For some, the pandemic has triggered the urge to move to greener (or safer) pastures. At Berdon, we do our best to educate our clients about the tax ramifications of their decisions. They know that in most states there are two ways to be considered a resident (and thereby taxed on worldwide income) for income tax purposes. First, the domicile test. It’s the “touchy-feely” test of what your intentions are and where you intend your home to be. Then there is the arguably more objective statutory resident test. If you have a “permanent place of abode” (a term of art to be discussed at a later date) and are “present” (also a term of art to be further explored) in the jurisdiction for more than 183 days, you are a resident.
Our clients understand the importance of documenting their true intentions and keeping contemporaneous records. They know the “I heard it on the golf course” approach to changing residency just doesn’t work. For those of you who don’t play golf or for golfers waiting patiently for a post-COVID-19 world, that approach usually consists of buying a home in a low or no tax jurisdiction, changing your voter registration and driver’s license, and going to the county clerk to declare your domicile in that new jurisdiction. The more knowledgeable golfers also recommend that you need to stay in your attempted abandoned domicile no more than 183 days.
Despite this golf course advice, I have seen many surprised and disappointed taxpayers. Our job is to help those golfing taxpayers survive the trials and tribulations of a residency audit. We then prepare them for the future and often gain a client for life.
If you own a second home or are considering such a purchase, email me at email@example.com. I can’t help your golf stroke or accelerate the distribution of the vaccine, but I can help you avoid tax headaches down the road.
Wayne Berkowitz, a tax partner and co-leader of the State and Local Tax Group at Berdon LLP, advises on the unique requirements of governments and municipalities across the nation.