The year was 1971 and it made sense that Robert Plant and Jimmy Page were “Going to California.” Although the highest individual tax rate in California that year was somewhere around ten percent, the decision was much easier since the federal government picked up a large part of the bill. The top marginal federal tax rate was seventy percent. With the benefit of the itemized deduction for state and local taxes, a $10,000 California tax bill now only cost you $3,000. A small price to pay for experiencing the wonders of Hollywood Boulevard.
Ten years later, in 1981, the Clash having the foresight to realize the sacred deduction of residents living in high income tax states may come to an end some thirty or so years in to the future, asked us to consider whether we should start thinking about leaving. Once the feds stop subsidizing the deduction, they so clairvoyantly forecast, it might be time to consider whether you should stay or go.
Now it’s 2019 and taxpayers are doing just that. Clients come to us all the time to help minimize their tax bill. We always lay out the options but are mindful that our planning must present options to let clients live their lives the way they choose. Taxes are certainly a consideration and it is our job to present the range of options as well as the benefits and consequences of making each and any of those choices.
It’s getting harder and harder to remind clients that there are options as the rhetoric has now gone way beyond the golf course. It happens several times a week now. Just last week, a major icon, Carl Icahn announced he was moving his home and business to Florida. The reason given; New York’s over the top taxes. Clients reason that what is good for a successful hedge fund billionaire must be good for them as well.
And this might be the case. The price tag to stay is becoming so high one can be blinded and ignore other important quality of life issues. We always remember that the client gets to choose how to live, and nothing is forever. If you hate Florida, you can always come back.
What isn’t ok, however, are the taxpayers who ignore their skilled advisors and make hasty decisions based on the rhetoric. This can become the worst of all worlds. Not planning a change of residence correctly or taking the diligence of the tax authorities seriously can result in multiple levels of taxation, penalties, interest and a large bill for professional services.
So, take a deep breath before you decide whether you should stay or whether you should go. Speak to your Berdon advisors and let them help you understand the pluses and minuses and put you on the right course. If you have questions and would like to weigh your options, contact me at firstname.lastname@example.org or your Berdon advisor.
Wayne Berkowitz, a tax partner and head of the State and Local Tax Group at Berdon LLP, advises on the unique requirements of governments and municipalities across the nation.