End of Year Tax Planning for Residency
While everyone is busy doing tax planning for 2019, don't forget that end of year tax planning can also include residency.
Do any of your clients have a residence in Florida in addition to a residence in New York? Are they tired of paying high New York resident taxes? You may suggest that they make a New Year's resolution to change their tax residence to Florida.
In order to do that, there are two issues they need to be concerned with.
First, they must change their domicile (primary residence) to Florida. This is what they need to consider in order to make that change:
The New York State audit division examines five primary factors to determine domicile. It is also important to note that the burden of proving a domicile change is on the party claiming that a change was made (in this case, your client). These are the factors that your client must address.
The Primary Factors are:
1. Home Factor: Selling your residence is not necessary. For this factor you should compare the residence in both locations for size and monetary value. You must also consider how they are used. What this means is, do you have parties, entertain, or for example has your New York residence become a place where you quietly spend the summers to escape the heat of Florida. Many people find that as they get older their New York friends move away and as they spend more time in Florida, they make new friends there.
2. Business Ties: This is a comparison of business ties in New York and Florida. If you are substantially retired this is a good opportunity to consider a change. There are also opportunities to establish business ties in Florida while still maintaining some ties to New York.
3. Time Spent: This is another area where planning needs to be done. If you are already spending substantial time in Florida, resolve to spend more time there. Do not confuse this with the Statutory Resident law, also known as the 184 day rule (discussed later). When it comes to determining domicile there is no specific day count that will get you a change of domicile. As a general rule you should spend more time in Florida than in New York, but all of the factors have to be considered. Of course, the more time spent in Florida the better.
4. Near and Dear Items: This refers to where you keep your favorite personal items. They could have monetary value or simply sentimental value.
5. Family Ties: According to the New York audit guidelines, this area is restricted to examination of the location of a spouse or minor children. They will not look at adult children or other relatives, unless it becomes clear that living near these relatives is a very important aspect of your life. In the case known as Matter of Buzzard, the NYS Tax Tribunal determined that the Buzzard’s relationship with their grandchildren was a major factor in determining that they continued to be domiciled in New York.
In addition to the Primary Factors, there are also other factors such as:
Driver’s License and Voter Registration:
These items should definitely be changed to Florida; however, changing these items to Florida without addressing the five primary factors will not convince anyone that domicile was changed.
While not listed as a separate factor, permeating all of these factors is the issue of lifestyle. This includes hobbies, interests, other activities and in general where you enjoy your life more.
As I mentioned previously, there are two issues to be concerned with regarding residency. In addition to Domicile, you must address Statutory Residency. For 2019 the Statutory Resident law was slightly revised. Regardless of where you are domiciled, if you maintain a residence in New York and you spend 184 days or more in New York (part of a day counts as a day), you are a resident for that year. With careful planning, this law should not be a problem.
In conclusion, if you make some adjustments to your life in 2019 in order to change your domicile, and in addition if you ensure that you do not step foot into New York on 184 days, you will not have to file a New York Resident tax return for 2019. You may have to file a Nonresident return, but that is a different article for a different day. See my other blog articles for more detail on domicile, statutory residence and New York source income for nonresidents.
For any questions on NYS Residency issues, or any other state tax audit or planning matter, please contact Brian Gordon at 516-510-6041 or at bgordon@StateTaxAuditRep.com