404: Want To Avoid Taxes? | Just Move!

There's a lot that goes into moving and establishing residency another state for not just for income tax purposes, but for your cost of living.

Just because they're low state income tax doesn't mean they're friendly when it comes to property tax or sales tax or

tax and income, but not retirement plan distribution incomes, of course. Or there's more bang for your buck, if you will, in tax savings by going to another state. Welcome everyone to the Main Street Business podcast with Matt Sorensen and Mark Kohler. I want to be honest today and say we're so excited to be with you, but we got a killer topic, an awesome topic that is something a lot of us think about, which is, damn, why don't I just move to another state where I don't have to pay as much taxes or taxes at

all or the cost of living. It is interesting. Some of the highest state tax states are the highest cost of living states, which is just, it's insult to injury. So in this recessionary period with inflation, with higher interest rates, a lot of people are, where can I pinch some pennies? Where can I save costs? More people are working mobile than ever before. Remotely, whatever you want to say. Mobile, remotely. We're going to get into the mobile RV. You know, the RVers that are going out full time on the road.

Yeah.

Move to another state. So we're going to highlight the good states, the bad states and how to do it.

Yeah, we got some tax data too. I've got some stats. I think they're a little interesting on showing where people have been moving. And there's a common theme. Okay. In and out tax states, people are leaving. Low tax states or no tax state, people are coming.

Yeah. Oh, okay. So let's do some stats. Sometimes some of our best shows are when we hit the fit the facts first. I'll come out. All right, let's, let's get some facts out there. A lot of people don't know this. There are eight states that have no income tax at all. Now, one of our themes here, I'm going to come just spoiler alert. Just because they're low state income tax doesn't mean they're friendly when it comes to property tax or sales tax. That's another issue we'll redress briefly later. But let's just talk about income tax, which is your biggest price tag. So there's eight states with no income tax at all. Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington state, Wyoming. There are three states. This is your area. You love this.

Yeah.

Three states.

Yeah. There's three states kind of like trying to hang on to retirees and they've said we're tax and income but not retirement plan distribution income. So they had all their people hitting retirement plan age leaving to Florida and other these low income tax states. So Illinois, Mississippi, Pennsylvania are three that do not tax retirement income distributions. So if you're living off your IRA or 401k and you're in one of those states moving doesn't matter, you're still not paying state income tax on those.

And if that wasn't weird enough, New Hampshire, it's kind of a rogue state, says we're going to only tax income tax from interest and dividends. So it's kind of odd. But anyway that's so New Hampshire for

your die state, right?

Yeah. Live free or die New Hampshire. So now next fact. The top best states from in that have that do impose income tax. Leading the pack now starting January 1, 2023. Where from? Grand, you know from home Central now. Yeah, from right here, Arizona at 2 1/2% beginning 2023. This is good news. Deb, right? Got Deb in the studio. She moved to Arizona just for this. Yeah, 2.5% which is a huge change

by the way for it's been four and a half. Five percent is what we've had in Arizona. So it's going down. States are starting to have to compete and Arizona's had a ton of people move here. Obviously we'll get into that. But so excited. Yeah, my two and a half percent, all the people in Texas and Tennessee and Nevada, Florida that are, you know, two and that's not bad. Yeah.

And you, and you get a little more reasonable property tax here you go to Texas. Property tax is brutal.

Right.

You're like, you know, so Arizona I think is really good fit. But Anyway, Pennsylvania at 3.07, Indiana at 3.23, Michigan at 4.25 and Colorado at 4.55. Those are the next best states that don't have any that do have imposed a tax. What are the rates? So there you had some data too. What did you have fact wise here too?

Well, I want, I looked at kind of some. This is from the tax Foundation. They always do some great studies about people moving. But let me give you the top five states that had a net gain in taxpayers. Okay, so, so this is IRS data that shows states with the net gain of people that have taxable income.

So after the leavers and their arrivals.

Yes, this is the net gain and net losses. Let me hit the net gain, this is in order. Net gain from top down. From the top down. Number one, Florida. Number two, Texas. Okay. Both no income tax states. Number three, Arizona. Like Mark said, going to the flat tax of 2 and a half, it was about 4 and a half before on the lower side. And then North Carolina and South Carolina, which are in the 5 plus, but definitely below the 10 category for places like California, Massachusetts.

