Crossing Borders, Cutting Costs? What to Consider When Moving to Another State

Last November, Jeff Bezos made headlines when he moved from Washington State to Florida. He said he was moving to be closer to family and his new business, Blue Origin, but journalists were quick to point out that there might have been another reason: Washington has a 7% capital gains tax, and Bezos had announced plans to sell $50 billion worth of Amazon stock in 2024. By moving out of state, he stands to save around $600 million.

Bezos isn’t alone. Over the past five years, 26% of Americans have moved from one state to another (although it’s a safe bet that none of them saved $600 million in the process). Their motivations vary, but they share a common need to carefully consider the financial implications of moving.

Why People Change Their State of Residence

While there are any number of reasons that people might choose to move to another state, the most popular can be summed up in three words: work, weather, and wealth—or some combination of the three.

Employment Opportunities

The job landscape is changing, with some states emerging as new employment hotspots. Nevada, Florida, and Texas are the top states in terms of job growth, so it’s no surprise that they’re all in the top ten most popular states to move to.

But while there’s nothing new about moving to another state for work, the rise of remote work now allows employees to move anywhere. More than 12% of Americans now work in fully remote jobs, a number that is expected to increase to 22% by 2025. With the freedom afforded by remote work, many are choosing to move away from their jobs to states with higher quality of life and lower costs of living.

Quality of Life

In many cases, the search for a better life equates to a warmer climate—Florida, Texas, and Arizona are the top three states that people are moving to, and the South is the most popular region.

Access to nature, quality healthcare, reputable schools, and cultural amenities also call across state borders. Proximity to family is another significant factor, with many moving closer to loved ones for support and shared experiences.

Financial Incentives

Finally, there are financial motivations. The cost of living is an important one. Daily expenses, housing affordability, and the overall economic environment of a state are critical considerations. Homeownership is often more achievable in states with a more affordable real estate market, offering people an opportunity to own property that might be out of reach in more expensive locales.

And, of course, taxes play a role. Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming do not levy a state income tax. Depending on income level and other factors, this could result in significant savings for some people, making them tempting destinations.

A Penny Saved or a Penny Taxed?

But don’t pack your bags just yet. No income tax sounds like a bargain, but it’s essential to consider other forms of taxation. Some states compensate for the lack of income tax with higher property or sales taxes or, as in Washington, higher capital gains taxes. In New Hampshire, for example, there is no tax on earned income, but there is a 5% tax on dividends and interest.

Sales and property taxes are additional considerations. At 6.85%, Nevada has one of the highest sales taxes in the country, and New Hampshire has the fourth-highest property taxes. Estate and inheritance taxes also vary by state, which can affect estate planning and potential liabilities. Only a few states impose these taxes, and the thresholds are generally high, so these taxes affect relatively few people. For those who are affected, however, they can be substantial.

Home Sweet Domicile

Let’s say the siren call of better weather and a higher quality of life is too much to resist. What should you be thinking about when moving to a new state?

Double Taxation

It’s possible to be taxed by two states on the same income. This can happen if you move partway through the year or if you live in one state and work in another. Tax credits are usually available to mitigate this issue, but it’s important to establish a new domicile to avoid issues with taxation and legal matters.

Domicile vs. Residence

You may have multiple residences in different locations—for example, a primary home that you live in during the week and a vacation home where you spend your weekends. Your domicile, on the other hand, is your primary legal residence and determines your tax, voting, and legal jurisdictions.

Establishing a new domicile can help you avoid double taxation. Bear in mind that each state has its own rules for establishing residency and you should consult official state websites or seek advice from legal and tax professionals to ensure you meet all the requirements. Generally, however, the following are standard steps:

• Housing: Buy a home or enter into a long-term rental in your new state to establish substantial ties. Selling your home in the old state can also support your intent to relocate permanently.
• Utilities: Set up utilities like electricity, water, and internet in your name at the new address to demonstrate your commitment to the new location.
• Driver’s License and Vehicle Registration: Update your driver’s license and vehicle registration. This typically needs to be done soon after you move, often within 60 days.
• Voter Registration: Register to vote in your new state, which might require canceling your registration in your old state.
• Banking and Healthcare: Transfer your bank accounts to your new state and establish relationships with new healthcare providers.
• IRS Notification: Inform the IRS of your change of address to ensure all tax documents are sent to the correct location.
• Declaration of Domicile: Some states require you to fill out a Declaration of Domicile form to legally declare your new residence as your permanent home.
• Estate Planning: Review and update your will, power of attorney, or any trusts to reflect your new address and comply with your new state’s laws.

Residency Audits

Watch out, though—states can tax you based on residency as well, depending on how much time you spend in a state and whether you maintain a home there. If you qualify as a resident under a state’s rules, you might be liable for state taxes there even if your permanent home is in another state.

Be aware of residency audits, which can occur if your old state challenges your residency status. These audits investigate where you earn income, where your children go to school, and where you have community ties. Adequate preparation and record-keeping can help you prove your domicile and prevent legal and financial consequences.

Making the Right Move with Tonneson

“Moving to a new state opens exciting possibilities, but it’s crucial to carefully evaluate the financial landscape and its enduring implications when planning a move,” says Lynette Sequeira, Tax Director at Tonneson + Co. “We bring expertise and personalized service to help you make informed decisions. We’re more than happy to guide you every step of the way on this exciting journey.”