Changing Residency to Reduce Taxes

Many retirees or pre-retirees are desirous of having a second home in a more "tax friendly" state in order to claim residency in that state; thereby increasing their standard of living by paying less on taxes.  With California boasting one of the highest state tax brackets, this often can be a smart decision.

However, claiming residency in another state is not as easy as it sounds.  According to tax laws, "residency" is the location of your permanent home.  You are considered a resident of a state if you intend your main home to be in that state.  Your state of residency is determined by whether the time you spent in that state was permanent or temporary.

So...how do you prove that your new state is your permanent home and not your temporary home?  Here are some pointers:

• Register to vote in your new state
• Register your car in your new state
• Change your drivers license to your new state
• Plan on living in the new state over 50% of the year
• Move your primary bank account to the new state
• Change your permanent mailing address to the new state
• Apply for a property tax exemption on the residence that you purchase in the new state

Can changing a state of residency really save you that much on taxes.  Consider Nevada where there is zero state tax.  A retired couple with $75,000 of taxable income will pay approx $3300  in California state taxes.  However, by claiming residency in Nevada, they will pay no state taxes.  That is like giving yourself a monthly increase of $275.  That's a lot of golfing green fees!