Yeah, that's interesting. North Carolina is 4.99. South Carolina at 7. South Carolina a little higher.

Now think about that. There's cost of living issues there. The Carolinas cost of living. You know, what Mark, you said earlier is, you know, there's a lot that goes into moving and establishing residency. Another state for. Not just for income tax purposes, but for your cost of living, housing expenses, all the things that go into a new state. So I think those are more affordable states, housing wise and some other cost of living areas.

And we're going to give you the tips here on how to do this.

I want to give you the losers.

Losers.

I want to give you the losers. The losers bracket. Dc, New York, California, Illinois, Massachusetts, New Jersey. Guys, there's a freaking theme here, all right? There's a common theme of where people are moving that have taxable income. They are leaving these states that have way high tax brackets. Some of these over 10% in state income tax. And they're moving to states that are more accommodating. They want to take less of what you work so hard for. So. So that's the theme. I thought it was super interesting because it just lined up perfectly. The Carolinas were the little curveball, but they're still on the relatively lower side of the. Of the pack, I'd say.

So here are, from a tax rate standpoint, the top five worst states. California at 12.3% or more. I know there's an update coming for 2022 and 2023. Hawaii, 11%. I'm willing to pay that, though. I mean, no one's leaving Hawaii.

You know, it's true. Like you got like all these things that money just can't buy. Yeah, that's true.

That's right. You can't. That sea breeze and, ooh, that smell of pina colada. Okay. New Jersey. All right. Okay. New Jersey at 10.75. And then New York 10.9. I guess New York's ahead of New Jersey. Sorry. And then Washington D.C. at 10.75. So those are kind of the. They're all 10 plus. They're just ugly. Yeah. You know, I think Interesting thing about Illinois, they are really at a 4.95%, but their cost of living and their property taxes, you just get. I meet so many people that love Chicago.

Well, let's talk about this, because I know you get the call, right? And I've had this so many times over the years of, hey, I live in California. That's when I probably get the most of all these states. Just, we have so many clients there. I'm sick of all the taxes I'm paying here. I want to leave. I mean, you even went through this yourself. Yes, I have at one point, living there. And I've lived in.

Boy, in the last. Yeah, in the last three to five years. Well, I'd say five to 10 years. I've been in three different states and getting a feel for all the different tax rates and how to do it. And. Okay, so here's the deal. Here's the risk. The state you're leaving that has a high tax rate, they don't want you to leave. They want your tax dollars. And they will audit you and they will find out if you're lying. And for years, clients are like, oh, I'll just go buy a condo in Vegas, or I'll go rent somewhere in Reno, and then I'll go there once in a while and I'll change my license plate. I'll change my driver's license, but I'm not really going to go there.

I'll change my voter registration.

Yeah. Which we're going to go through the list. Those are important. But California will now audit your cell phone records. If your phone is pinging in Long beach, they know you didn't move. And so they're going to literally look at your cell phone records to prove where you've been sleeping at night. So you can't say you've moved. So any of you that are like, oh, tell me how to do this, and I'll just. It's bogus, right? I'm just. I'm really not going to move to Florida. I'm just going to get residency set up there, and then I'll go back and have Italian, you know, spaghetti dinners every Sunday with my family in New York. No, you've gotta move.

Yeah, Yeah. I think sometimes people do approach it the wrong way. It's like, you're moving. Like, they start asking the questions, what do I need to do to show that I've actually moved to prove that I moved somewhere? Move.

It'll come naturally.

Yeah, you're gonna just go through the motions and you're gonna actually physically be somewhere. You're gonna change your car registration. You know, like you're gonna do those things. And so. And it's not worth, it's not worth playing the games either. And guys, the states are more aggressive than irs, believe it or not. They are more aggressive. They're more on it. They chase these things. The higher your income, which is the more inclined you're looking to do this, the more audit risk you are. So I want to just hit like. But this is happening. Like, let's just everybody know like Elon Musk. Right. Peace out. California. Going to Texas. Marky Mark, Mark Wahlberg. I don't know if you heard this one yet. No move leaving Beverly Hills, moving to Nevada. Okay. And so, and that's just, you know, almost like non celebrities too, that are making these changes too. But, but, well, I want to get that off the table first. There's no game of pretending like you live somewhere else. Now. Could you come back to the state you're from because you have friends and family and visit and maybe keep a second home there. Yeah. Yes. But that's that. You really got to transition life.

