September 15, 2020

Establishing Domicile

Posted By
Kovitz

One of the biggest decisions many retirees or soon-to-be retirees face is one that seems deceptively simple and matter-of-fact: where to call home.

If not complicated enough by work and family goals, re-establishing one’s domicile can be accompanied by the specter of a state tax audit if not done correctly. Rules for establishing domicile vary by state. New York, for example, even includes a test of where one keeps “near and dear” possessions, the so-called “teddy bear” test. It should be no surprise that states like New York, California, and Illinois have laid a few traps, whimsically named and otherwise, for folks to navigate before escaping all or at least part of the relatively high income taxation of those states.

Domicile typically means one’s permanent home, where one plans to settle after a period of absence. Therefore, the determination of one’s domicile – in the eyes of state departments of revenue – is based on that taxpayer’s actions. To that end, the more records you keep – such as a calendar – the better. To help you navigate the intricacies, we have created a checklist meant to serve as a general roadmap for beginning the process of establishing permanent residency in a state different from where you currently reside. In addition to reading through this checklist, you will want to consult with your tax professional and financial advisor for additional considerations based on your specific facts and circumstances.