How to Declare Your State of Residence for Tax Purposes




Some taxpayers will have more than one home.  For them it’s important to declare their state of residence. There are no specific rules to follow to declare your residence. Establishing residence is actually what your intentions are.



State Tax Revenue

Connecticut (and other states) has gotten more aggressive in pursuing taxpayers that are claiming they are not residents. Why is this? Quite simply they perceive abuse and want to maximize tax revenue collections. Connecticut will lose out on any potential income tax they may be owed.  Additionally, the federal estate tax exclusion is $5,250,000 now, making most taxpayers exempt from estate tax. The Connecticut estate tax exclusion however is only $2,000,000, potentially making many more taxpayers subject to this tax.  This tax starts at 7.2% and goes up to 12%.


Residency Basics

Here are some of the factors that a taxpayer would need to establish that they are a resident in a particular state:

* Live there more than 180 days a year

* Register to vote

* Register your vehicles

* Obtain a driver’s license

* Have your wills and /or trusts

* Have this be your mailing address

* File your federal income tax return in that IRS district using this address

* File any required state income tax returns

* Open a bank account in that state


Additional Factors

The bullet points above seem fairly straightforward.  Follow them and you won’t have a problem, right?  Not necessarily.  Some other factors are:

* Where are your doctors located?

* Where are the majority of your credit card transactions?


A Word of Caution

If you are a Connecticut resident, take all the necessary step to establish residence in Florida (or some other state) and maintain a home in Connecticut be cautious. Your Connecticut home will no longer become your residence.  Therefore if you sell this home sometime in the future, you will not be able to take advantage of the exclusion from the sale of your primary residence. The tax code allows a married couple filing a joint return to exclude up to $500,000 of gain from the sale of their primary residence.  Single filers can exclude up to $250,000 of gain. Gain is calculated by taking the sales price minus your expenses of sale minus your cost basis.  Cost basis is (generally) what you paid for the property plus improvements.  If this property is no longer your primary residence and it is sold, you can’t avail yourself to this exclusion. Therefore the entire gain from this sale would be subject to tax.


Have you properly established residence in the state you want to be a resident of?


Tom Scanlon has over thirty years experience in public accounting with an extensive background in the areas of financial, tax, and estate planning. He prides himself on providing in-depth and customized solutions to privately held businesses and their owners. He is a Certified Public Accountant and Certified Financial Planner®. Tom is a frequent speaker for area organizations and has  recently been quoted on CNBC, Fox 61 News and AARP's blog. Tom also has been a guest columnist for numerous publications including The Wall Street Journal, Barron's, Money Magazine, The Hartford Courant, The Hartford Business Journal, and The New Haven Register. He is a member of the American Institute of Certified Public Accountants, the Connecticut Society of Certified Public Accountants, and the Financial Planning Association. Active in the community, Tom supports a variety of not-for-profit organizations.

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