With the rise of remote working, should you move to a low income tax state?
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Throughout the pandemic, many Americans have fled major cities for more outdoor space and larger homes, with remote working becoming the norm. And since many businesses now remain remote, some might consider moving to another state for a different reason: to lower their taxes.
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This may be what is happening in Florida. In an interview with Fox Business, Florida CFO Jimmy Patronis said people were leaving states that are “financial train wrecks,” like New York and New Jersey, and moving to Florida to escape a “tax hell,†noting that hundreds of people were commuting to the low-tax state every day.
But are those tax savings really worth the stress (and cost) of moving? Here’s what the experts had to say.
This can be useful in some scenarios
Moving can be a good idea if your business is competent in the state you are moving to and you can prove that your move is permanent.
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“To realize the full tax savings by moving to a low income tax state, one must move permanently and establish a domicile in that new state, and also be prepared to prove that he does not have the ‘intention to return to his previous state,’ Nishant said. Mittal, Executive Vice President of Topia, a world leader in talent mobility. “If you can’t prove that your domicile, or permanent domicile, is now in another state, you risk being double taxed.
This can be especially good if you live in a state with a high cost of living.
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“Moving to a state with lower income taxes while working remotely could save you a lot of money, especially if you are leaving a market with a high cost of living,†said Ralph Carnicer, CPA and Vice President of Business Development at Tax form. “Even though there will be moving expenses, the value you get from the same salary will go much further in any area where income taxes are lower. Especially with the real estate market so hot in these markets right now, this could be a great investment to go somewhere with less volatility right now. “
But you need to factor in all taxes and expenses – not just income taxes
If your goal is to save money by moving, you should know all the taxes you will have to pay in this new state, plus any additional living expenses.
“It is essential to take into account all the costs involved, not just income tax,†said Steven Jon Kaplan, CEO of True Contrarian Investments LLC. “This includes inheritance tax, inheritance tax, sales taxes, and property taxes, as well as the total amount of a home and basic expenses each year.”
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Kaplan notes that many states have rules in which municipalities will also charge taxes in addition to the state itself.
“For example, in Pennsylvania, state income tax seems reasonable at 3.07%, until you find out that most towns in that state add their own tax,†he said. he declares. “Philadelphia adds 3.87% for residents, which more than doubles the total. Maryland also has a substantial additional tax for every county in the state.
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Research all the taxes that would apply to you before making the decision to move.
“Before you move out, use software to calculate what your total tax liabilities are likely to be so that you learn the necessary information ahead of time, rather than after it’s too late,†Kaplan said.
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This article originally appeared on GOBankingRates.com: With the rise of remote working, should you move to a low income tax state?
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