Your domicile is your permanent home, the place where you intend to live indefinitely. It's not necessarily the same as your residence, which is where you currently live. Your domicile is important for tax purposes because it determines which state you must file your taxes in and which state's laws will govern your estate when you die.
A person can only have one domicile at a time. It is not lost by absence, even if prolonged, but only by acquiring a new one. The intent to make a new domicile must coincide with actual residence in the new location.
The following factors are considered when determining a person's domicile:
You can establish domicile in a new state by:
Once you have established domicile in a state, you must take steps to maintain it. This includes:
You can change your domicile by:
Your domicile determines which state you must file your taxes in. You must file your taxes in the state where you are domiciled, even if you do not live there full-time. If you are domiciled in one state and live in another, you may be subject to double taxation.
Your domicile determines which state's laws will govern your estate when you die. This means that the laws of your domicile will determine how your property is distributed and who will inherit your assets.
If you are planning to move to a new state, there are several things you can do to establish domicile there:
When establishing domicile, it is important to avoid the following common mistakes:
Here is a step-by-step guide on how to establish domicile in a new state:
1. How can I prove my domicile?
You can prove your domicile by providing documentation such as a driver's license, voter registration card, tax returns, and bank statements.
2. What if I live in one state but work in another?
You are domiciled in the state where you have the closest connection. This is usually the state where you live.
3. What if I am a snowbird who lives in two different states during the year?
You are domiciled in the state where you have the most permanent ties. This is usually the state where you have your permanent home and where you vote.
4. Can I have more than one domicile?
No. A person can only have one domicile at a time.
5. What are the consequences of having multiple domiciles?
Having multiple domiciles can lead to double taxation and other problems.
6. How can I change my domicile?
You can change your domicile by moving to a new state and living there with the intent to remain indefinitely. You will also need to register to vote in the new state and change your address on your tax returns.
If you are planning to move to a new state, it is important to understand the concept of domicile and how it will affect your taxes and estate planning. Contact a tax professional or an estate planning attorney for more information.
Story 1
A man named John moved from California to Florida in 2019. He sold his house in California and bought a new house in Florida. He also registered to vote in Florida and changed his address on his tax returns. However, he continued to work in California and spent most of his time there. When he died in 2021, his estate was subject to both California and Florida estate taxes.
What we can learn: It is important to take all of the necessary steps to establish domicile in a new state. This includes moving your permanent home to the new state and living there with the intent to remain indefinitely.
Story 2
A woman named Mary moved from New York to Texas in 2020. She rented an apartment in Texas and registered to vote there. However, she kept her house in New York and continued to spend most of her time there. When she filed her taxes in 2021, she claimed residency in Texas. However, the IRS determined that she was still domiciled in New York and assessed her taxes accordingly.
What we can learn: It is not enough to simply move to a new state and register to vote there. You must also take steps to establish your permanent home in the new state and live there with the intent to remain indefinitely.
Story 3
A man named William moved from Illinois to Arizona in 2021. He sold his house in Illinois and bought a new house in Arizona. He also registered to vote in Arizona and changed his address on his tax returns. However, he continued to work in Illinois and spent most of his time there. When he filed his taxes in 2022, he claimed residency in Arizona. However, the Arizona Department of Revenue determined that he was still domiciled in Illinois and assessed him taxes accordingly.
What we can learn: It is important to be aware of the tax laws of the state where you are domiciled. This includes understanding the rules for determining domicile and the tax consequences of changing domicile.
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