How to change your tax home.

"You can check out any time you like, but you can never leave". Hotel California by the Eagles

Leaving a high-tax state, such as California and New York, is not as easy as it seems. For high-income earners especially, moving out of state can lead to a costly and time-consuming audit. California's Franchise Tax Board (FTB) and New York's Department of Taxation and Finance (DTF), in particular, scrutinize virtually every tax return where a change of domicile occurs.

Moving to lower-tax states in retirement.

There is more than just sunshine attracting retirees to states such as Arizona and Florida. $1M can last over 22 years in these two states, versus 15 years in California or 16 years in New York. While retiring in a different state to pay less in taxes is perfectly legal, high-tax states realize that some people will simply buy a house in a lower tax state with no intention of living there long-term solely to reduce their tax bill. To avoid being cheated out of revenue, states such as California and New York are very likely to audit returns declaring a change of domicile. In a recent article discussing President Trump's declaration of changing his domicile from New York to Florida, a tax partner at an accounting firm said that every single time one of his New York clients changed their domicile to leave the state, they were audited.

Your residence is not the same as your domicile.

While you can have multiple residences, you can only have one domicile. A residence is considered to be temporary. Your domicile is indefinite and the place where you intend to return when you are away. Domicile is a legal term used to determine benefits, voting, and taxes. If a taxpayer changes their domicile, they need to be able to prove that they intend to make the new state their fixed and permanent home.

Obtaining a new driver's license in Florida and registering to vote is not sufficient to change your domicile. Auditors analyze the taxpayer's patterns to determine which state is more central to their life. If it sounds subjective, it is. When it is too challenging to determine which of the two states is the domicile, auditors will rule that the taxpayer never made a change. Luckily, there are some published guidelines and examples to help a taxpayer understand what auditors look for and how to make a clear-cut change of domicile.

How to clearly end your domicile in one state and establish it elsewhere.

These are the primary factors that auditors consider in determining whether or not a taxpayer has successfully changed their domicile. It is not all or nothing, but the more actions you complete, the stronger your argument will be if you are challenged.

• Sell your home and establish a domicile in a new state.

A taxpayer that sells their home in California around the same time they buy a home in Arizona is clearly establishing a new domicile. When you don't sell your home in the high-tax state, it sows doubt in the auditor's mind, especially if other red flags appear. California's FTB, for example, assumes that if you keep your California home, you plan to return at some point.

• Stop working for your company in the old state to clearly end your domicile.

If you continue working for your New York-based company, you will have a hard time arguing that you changed domiciles. This is especially true if you have an active part in the day-to-day management of the company and remain in constant communication. If a new management team is in place and running the day-to-day operations, periodic phone calls from the founder are fine.

• Count your days in each state and maintain documentation.

Ensure that you are in your new state for 183 days or more per year. While a discussion with auditors about your whereabouts for the year in question may be enough, they have been known to check flight schedules, social media, cell phone records, and credit card purchases to confirm the accuracy of a taxpayer's claims. There are exceptions to the "time" rule, such as if the taxpayer stays overnight in New York City frequently for work during the week for convenience, but she spends weekends with her family in New Jersey. For the most part, though, tax courts have made it clear that you did not change your domicile if you continue to spend most of the year in your previous state.

• Move your "near and dear" items to the new state.

Wedding albums, pets, and family heirlooms are examples of items that have sentimental value. It is expected that you would move these items to your fixed, permanent home. If you are still keeping these items in your old state, it will undermine the case that you ever moved.

• Be aware of the "family connections" factor.

Moving to Florida and coming back to visit family in New York seasonally does not threaten a Florida domicile, but auditors will seek to understand if you still have strong ties that you maintain in New York. For example, if you have minor children, auditors will ask where they attend school since the quality of schools is a major factor for parents choosing a permanent home.

Additional factors considered when determining your domicile.

While these factors do not have as much weight as the primary factors above, they are nonetheless considered by the auditors. Since they are fairly easy to accomplish, we recommend changing all four items to the new state.

• The address where mail is primarily received

• The location of a vehicle's registration

• Where the taxpayer is registered to vote (and if they vote in all elections, not just the primary election)

• The address listed in important documents such as the taxpayer's will or divorce decree

Actions speak louder than words to the auditors. Moving your domicile is not as easy as declaring a change. Assume you will be audited and be clear and calculated in terms of how you go about the change, especially if you are a high-income taxpayer leaving a high-tax state such as New York and California. Whether you are looking to retire in a new state or abroad, we can help you get your financial and tax picture in order.

Linda Rogers, CFP®, EA, MSBA is the owner and founder of Planning Within Reach, LLC (PWR). Originally from New Jersey, Linda services clients throughout San Diego county and nationwide. She leads the design of PWR's investment portfolios which utilize broad, low-cost investments that integrate environmentally, socially, and governance (ESG) factors.

Planning Within Reach, LLC (PWR) is a fee-only and fiduciary wealth management firm offering one-time comprehensive financial planning, ongoing impact-focused investment management and tax preparation services in San Diego and nationwide. PWR is a woman-owned firm that specializes in busy professionals and impact investors. Planning Within Reach, LLC and their advisors do not receive commissions and do not hold any insurance licenses or brokerage relationships.