Yep.

To being in that new state you moved to.

I love it. I think here's where these steps matter most is in the first year, because that date you, because you're going to say, yeah, I'll move to Texas. Well, was it in January? Was it in June? Was it in December? And so you want to create a cutoff date. So our tip here is this. If you're going to move residency, first you got to have that emotional commitment that I'm really going to move. Okay. Try to choose a cutoff date and let your accountant know that, like, this has got to be on paper. I am going to move residency on this date and then do these five to 10 things we're going to talk about that coincide as close as possible to that date. The problem is we have clients are like, yeah, I moved, but it took me a while to get my driver's license. Or I waited a year to do my registration. Or I waited a year to do this. Or I waited a year. Well, guess what? The state you just left, they're going to grab you for another year then. So the trick here is, is making sure that you pull that trigger decisively on a specific date. Now, to be easy schmeasy here, choosing a quarterly date on the end of a quarter or in the middle of the year. Like, I'm going to move July 1st or I'm going to move December 31st is a great cutoff for that. But whatever that date is, align all these things with that date.

Yeah. All right. I want to give another tip too. One thing. Sometimes I get clients that ask about this and they think about it and it's like they're making 200 grand a year. Great. That's a, that's a great income. Great. Maybe you're, you're self employed, you got some mobility to move wherever the heck you want in your business or life. That's not enough, I think, to be looking at state income tax savings as a big factor. Like that might be a little factor amongst like the schools your kids could go to if you got kids, like the cost of living, the housing, the family, the cultural life, the, the whatever, all the little things that you might look for and deciding where to live, like it's not as significant at that 200,000 of income. Once you're at about a half a million or more of income, and particularly those in the millions, obviously there's more juice coming out of this squeeze here. That's being taxes, of course. Or there's more bang for your buck, if you will, in tax savings by going to another state. So, so just know, like, don't. I wouldn't think too much about this if it's, you're talking about a couple hundred grand of income.

Yeah. And you're going to love my quote at the end of my article. Don't look yet. Okay, I'm going to show you this. So I wrote an article on this too. You can get it@markj.kohler.com or kqslawyers.com just go to our blog section and I've got an article that just came out this week on it. And one thing I said at the very end is do a spreadsheet. Really look at all the factors. Schooling, property taxes, sales tax, income tax, and cost of selling your home and buying a new home. There's a lot of things that go into it. Moving is not cheap. Now once you get there, you might start to feel that savings add up over the next year or two. But are you willing to live with that discrepancy for just a few months or longer? So I put here at the very end of my article, bottom line, create a massive spreadsheet to analyze all the competing factors. Run models, and as Matt Damon's character said in the movie Martian when he moved to Mars and started growing potatoes, quote. So in the face of overwhelming odds, I'm left with only one option. I'm Going to have to science the shit out of this. So sorry, kids are in the car. But that was from the movie Martians.

Yeah, you were quoting.

So this is a quote.

What do you expect? What do you mean?

So science this. Don't just make a decision off the cuff with the day you pay your state tax bill, because that's the day you're going to be thinking about this. Yeah.

You're like most angry. You're making an emotional decision. That's right. I'm out of here.

California.

By family, by kids, bye, friends. By life. I've, I've created here. Now I get it. I mean, it's like lots of people have still done it, so. But I like it. Make an analytical decision, not an emotional one, because that's what taxes are. It's a number. It's just, it's a, it's an amount of money you're going to send. But that, that money also has value in other ways and all the other things that are involved in your life. So.

I don't know. I want to say that too, though. I think it is a, I'm going to, I'm going to disagree a little. I think it's a, it's a combined decision between the emotional and the analytical.

Yeah.

