Can I pick which state I live in for income tax purposes?
September 27, 2015 12:58 PM Subscribe
I do not want to screw the IRS, as that is scary. At the same time I travel a lot. Nominally I have an apartment in NYC that is "home," and I pay high city tax and state tax rates. I have been AirBnB'ing the apartment and basically living with my girlfriend when I'm home. For business I travel a lot, to the point where I have begun renting cheap bachelor pads to not be living in a hotel all the time. Can I claim residency in those states?
The hard part is that outside of holidays, and about a week a month, I'm not in NYC. I've even toyed with getting rid of my NYC apartment, but I like going back and my girlfriend is there. In any case I'm consistently in the same cities, where it'd be much cheaper for me to claim residency. Can I do this? I usually stay in corporate rentals, but it is always the same and I can actually show bills (cable), that I would use to show residency if I were applying for a license.
Again, the savings isn't so great that it would be worth skirting the rules, but at the same time I'm really not a "New Yorker" in the sense that I spend less time in the city/state than I do other places. How does this work? How do heavy business travelers do it?
The hard part is that outside of holidays, and about a week a month, I'm not in NYC. I've even toyed with getting rid of my NYC apartment, but I like going back and my girlfriend is there. In any case I'm consistently in the same cities, where it'd be much cheaper for me to claim residency. Can I do this? I usually stay in corporate rentals, but it is always the same and I can actually show bills (cable), that I would use to show residency if I were applying for a license.
Again, the savings isn't so great that it would be worth skirting the rules, but at the same time I'm really not a "New Yorker" in the sense that I spend less time in the city/state than I do other places. How does this work? How do heavy business travelers do it?
The definitions of domicile, residence and non-residence in NYS and NYC are written down here. If you find them unclear then speak to an accountant or attorney (and make sure to be straight with them about the Airbnb thing, which likely complicates things enormously).
posted by caek at 1:10 PM on September 27, 2015
posted by caek at 1:10 PM on September 27, 2015
It's really a question for a tax accountant and/or tax attorney. You may get lots of good info here but to stay on the good side of the IRS, it would be smart to seek counsel for anything you learn via this site.
posted by Miko at 1:14 PM on September 27, 2015 [1 favorite]
posted by Miko at 1:14 PM on September 27, 2015 [1 favorite]
Note that none of these issues have anything to do with the IRS or Federal taxes. You will be taxed by the IRS on your earnings wherever you live. Your question has to do with state and city taxes.
posted by megatherium at 1:19 PM on September 27, 2015 [3 favorites]
posted by megatherium at 1:19 PM on September 27, 2015 [3 favorites]
New York state tends to be very aggressive about defining who qualifies as a resident for purposes of paying taxes. When my dad moved from NY to Massachusetts and continued to work for a NY corporation, they demanded a year's worth of credit card bills showing frequent activity in Massachusetts before they let him go.
Talk to an accountant, certainly, but until then don't get your hopes up.
posted by alms at 1:25 PM on September 27, 2015
Talk to an accountant, certainly, but until then don't get your hopes up.
posted by alms at 1:25 PM on September 27, 2015
Response by poster: One upside is that my corporation has no NY offices and no presence in NYC.
posted by geoff. at 1:28 PM on September 27, 2015
posted by geoff. at 1:28 PM on September 27, 2015
When I had residences in both CA and NY, my accountant (who is also an attorney - two mints in one!) advised me on how many days I could be physically present in NY without being considered a resident. I don't recall the number of days or know if it has changed since 2006, but I would definitely talk to a tax professional about the best way to accomplish this. Essentially, it may be doable but you will very likely need to maintain a residence in another state and be physically present there enough to be considered a resident. If you would like a referral to my accountant/attorney (who is awesome and well-versed in the tax ramifications of this particular issue), please feel free to MeMail me.
posted by bedhead at 1:34 PM on September 27, 2015
posted by bedhead at 1:34 PM on September 27, 2015
How does this work? How do heavy business travelers do it?
