Tips to Change Your State Domicile and Save on Taxes

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Tips to Change Your State Domicile and Save on Taxes

Nowadays, people are constantly trying to improve their daily lives, but they also think and hope for a better future for themselves or their families. Because of this, people often move to another state or country for various reasons. Usually, those include a better job and better living conditions, a search for a more peaceful environment with a more vibrant nature, but high taxes in the country or state where they live can also be a reason for relocation.

As wonderful as this idea of moving is, you must keep in mind some details that are of great importance. For example, if you decide to relocate to another state you must also file for a change of domicile because each state has its own tax policies, particularly regarding income taxes. This emphasizes the importance of having the necessary information to properly regulate tax status, which can often be confusing.

Determine Your Place of Residence

When you move, your new residence does not automatically become your domicile unless you take additional steps to make it legal. To make your new state of residence permanent, you should establish a legal domicile soon after moving there. Most states require two main criteria to establish a permanent home: you need a physical residence, and you must have the intention of living there permanently. To finalize your move, you may need to fill out a Declaration of Domicile Form.

Update Your New Address and Have Your Mail Forwarded

After you’ve rented an apartment or bought a house, contact the U.S. Postal Service and update your address. Be sure to use your new address on your state and federal tax returns. You can begin forwarding your mail to your new home as soon as you have established residence there. To avoid problems, report and pay taxes in the state where you live and work, but not in the state where you previously lived and worked.

Utility Suppliers Should Be Notified of Any Changes in Your Address

When you move, it’s a good idea to call all your utility service providers and inform them. When moving into a new place, schedule the turn-off and turn-on of utilities such as cable and internet, water and sewer, gas, electricity, and garbage collection. Once you have a permanent address, be sure to contact your insurance provider and inform them of your move. Compare rates from different home insurance providers when moving to a new home in a new state.

Apply for a New Driving Licence

Be prepared to get a new driver’s license if you drive in the near future. If you had one in your previous state, getting a new one shouldn’t be too hard. Before heading to the DMV, be sure to research what documents and paperwork you need to bring. Bring your current driver’s license, proof of residence (i.e. a water bill), social security card, and other forms of identification when you apply for a license. 

Think About Your Career

You need to think about where you work and how much money you’re making or will make. A taxpayer’s active business involvement includes more than employment. The most obvious sign of domicile is ongoing participation in decision-making and frequent communication with a business, even after official retirement. The amount of time a taxpayer actually works in one state can be an important factor in determining whether that state can be considered their residence.

The Family Is of Great Importance

Tax auditors are only supposed to consider the location of a taxpayer’s spouse and minor children when deciding whether a taxpayer is domiciled in a certain place. According to the audit guidelines of the state’s Tax Department, you could be in violation of the state’s tax laws if you don’t consider your children’s school location when determining your permanent domicile. 

Become a Registered Voter

When you move to a new state, be sure to register to vote there. Visit your town hall for information on registering as a voter. The DMV may let you register to vote when you apply for a new license. Although you do not technically have to be registered to vote when you move to a different state, voting will help you feel a greater sense of belonging to the community.

Final Words

If you move to one of the lower tax states, you may be able to significantly reduce the amount of money that you pay in taxes. On the other hand, you might make less money if you live in a state that doesn’t attract many industries. By consulting with a tax professional before moving, you can avoid mistakes that could cause you to pay too much in state taxes.

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