Spouses Who Live in Different States Face State Income-Tax Problems

long-distance marriages are on the rise. The number of marry couples who live apart more than doubled between 1990 and 2015 to 3.5 million couples, according to the U.S. Census Bureau. With proper planning, spouses who live in different states can avoid paying unnecessary state taxes. The spouse who moved should first determine whether his or her reside has changed. Domicile and residency aren ’ thyroxine always the same. An individual may reside in multiple states, but can have only one domicile — that taxpayer ’ sulfur fixed, permanent wave family. Individuals domiciled in a state are automatically considered country residents for tax purposes. normally, this means the state is entitled to tax that spouse ’ second worldwide income. Given the differences in department of state taxes, this can have major consequences for a couple ’ randomness finances. Consider a conjectural couple, Jack and Anne, who lived in Georgia. Anne accepts a job offer in Florida, but Jack doesn ’ metric ton relocate because he is caring for an ailing parent. Anne moves to Florida but will spend most weekends with her conserve.

Because Florida does not tax income, it would be beneficial for Anne to establish herself as a Florida nonmigratory. She would then only owe Georgia tax on any income she earned in Georgia — possibly none, depending on how she and Jack have set up their finances. however, to efficaciously establish Florida reside, Anne will need to avoid several potential pitfalls, particularly since Georgia ’ s tax authorities have a firm motivation to prove that she remains a Georgia resident. Anne should foremost check Georgia ’ mho and Florida ’ second residency rules. Georgia law says that individuals who spend more than 183 days per any continuous 12-month period in Georgia are mechanically residents. Since she ’ sulfur in the state merely on weekends, she should be okay. Nevertheless, Anne should keep a careful record of any time she spends in the state, along with receipts, travel confirmations and other evidence of her movement .

Changing Your Domicile

Besides your presence in a state, the other major factors in establishing a change in dwelling are demonstrating intent to remain in the new state and to abandon your former dwelling. These are harder to prove than physical presence, and there is no one factor that tax authorities consider conclusive. Given that Jack remains in Georgia, Anne will have to work particularly hard to prove her intentions, but doing therefore is not impossible. Steps might include :

  • Moving her voter registration and voting in local elections
  • Changing the address on her personal bank and investment accounts
  • Changing her driver’s license, car license and registration
  • Establishing relationships with professionals such as doctors or accountants in Florida
  • Updating any professional licenses she might hold

While no one action will make or break a reside claim, taxpayers are wise to offer as much attest as possible to tax authorities. If Anne can make a convincing controversy for Florida dwelling and her position doesn ’ t trip statutory residency in Georgia, she may not need to file a Georgia state income tax render at all. ( If she has income sourced to Georgia — or any other submit – she will placid need to file a return as a nonresident. ) Whether Anne files as a nonresident or does not file in Georgia at all, Jack will need to file his state render as “ married filing individually, ” even if he and Anne file a joint federal render. To do this, Jack should prepare a mock “ married filing individually ” federal refund. He will not file this mock federal return but will use it to prepare his state return so that only his income and his one-half of the federal deductions are included. For more on personal finance planning:

  • What Are the Major Differences Between an IRA and a Roth IRA?
  • Follow These Guidelines to Draft a Harmonious Prenuptial Agreement

In some cases, the resident spouse may however want to file a joint return, in order to secure more golden rates, or sealed credits or deductions. however, some states require spouses living in different states to file individually. It is best to consult a tax adept about the most beneficial means to file. At a minimal, you should make certain you know what your home submit legally requires.

You may not be able to avoid filing for both spouses, careless of residency concerns, if either of you lives in a community property state. such states may require you to contribution and then split family income evenly. If either spouse lives in Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington state or Wisconsin, both individuals should take extra wish to understand the rules. This may be a case where you need to consult a tax professional. If either spouse must file as a nonresident, either because of community property rules or to report income sourced to the nonresident country, reciprocality agreements between the states in question may have an affect. Some states have agreements that allow workers to pay taxes only where they live, not where they work. This can be valuable when tax rates vary importantly. Whether such agreements apply will depend on a pair ’ s detail situation, but it is authoritative to make sure you know what options are available .

Quirks in State Law Can Trip You Up

Be mindful of sensible areas of state tax law. They can cost you. For model, in Anne and Jack ’ south case, the couple will have to take care if Anne plans to claim a homestead exemption on her Florida mansion. Because the exemption is a valuable one, Florida tax authorities tend to take fairly aggressive positions as to who is eligible to claim it. Florida allows merely one homestead exemption anywhere per individual or “ family unit. ” In a 2016 court case, a wife claimed an exemption on a base she entirely owned in Florida, while her husband claimed a homestead exemption for a home he entirely owned in Indiana. Each spouse was a legal nonmigratory of the submit where they claimed their respective exemption. however, the court found that because the copulate comingled their finances, the wife was receiving the benefit of her husband ’ randomness exemption, even though she did not jointly own his Indiana house. alternatively of claiming homestead exemptions in both states, Jack and Anne should decide which exemption is more valuable and forgo the other one. specially for long-run separations, you may besides need to consider the likely impingement on your estate design because some states impose own estate of the realm or inheritance taxes. Jack and Anne are lucky ; neither Georgia nor Florida imposes such a tax. however, 12 states and the District of Columbia do impose estate tax, and six states impose an inheritance tax. ( Maryland has both. ) Washington state of matter levies an estate tax and is besides a community property express, which could complicate planning even further. While there ’ south now a very gamey brink for federal estate tax, some states have much lower thresholds that affect far more couples. It is chic to discuss your plans with your lawyer, your fiscal planner and any other professionals you have involved in your estate design to keep them up to date with your double residency. They can warn you about any likely issues and suggest methods for working about them if potential.

Rebecca Pavese, CPA, is a fiscal planner and portfolio coach with Palisades Hudson Financial Group ’ s Atlanta position. Palisades Hudson is a fee-only fiscal planning firm and investing coach based in Fort Lauderdale with $ 1.4 billion under management. It offers fiscal planning, wealth management, and tax services. The tauten ’ s Entertainment and Sports Team serves entertainers and professional athletes. branch offices are in Stamford, Connecticut ; Atlanta, Georgia ; Portland, Oregon ; and Austin, Texas. The fast ’ s daily web log and monthly newsletter covering fiscal planning, taxes and investing are on-line at www.palisadeshudson.com.

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Category : Finance

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