Most of them either suck up and pay or have a complicated system that they worked out with a tax professional that works to establish their residency legitimately in a cheaper place. This is not a thing I would half-ass, personally. I have a slightly similar system in that I rent a place where I mostly live in one state and I inherited a place in another state and if I claim to live in the place I inherited (the only place I actually "own") I can save some cash. BUT there are other residency issues that go along with that (where my car is garaged, where I have a license, where I have my health insurance) which all also have requirements that I need to be mindful of. So the answer is, of course, "it depends" but usually the people who do this all the time that I know (and I know a lot of road warrior types) either are paid so much they don't care about taxes, or they pay some bux to an accountant to handle it OR they pay some bux to go the RV way and set up residency in South Dakota or whatever and go all in with that, usually along with talking to an accountant.
posted by jessamyn at 2:10 PM on September 27, 2015
Most of them either suck up and pay or have a complicated system that they worked out with a tax professional that works to establish their residency legitimately in a cheaper place. This is not a thing I would half-ass, personally. I have a slightly similar system in that I rent a place where I mostly live in one state and I inherited a place in another state and if I claim to live in the place I inherited (the only place I actually "own") I can save some cash. BUT there are other residency issues that go along with that (where my car is garaged, where I have a license, where I have my health insurance) which all also have requirements that I need to be mindful of. So the answer is, of course, "it depends" but usually the people who do this all the time that I know (and I know a lot of road warrior types) either are paid so much they don't care about taxes, or they pay some bux to an accountant to handle it OR they pay some bux to go the RV way and set up residency in South Dakota or whatever and go all in with that, usually along with talking to an accountant.
posted by jessamyn at 2:10 PM on September 27, 2015
It's not where you live, it's where you work and where your employer pays you. Professional athletes pay state income taxes in all the states they visit for road trips, because that's where they're working.
If you're insisting Texas is your residence but your NYC employer knows you're doing both work on the road and in NYC, you're asking your employer to be complicit in your shenanigans. They have their own rules to follow, such as withholding taxes from your paycheck.
You could just ask to be an independent contractor, but that's a different deal in other ways.
posted by Cool Papa Bell at 2:11 PM on September 27, 2015
If you're insisting Texas is your residence but your NYC employer knows you're doing both work on the road and in NYC, you're asking your employer to be complicit in your shenanigans. They have their own rules to follow, such as withholding taxes from your paycheck.
You could just ask to be an independent contractor, but that's a different deal in other ways.
posted by Cool Papa Bell at 2:11 PM on September 27, 2015
The legality of AirBnB short-term rentals in NYC is murky; declaring yourself a resident of another state potentially draws attention to who's living in your apartment.
posted by holgate at 2:30 PM on September 27, 2015 [1 favorite]
posted by holgate at 2:30 PM on September 27, 2015 [1 favorite]
I live and work overseas but pay taxes in the US and I believe the same laws and definitions apply. There are two aspects - residence, which is usually defined as where you physically reside for more than 183 days of the year but the definition varies by state, and domicile, which is the location of your permanent residence and where you intend to return to. Your domicile stays the same until you establish a permanent residence in another state (this involves much more than renting a bachelor pad somewhere else). If you left Texas and traveled the world for years, whether for business or pleasure, Texas will remain your domicile even if you cut all ties to the state. It is the individual's responsibility to show that they have changed domicile, and the bar is typically quite high. I think it would be difficult for you to legally claim that your domicile is outside of New York, even if you do sell the apartment, because it will be difficult for you to honestly establish domicile in one of the other places you work. That's not to say that some people don't try - it frustrates me that many of my colleagues will move overseas from a high tax state and suddenly decide that because their sister lives in Florida they are now Florida residents for tax purposes, but it's certainly done. Some states, like Virginia, will often challenge this and people will end up owing tens of thousands of dollars. I don't know if New York is the same.
I think that answers the question, though your overall tax situation is probably more complicated than this - many states tax nonresidents who are domiciled there (probably your status in New York?) different than residents. For example, my tax home is Missouri and I pay taxes there throughout the year, but because I don't reside there for more than 30 days and don't have a permanent home (in the sense of property) there, all of the tax I pay is refunded. You may also be paying taxes to the states where you work and getting a tax credit for them in New York. It spounds like you know understand how all this works, but just wanted to mention that two people can earn the same income and be domiciled in the same state but have very different tax situations.
posted by exutima at 3:03 PM on September 27, 2015 [1 favorite]
I think that answers the question, though your overall tax situation is probably more complicated than this - many states tax nonresidents who are domiciled there (probably your status in New York?) different than residents. For example, my tax home is Missouri and I pay taxes there throughout the year, but because I don't reside there for more than 30 days and don't have a permanent home (in the sense of property) there, all of the tax I pay is refunded. You may also be paying taxes to the states where you work and getting a tax credit for them in New York. It spounds like you know understand how all this works, but just wanted to mention that two people can earn the same income and be domiciled in the same state but have very different tax situations.
