Tax Tips and Considerations When Relocating to a New State
In this episode of The Bottom Line Podcast, Jeffrey Parker, Partner and National Co-Leader of EisnerAmper's Private Client Services Group, is joined by Tim Schuster, EisnerAmper Senior Manager. The two discuss Tim's recent experience with relocating to a different state, the crucial tax considerations you don't want to miss when moving, and how to properly handle the change with your employer.
Jeff Parker:Hello and welcome to The Bottom Line. This podcast examines everyday business and finance issues faced by closely held and private businesses. We hope to provide you with news you can use and what we like to think of as a jargon-free zone. I'm your host Jeff Parker, and with us is Tim Schuster, senior manager in EisnerAmper's private client service group. Today we'll discuss with Tim items to consider when moving to a different state. Hi, Tim.
Tim Schuster:Hey, Jeff. How you doing?
Great. So Tim, you recently located from New Jersey to Florida. Can you take our listeners through the process of relocating for work?
TS:Oh, absolutely. I'd be happy to do that. The first thing you guys should be considering too, if you're going to be doing a relocation, is you really need to contact your employer when you're considering moving to a new location. The one thing that might come up is there may be an office for you to actually go to if you go to this spot, or maybe your employer might be thinking of open up a location there. So having that communication with your employer is extraordinarily important. And does it actually make sense for you and your employer? Well, if there is a need for you to be in that area, that's hypercritical for you to be having in part of these conversations and considerations. The big thing, though, to keep in mind is residency matters always come up in conversation. New Jersey, just as an example, has one of the highest income tax rates in the nation, and Florida, as most of our listeners happen to know, does not have state income tax for individuals.
Each state has residency requirements, and usually living in a location for six months and a day to claim domicile is the rule of thumb. So you'll want to discuss domiciling with your tax advisor as each state has different rules. What I did personally was I went through a checklist to establish Florida residency just to make sure I had Is dotted and Ts crossed.
JP:Wow, that's great. What other items did you consider for your relocation?
TS:Just like I stated before, does it actually make sense to do it? The pandemic changed your whole views on where work can be performed, what can be done, and a lot of the Northerner states, per se, really wound up down in the south, whether there's remorse in doing that or not is a whole different story. But it should be more than just moving for tax purposes, and you really should also consider the culture in the area that you're moving to. Maybe you're used to a very fast paced environment and that's where you thrive, but if you're moving just for tax reasons to that area and it's a slower pace, that may have a negative impact on you going to that area, right? So you really should be taking all facets into account other than just what the bottom line is necessarily on your tax bill. Me personally, I considered location to family and friends in the area, and how easy is it to visit family and friends back in New Jersey, right?
So the climate in south Florida obviously is just tremendous, and being able to be outside most of the year is great, and it also doesn't hurt that you can go to the beach and swim all year.
JP:Wow, that's fantastic. Very insightful. Question for you though. As an employee, what should you be discussing with your employer?
TS:So have a conversation of how this relocation is going to work. You can't overcommunicate how is the relocation going to work. Are you retaining your work from your prior location? How are jobs going to be performed going forward? What are your expectations as a new employee in this relocated area? And how does compensation work moving going forward? You need to really make sure that you're seeing the full picture of you actually doing this relocation. Real remote work has really caused such a dramatic shift in how work can be completed, and it's more of a matter if you have an internet connection now, sometimes, rather than a physical location, at least in some lines will work.
JP:So here's a million dollar question. Does timing matter when it comes to selling your principal residence? And what about those moving from a high tax state such as New York, New Jersey, California, to a state without income tax?
TS:As always, and I always preface this, you want to really make sure you consult your tax advisor. If you're going to be recognizing a capital gain on the sale of your primary residence, I have good news for you, believe it or not, in this regard. There is an exclusion of about 250,000 if you're single and 500,000 if you're married, but some of the higher income tax states like New Jersey and New York require you to withhold a portion of your gain to the state at the time of sale. Unfortunately, you cannot get around this mandatory withholding. If you sell your home later in the year, the state will hold your funds for less time than if you sold in the beginning of the year. For example, you sell it in January. You may not see those funds back again until April of the following year. So timing of when you sell a residence is very, very important.
JP:Wow, good thinking. Very smart. So I know in the past you would give us New Jersey fun facts. Since you're in Florida now, how about a Florida fun fact to tie out our episode?
TS:Well, I'll tell you right now, I would love to bring it home with our famous fun facts, right? And I wonder if our viewers know this, but the state of Florida happens to produce more than 70% of the country's oranges. So you're welcome, United States. You now have orange juice.
JP:Fantastic. Thanks again, Tim, for this valuable information. Thank you all for listening to The Bottom Line as part of the EisnerAmper podcast series. Visit eisneramper.com for more information on this and a host of other topics. And join us for our next EisnerAmper podcast when we get down to business.
Transcribed by Rev.com
The Bottom Line
This podcast examines the business and finance issues faced by closely held and private businesses. We hope to provide you with news you can use in what we like to think of as a jargon-free zone.
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