Don't make it all just based on emotions. Don't make it all on a land, analytical, because on paper it may make sense. I'm going to move to Nevada. And then you get there and you're emotionally, you're feeling, you're hating it. You're down in Florida. You're like, I hate the humidity. I hate the weather, I hate the bugs. I can't go out into the swimming pool at night because there's going to be an alligator in there. You got all these, you know, different rules to live by. But then you, but then if you do it all based on emotion, you, then you're like, you get there and all of a sudden costs are higher than you thought because you didn't look at the analytical. Do both because you want to, you want to get there and feel good about it in your pocketbook and in your heart. Make sure that you're. And sometimes one of the best things is go spend a couple weeks there, go get it at an Airbnb for a couple of weeks. Go stay with family, friends and go, how is this? Where's my grocery store? What are these costs?

Yeah. Okay, good tip. Yeah, I mean, I, I, when I, when I say the emotional thing, I like to just think of. And I love the The. The tip of, like, go stay there for a little bit, you know, I mean, I've had, in fact, I had a client go to Puerto Rico, you know, and that was, you know, Puerto Rico. Not only can you dip out on the state income tax, you're skipping out on it. Federal tax, too.

Right.

We've done prior stuff on that. And a lot of people like Puerto Rico. Puerto Rico. I gotta go there. And I had a client. It's funny, he was from Florida, so he's already out of stock. But he went to Puerto Rico, he came back and he's like, halfway there. Yeah. But he's getting out of this federal tax, too, by going to Puerto Rico. And he said, no bueno. You know, he was like, do they

have power right now?

Yeah. He's like. He's like, man, it's a. It's an island. He's like, and it's kind of America, but it's not. And so. But man, on paper, Puerto Rico looks good.

Yeah.

You're focused on the tax.

Cuban sandwich. But then after three days, you're like, I need some Ex Lax, and this isn't working for me. All right? So anyways, okay, now here's another important tip, everybody. And it's very, very important. Pay attention. You may say, okay, I'm going to leave Massachusetts to Florida. All right? You're going to save on state tax. You've done the numbers. You're feeling good about it. And then you say, and I can work remotely in Florida. But you have a W2 for Massachusetts. Oh, okay. So is the state of Massachusetts going to be okay with you getting a W2 with state tax withheld with a company from Massachusetts? Because if they don't change your payroll to Florida, you're still getting W2 from the state of Massachusetts. And they're going to be like, you're not. You haven't. You may have moved, but the company you're working for and for your business owners. I have business owners do this all the time. Well, my business is in California, but I'm going to move to Nevada. That's fine. But you're. You're. California is going to tax you if you earn it there or you live there. And that's how all the state works. So Massachusetts is going to say, if you earned it here, we're taxing it. If you live here, we're going to tax it. So you have to be able to move your employment and move your business, too. It's not just moving your butt.

Yeah.

It's moving all Those businesses, Matt and I have offices in four states. Yeah, we do four state tax returns. Yeah, we pay taxes in four states.

Yeah. And it sucks. Yes. But, but here, let's, let's go through that. I want to give this. Many of you may not know how that works on state income tax because like Mark said, they catch you either way. But a lot of people are like, well, that's not fair. Let's say my business still is in California and I moved to Arizona. Okay, all right. California is going to tax your income because you have a business there. Arizona is going to tax your income because you live there. Now Arizona is going to give you a credit for what you paid to California, which is going to reduce what you owe to Arizona, which in this way means you're going to owe nothing. If it was the reverse, you would end anyways. We can get into the reverse situation. But so, so you're going to get a tax credit in the state. You resident, you're a resident. If you've paid it in another state, perfect. That's a higher rate in particular, of course, such as, such as California. And if it, and if it was a. Let's say you paid less in the state. Let's say you moved from. Let's say it was less, though it wasn't California. But you end up owing more in Arizona. You just get a credit for the piece that you paid and you pay the balance back to Arizona.

You're going to love my example. So when I was a brand new accountant, I worked at KPMG in Portland, Oregon. And that's one of the big five, big four, three, two, whatever the hell they are.

Now how many are left?

I know how many are left. They're all consolidated.

The final four.

