For those who consider two or more states to be “home,” it is important to understand the legal distinctions between residency and domicile, and the opportunity for tax savings based on where you spend your time.

Residency controls for Income Tax Purposes

The IRS allows you to choose your state of residency as long as you do not spend 183 days a year in one state. In other words, its where you aren’t, not where you are, that controls residency. This is strategic since residency controls for income tax purposes.

Domicile controls for Estate Tax Purposes

Domicile is very important for estate tax planning, and it is vital factor in order to preserve as much of your wealth as possible. Where you spend your last days can have a drastic effect on your family’s inheritance since domicile controls for estate tax purposes.

How a beloved Dog earned his bone

In February 2017, the CEO of Match.com argued in the State of New York tax court that he was a new resident of Texas after having moved there, and therefore a non-resident of New York.

New York claimed that he still owed state taxes. The CEO claimed that he did not.

While the CEO had factors showing that he had ties to both states, the deciding factor came down to his most beloved possession – his Dog – having moved to Texas. Based on this, the court found that he (and his Dog) were Texas residents and therefore was not responsible for New York state taxes. (In re Gregory Blatt 2017)

The Tax Cuts and Jobs Act (TCJA) impacts virtually all taxpayers – individuals, corporations, partnerships and other “pass-through” business entities, estates, and even tax-exempt organizations. Our goal is to cut through the hype and explain how our clients can benefit from these changes.

Business owners will benefit from a permanent 14% reduction in the corporate tax rate, from 35% down to 21%.

Self-employed taxpayers will benefit from the new 20% pass-through deduction for qualified business income from a partnership, S corporation or sole proprietorship.

The gift/estate/generation-skipping transfer (GST) tax exemptions have been doubled to $11.2 million per individual. Now, a married couple will not pay any federal estate tax unless their estate exceeds $22.4M. An individual can transfer up to $11.2 million before paying the 40% GST tax and a pair of grandparents can gift over $22.4 million to their grandchildren tax-free.

Individual tax brackets and tax rates will change for most taxpayers. In comparison to previous tax brackets and tax rates, the new rates are slightly lower and the brackets are slightly broader.

Our firm takes pride in our personalized approach to client service. Please contact us so we can understand your unique circumstances & family dynamics to tailor our advice to best meet your current and long-term needs.

Pre-TCJA rates

10%, 15%, 25%, 28%, 33%, 35%, 39.6%

New rates under the TCJA

10%, 12%, 22%, 24%, 32%, 35%, 37%

The standard personal deductions have nearly doubled:

• $12,000 (single)
• $18,000 (head of household)
• $24,000 (married filing jointly)

Prior to this reform, about 30% of taxpayers itemized deductions on Schedule A, instead of taking the standard deduction associated with their filing status. Many of these taxpayers will now claim the higher standard deduction and therefore will not need to file Schedule A.

As always, gifting to charitable organizations can be a great way to lower one’s taxable estate, with the added benefit helping the community and preserving your legacy. The deduction for charitable contributions has been expanded so that taxpayers may contribute up to 60% of their Adjusted Gross Income.