Do Your Own Income Tax

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How To Do Your Own Income Tax Moving Out of State

Are you thinking about moving to a different state, or maybe you already spend a lot of your time in more than one state? Some do this to take advantage of a better job opportunity or being closer to a family member. Others who are retired might be looking for a state where the taxes are lower. In any case, if you do your own income tax, it might get more complicated.

Whatever reason that put you in this situation, you need to know that it’s possible to have more than one home base. This can have adverse effects financially if you don’t fully understand the potential tax implications. State residency rules can be complicated now because of Covid. Many American workers perform their job from home and this is where potential tax problems arise when you do your taxes yourself.

Do you owe state income taxes to only one state? Are you sure?

Most states in the USA basically have their own interpretation when it comes to residency. For the past year or so, states have been having severe economic issues. In that regard, they look for every opportunity to take in money. In general, they say you are a resident if you spend more than a half year there, and your domicile is in that state.

What do they mean by domicile?

Essentially, for tax purposes, a domicile means that your home in that state is your permanent place where you reside. It’s your primary home where you come back to when you’re away.

Normally, a person can only have one domicile at a time, but, if, for instance, you spend time at a home you have in another state, it’s possible that you could be considered a statutory resident there. If so, you would owe state income tax to that state too when filing your own taxes.

Do you know about the 183 day rule?

The most important factor that determines your residency status in any state , is your physical presence there. Generally, most states follow the 183 day rule to see if you can be classified as a statutory resident, and be required to file a tax return there. If you do your own income tax, you need to keep that mind.

How do you establish legal domicile?

If you are moving to a new state, you need to establish legal domicile as soon as possible. This is very important if you’re moving to a state that doesn’t have an income tax. If you don’t, the state that you left could be coming after you with a tax bill. States are conducting residency audits more frequently due to their financial hardship. If you’re the target of a residency audit, you’ll have to prove that you legally changed your residence.

Some of the items that are required to prove your new domicile are:

  • Show the time spent in each state
  • Location of employment & whether it’s permanent or temporary
  • Filed a change of address to the new state
  • Driver’s license & vehicle registration transferred to new state
  • Voter registration transferred to new state
  • Bought or leased a new residence in new state
  • Sold or leased old residence in former state
  • “Near and dear” items moved to new state (family, pets, etc.)
  • Established bank and or brokerage accounts
  • School records for children moved to new state
  • Established memberships in social organizations

There may be situations where the former state disputes the change in residency. In that case, your intent for the move may be a deciding factor.

A dual residency could apply

There have been cases where taxpayers were classified as dual residents, and took a hit with paying both states taxes. Some of those are:

  • Failed to establish a domicile in the new state
  • Owned homes in both states
  • Were a resident in one state, moved to another, & then back to original state
  • Working in one state while living in another state
  • Moved to a new state on a temporary basis.

When you’re a resident of a certain state, generally, all income earned, no matter where, will be taxable in that state. Federal taxes work the same way. When moving from one state to another, you usually will file as a part year resident in both states the year of the move.

A lot of individuals live in one state and earn income in another for a short period of time. In that case, they are required to file a non-resident tax return taxing only the income earned in that state. In their resident state, they report all income but receive a tax credit for the non-resident return.

Getting a handle on your state tax liability

Sometimes it can be difficult in determining various requirements, and the tax liability too. If you normally file your own tax return, it might be a good idea to meet with a tax professional to sort it all out.

However, in most cases, it is fairly easy to figure it out. Our online tax filing program will ask the appropriate questions and will guide you through when you do your own income tax.

Gust Lenglet

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