I'm already looking forward to March Madness, by the way. Okay, so they, I was working at KPMG and I worked in the state tax department. Well, kpmg, big, big firm. They did a number of the Trailblazer, Portland Trailblazers basketball team, their players. And so I got to work on one of the players tax returns. I can disclose who this tax return was. Freaking three inches thick. And you'd be like, they made a lot of money. Well, they made a lot of money. But here's an example of how this works. They lived in Oregon as a Portland Trailblazer, but they'd go play basketball games all over the country. So they go play the New Jersey Knicks, they go play the Utah Jazz, they go play the Marlins down in Florida Marlins.

That's baseball. And I Think he's the New Jersey Knicks. I think it's the New York Knicks

or the New York and the Marlins. The Marlins are baseball. My stories are not going well.

Okay.

They went and played the Lakers.

You did tell me. I was going to love your example.

You are loving it. Okay. We got the Lakers and then the Jazz. Got to stick with the Lakers and Jazz. All right. Okay.

And they're playing the Bears.

Yeah. Can someone edit this article? They went to play the Bears.

The Bears.

Okay. It didn't go well either. They ran right over them. Okay. So. So the trailblazers tax return they had, they had to pay taxes wherever they played basketball.

Like one game.

One game.

They're find a return because you earn income.

Because think about the Utah Jazz. They're like, you can't come into the Staples center back.

No, Staples Delta Center.

Delta center was back in the day. Now it's the Biven Center.

I don't even.

Whatever the hell is it. Staples is in Lakers. Okay. So the Jazz are like, you can't come to the Vivint center and play your game and not pay tax here. You did business here by playing a game here. So we would do a spreadsheet of all the games that the trailblazer basketball player played around the country. And this spreadsheet would show all the revenue they made from endorsements from the NBA, from this, that and another. And then you divide it by all the games that played. Because work was where they played games. So if they had 32 games, we divide their income 32 ways. And then they'd pay tax in all those places in Oregon and go, okay, whatever's left, we're gonna tax. Because you had a lot of home games. But if you pay tax on all these other states, we're gonna give you a credit. If it was more higher rate in that state. Lucky you. If it was a lower rate in that straight, too bad. We're gonna make up the difference here in Oregon because you live here. So that was an example of that variance. And it was crazy. And this is with golf pros and football players. Entertainers. Yeah. You know, you go down and make a movie in Georgia, you're like, I'm in the walking dead for four months. Well, you're gonna be taxed in Georgia. You're down working in Georgia.

Yeah.

So wherever you go to do business, you're gonna pay tax.

Yeah. I mean, every. Everybody wants their little piece of what you're making. So was that basketball player Clyde Drexler, Cliff Robinson. I'm trying to remember.

No comment.

Any Portland Trailblazers? I can't remember Clyde Drexler. He was a big one, though. Yeah, Anyways.

Yeah. Was it Reggie? No. Okay. Anyway, now last. Okay, couple other notes. Rental property. Explain how rental property works. I've been talking here.

Yeah, yeah, rental property. So. And that's going to be more common to, to many of you, except for those that play on the Portland Trailblazers when they go play the Marlins. When you play the Marlins.

Okay, we got it. We got it. All right. I blew that one.

All right, so. But for rental properties, all right, let's just take the example here. I live in Arizona. I got a rental property in Utah. I am going to pay income tax in Utah on that property. They're like, hey, what did you make here? Well, that rental property's physically in Utah. Okay. There's no disputing that. That's easy for them to figure out. You need to report that income there. But again, you get a credit back in your state where you live. So you're not double taxed. So all the states have a credit system that says, hey, if you end up owing us, we give you a credit where you paid. So like Arizona is like, hey, we're giving you a credit.

So.

But I still got to file in Utah because I have a rental property there. So any of you that have rental properties, you're going into multiple states, you are going to have state income taxes. Now, let's say you're in Texas, okay, And you're in a no income tax state and you're building a real estate portfolio and you have rentals in Indiana. All right, well, Indiana is going to tax that income, of course, and it's going to come to Texas. I'm like, we don't care anyways. There's nothing credit.

I live in Texas. I live in Texas. You can't tax me. We don't care. You made money here in Indiana.

We're going to hook them.

