documented here I am at all these social events in Florida
00:27:47.480 | and that you're not in California.
00:27:49.280 | Move your country club membership.
00:27:50.780 | Move safety deposit boxes, P.O. boxes.
00:27:54.180 | Document the fact that your family members
00:27:58.780 | are visiting you in Florida, not in New York.
00:28:01.080 | All of your professional work.
00:28:02.880 | Move your will.
00:28:03.980 | Make certain that your will is that you get a new will
00:28:06.980 | drafted up in the state of Florida
00:28:08.380 | and that's located in the new place.
00:28:10.580 | Move obviously your utilities that are in your name
00:28:14.980 | and make certain that you're visible in the new place.
00:28:18.080 | In some audits, the auditor or investigator
00:28:21.080 | is going around and literally interviewing your friends
00:28:24.480 | and your neighbors and your business associates
00:28:26.180 | to figure out how much time you're spending
00:28:28.480 | in the new place and so you should be very straightforward
00:28:32.280 | of always saying that, you know, I live in Texas
00:28:35.280 | or I live in Nevada or I live in Florida
00:28:37.380 | and I vacation in California
00:28:38.880 | when I want to visit my friends.
00:28:40.880 | Things like that.
00:28:41.680 | So make certain that all of your language
00:28:43.580 | is properly and fully documented.
00:28:48.380 | So you want to genuinely change your affairs.
00:28:52.080 | Then you create a big stack of paperwork
00:28:54.080 | showing that you've genuinely changed your affairs.
00:28:57.280 | And then the final key to it is make certain
00:29:00.380 | that you're not generating any kind of paperwork
00:29:04.280 | or evidence that would be showing
00:29:06.580 | that well, in reality, he's spending lots of time
00:29:09.280 | in California or New York
00:29:11.780 | because it all comes down to who has the most paperwork.
00:29:15.480 | So you can be super hardcore with this.
00:29:17.780 | You know, whenever you're in Florida,
00:29:19.580 | that's where you spend money with your credit cards
00:29:22.280 | and with all of your digital transactions.
00:29:24.980 | When you're in New York,
00:29:26.280 | that's when you use physical currency to pay for stuff
00:29:29.480 | and you do everything like that.
00:29:33.280 | If you're going to have meetings when you're in Florida,
00:29:35.180 | that's where you do all your in-person meetings.
00:29:36.780 | When you're in New York, that's where you use Zoom.
00:29:39.080 | When you are thinking about your travel records,
00:29:41.880 | one of the things that gets people a lot of times
00:29:43.680 | is things like travel records.
00:29:45.180 | And a lot of times it comes down to small mistakes
00:29:47.880 | like, well, I flew in just at 2 a.m.
00:29:50.980 | instead of leaving before midnight.
00:29:52.880 | That's why the article that references
00:29:55.280 | these travel things is important.
00:29:57.280 | So if you can fly into New Jersey instead of New York
00:30:02.080 | or you can drive in and out of California
00:30:04.580 | instead of flying into California,
00:30:06.680 | well, now you're reducing the amount of evidence
00:30:08.880 | that an opponent in court can generate
00:30:11.680 | to show the specific day and time
00:30:18.080 | that you arrived into the state.
00:30:20.880 | If you're going to go on vacation,
00:30:23.480 | then you may want to rent a vacation home
00:30:26.380 | using an entity of some kind
00:30:29.480 | or you want to have a friend of yours rent the vacation home
00:30:33.280 | instead of you being the one to do it.
00:30:36.280 | Make certain that you have all of the evidence
00:30:40.480 | indicating your presence in the other state
00:30:43.280 | and make certain that there's a minimum amount of evidence
00:30:45.980 | indicating your presence in the high-tax state.
00:30:48.980 | Now, if this sounds like an enormous hassle,
00:30:54.280 | it should because it is.
00:30:56.480 | And that's why I led with the advice of make certain
00:30:59.580 | that if you're going to move,
00:31:01.080 | you're moving because you genuinely want to,
00:31:03.380 | not just because of tax considerations.
00:31:06.780 | If you're going to genuinely move,
00:31:08.380 | then genuinely move and don't play around with this.
00:31:11.580 | Don't try to play close to the line.
00:31:13.580 | What's the point of being rich
00:31:14.980 | if you're worrying about an audit from a tax authority
00:31:18.680 | because you're playing around close to the line?
00:31:21.580 | And then after those important things
00:31:25.180 | that solve most of the problems,
00:31:27.180 | make certain that you put in place all this other stuff
00:31:29.680 | so that if you ever do wind up in an antagonistic situation,
00:31:33.680 | an audit or in tax court,
00:31:36.080 | with them alleging you owe us $4.2 million,
00:31:38.980 | make certain that you have an enormous stack of paperwork
00:31:42.680 | on your side of the table
00:31:44.080 | showing your true and bona fide residence in another state
00:31:48.180 | and that there's not any significant paperwork
00:31:51.780 | that the auditors can come up with from your bank records,
00:31:54.880 | from your phone records, from all of the other stuff,
00:31:57.480 | showing that, oh, in fact, actually,
00:31:59.880 | you were in New York for 184 days
00:32:02.180 | because you arrived early and left late.
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