Before You Move to Florida for Tax Reasons

Over the past few years, I have had more than a few conversations that start the same way.

Usually, it begins with something like, “So… how’s Florida?”

That is often followed by, “We’re thinking about doing the same thing.”

I understand the appeal. After enough New England winters, even the most loyal among us start to reconsider our relationship with snow. There is something about late February that makes palm trees feel particularly rational. Add in state income taxes, and the idea starts to sound less like a fantasy and more like a strategy.

Like most strategies, it deserves more thought than the weather forecast.

“Six Months and a Day” Is Wrong

When people talk about changing their domicile, the conversation often turns to “six months and a day.” This is a dangerous (and generally wrong) assumption. These states aren’t dumb, and they’re highly motivated by the amount of tax revenue high net worth families represent. In reality, states look at behavior.

Where do you spend your time?
Where are your doctors?
Your vet?
Your community memberships?

They’re looking for the real answer to the question: “Where is the center of your life?”

You need an experienced CPA to assist you with the decision from the earliest stages of your planning. This is not an area where you can afford assumptions because of what someone at your country club talked about on the back nine.

The Fully-Integrated Lens

There is one other aspect of the relocation decision I want to acknowledge. Many people can get tunnel vision on the “big thing,” such as tax savings from selling their business. While that’s understandable, other financial variables can also play a meaningful role in the net financial benefit.

One quick example: Some families prefer to keep their original residence for sentimental reasons. While understandable, this can trigger a big tax change. In federal tax law, a married couple can exclude up to $500,000 of capital gains taxes when they sell a primary residence. If you now have a primary residence in another state, that will no longer apply. It might not outweigh Florida’s lack of income tax when you sell a business, but these are things worth noting.

You need a Fully-Integrated approach to decisions like relocation. Your entire financial team–financial planner, CPA, estate attorney, realtor, lender, etc–needs to be collaborating on your behalf. You don’t know what you don’t know. Work with someone who’s done it before and done it well.

We have assisted many clients through this process and can connect you to other financial professionals with similar experience in this area.

(Don’t forget, taxes alone should not be the primary factor driving your decisions. It doesn’t matter how much you save in taxes if you don’t love where you live.)