And some of you might be dreaming of going out onto the open road. And it's getting more and more common. Oh my gosh. The RV sales were off the chart during the pandemic. And, and if they weren't, which they were already is steadily increased year after year. And we have a lot of RV clients work with the RV Inspection association, the Repair association, and Work Camper. Love that group out of Arkansas. So we're talking a lot of RV owners. I recently I had an RV out of Winnebago until my kids borrowed it and didn't realize if they went down a street that had low hanging trees, it might not be good for the rv. Oh yeah, it didn't go well. So I don't have a Winnebago anymore. Okay. I got a great insurance claim. I met a new insurance type adjuster but made a friend, great guy, have a new Christmas card friend. But no RV. But anyway, so, but RVing, a lot of people are house rich, cash poor, they're in a high state tax state and they're thinking, hey, this is our chance to see the country, America's beautiful, let's get in an RV and without killing each other if you're married, let's get into this thousand square foot RV if you're lucky and drive across the country and work, get a 1099 working from for the Amazon campuses around the country or for national parks as a host, working your small business as a consultant on the road, maybe you're going to do an RV type service business. So many options. But you're going to sell your home, you're going to leave your state and go on the open road in rv. Where's your residency? Where's your domicile? And so that's when RV owners do have the opportunity to say, okay, I'm going to make South Dakota my home state. And so they're going to buy either an RV pad there, they're going to get their driver's license there, they're going to get their voter registration there. And they're a nomad at that point and that's okay. They've left whatever state they're at, they don't have any real property ownership, they're gone. And for two or three years or longer, depending on how you survive out there on the open road, you can live state tax free in an RV with no property tax. You're going to feel it at the pump, depending on how much you travel around the state, but, or the country, but it's very, very common. And so you have that choice to change your domicile when you go full time in an rv. But if you keep the sticks and bricks as we call it, that and you use that RV to travel for business, now it becomes a business vehicle, it's a business truck. And you may say, I'm going to take the RV and go work at a rental property that we own in another state and visit the kids and now we can write off the rv, but you're going to find this tug of war. I can keep my state residency and write off the RV as a business Vehicle. Or I can leave the state and save on state tax. But now the RV becomes my home. So don't think you can write off your RV and not pay state tax. You can't have your cake and eat it too. You're going to have to choose. But big conversation. But it's. It's part of the dialogue.

So get two RVs.

Oh, just go.

Two RVs.

There you go.

One for business, one for pleasure.

Yeah, well, you know, there's the fifth wheel argument. Say, I'm going to get the truck, pull the fifth wheel. So the truck is a business vehicle and the fifth wheel is the home. You can see I'm not. Do you want to talk about toads? You know what a toad is?

I don't know what that is, but did cousin Eddie have one or what was that?

Cousin Eddie did not have a toad.

Did not roll up.

It took me a year or two to really get this down. A toad is that little toad vehicle behind the rv. Oh, toad. Yeah. See? Play on words. I gotcha.

Amphibians.

Yeah, that's what I thought.

Okay.

I was like, what's a toad? You got a toad along with you? No, no, it's a towed vehicle on your rv.

Okay.

It has a curveball. Yeah. It's crazy. It's out there. There's guys out for the Marlins. Oh, my gosh. Good, good, good, good. All right, Well, I don't know. I think. I think we covered it all. Lots of good options out there. I want to get off this podcast right away.

Yeah, well, get over to markjcoh.com, he's got the article on this. And of course, we're going to be back next week with another amazing episode of the Main Street Business podcast. And remember right now from last week's episode, if you didn't know, we got our solo K special going on at KQS Lawyers setting up your solo K. Many of you are self employed who have the ability to move to whatever state you want. You should also be looking at a solo k. Have a 401k plan for yourself. Could be a great option for you.

Well, everybody, thank you so much for being here. And we'll see you next week. Next week, Open Forum. Open Forum. Cool. Yep. So next week, throw questions in. Yeah. Go to mainstreetbusinesspodcast.com and submit a question. And we are trying to improve the portal there on how the questions are sorted and searched and answered so that you can get more information from this podcast. We really appreciate you participating. Please Share the podcast Give us a great a good five star review and let your friends know that you found a place to get your tax and legal content in a fun, informative way. And you're going to learn about the national sporting organizations and how they're organized. See you next week.