posted by exutima at 3:03 PM on September 27, 2015 [1 favorite]
I can't speak to the domicile issue, but do know that if you work in New York for even a day out of the year (regardless of your state of residence), you'd have to file there as a non-resident or part-year resident. So even if you can somehow claim residency elsewhere (probably doubtful), you'd still have to file and pay for whatever days you were actually there. That would be true even if you got rid of your apartment and were just working from your girlfriend's place.
posted by three_red_balloons at 3:46 PM on September 27, 2015
posted by three_red_balloons at 3:46 PM on September 27, 2015
Nthing that NY State is particularly aggressive about verifying residency. My accountant (aka father-in-law) has told me repeatedly about the woes of his clients who have left NY and retired to Florida and the battles they've fought with NY to prove they're no longer NYS residents. (He claims NYS has an office in south Florida mainly purposed towards investigating retirees who may still technically qualify as NYers.)
One thing he's specifically mentioned to me often is that if you still have a NY drivers' license, you're still considered a resident of NY and will be taxed as such. Definitely speak to an accountant and/or attorney, as there may be other simple things like a drivers' license that the state will use as an indicator of residence.
posted by Guernsey Halleck at 7:04 PM on September 27, 2015
One thing he's specifically mentioned to me often is that if you still have a NY drivers' license, you're still considered a resident of NY and will be taxed as such. Definitely speak to an accountant and/or attorney, as there may be other simple things like a drivers' license that the state will use as an indicator of residence.
posted by Guernsey Halleck at 7:04 PM on September 27, 2015
Cool Papa has it right - it's typically where you work that determines where you pay state/local tax. Where your company has offices has no bearing on your income tax liability (you're probably thinking of sales tax paid by online retailers).
Every state/locality is different and some localities make you pay tax if you live there but work elsewhere (e.g. the Philadelphia city wage tax is paid by people who live or work in the city). Some states have reciprocity so if you pay tax in one state you don't have to pay in the other or you only pay on the first $x income (e.g. residents of PA that work in NJ pay PA tax after a certain amount of income). The amount of tax you pay in your home state will likely be offset by the amount of tax you've paid in other states (based on the income that was earned in those other states not the actual dollar amount of tax paid). Again, laws vary by state.
People who travel for business extensively pay tax in a bunch of states/localities and pay an accountant to keep them out of trouble. You really need one. You'll probably need to file taxes for prior years in the states where you've worked.
posted by jshort at 4:25 AM on September 28, 2015
Every state/locality is different and some localities make you pay tax if you live there but work elsewhere (e.g. the Philadelphia city wage tax is paid by people who live or work in the city). Some states have reciprocity so if you pay tax in one state you don't have to pay in the other or you only pay on the first $x income (e.g. residents of PA that work in NJ pay PA tax after a certain amount of income). The amount of tax you pay in your home state will likely be offset by the amount of tax you've paid in other states (based on the income that was earned in those other states not the actual dollar amount of tax paid). Again, laws vary by state.
People who travel for business extensively pay tax in a bunch of states/localities and pay an accountant to keep them out of trouble. You really need one. You'll probably need to file taxes for prior years in the states where you've worked.
posted by jshort at 4:25 AM on September 28, 2015
NY taxes your income deemed earned from working in NY regardless of your legal residency. (The tax on touring artists and athletes playing away games is famous.)
NY taxes your OTHER income (work elsewhere, investment gains) if you are a legal resident. A legal resident is anyone whose primary home is in NY, or who has a secondary home on NY and is physically present in NY more than 183 days a year. Because of latter rule, two states can claim you as a resident which can be expensive. The trick to becoming a non-resident is establishing a primary home elsewhere and making sure you don't exceed your day count after you do.
posted by MattD at 4:48 AM on September 28, 2015
NY taxes your OTHER income (work elsewhere, investment gains) if you are a legal resident. A legal resident is anyone whose primary home is in NY, or who has a secondary home on NY and is physically present in NY more than 183 days a year. Because of latter rule, two states can claim you as a resident which can be expensive. The trick to becoming a non-resident is establishing a primary home elsewhere and making sure you don't exceed your day count after you do.
posted by MattD at 4:48 AM on September 28, 2015
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posted by Vaike at 1:08 PM on September 27, 2015