How To File Taxes As A Snowbird in North America: The Essential Guide
We humans also love the idea of fleeing from the spine chilling cold just like our feathered friends who migrate during this time. When the cold seems to catch-up with the everyday activities, those fortunate enough travel to a much warmer place and stay there until the unbearable cold passes away. These fortunate human beings are lovingly referred to as "Snowbirds" and the definite number of them is increasing drastically every year.
How To File Taxes As A Snowbird in North America:
When you live in the US you first have to look at the 183-day rule. if you travel to a different state than the state you reside in, you won't have to pay any taxes for up to 183 days. If you want to stay longer it means you also have to pay in the state where you stay. The recommendation is to check your situation with a tax specialist.
As traveling around and blending in a new environment has become easier than ever, people from the northern hemisphere tend to look for the warmth of the south and its magnificent beaches. Yes, traveling thousands of miles is not an issue anymore. These snowbirds even use RVs now to roam around the continent from the warmth of their own portable house. But of course, there are many issues that bug the snowbirds while they're out of their home for months. The most difficult thing a snowbird has to face is the huge taxes and bills that come along with the duration of their trip. Literally, every snowbird out there was baffled at the beginning by the tax policies and billing system during their stay. So, what's the best solution to the never-ending tax problem?
According to experienced snowbirds and tax analysts, filing the tax isn't the main issue here. The main thing that brings in a huge tax and unknown bills is the lack of our knowledge concerning tax and billing policies around different states and countries. Doesn't matter if you're a Canadian immigrant or you live in a very cold state, the law isn't the same for everyone. There are little details that we always miss and this costs us our fortune. If you're a snowbird or just thinking about becoming one, you should know everything from the general views and policies regarding snowbirds to strictly followed laws in different states.
To start with the details on taxes, first, it should be acknowledged that without the proper knowledge, a snowbird might face different issues. There are several issues that have been filed throughout the history. Here's a summary of the issues caused by the confusion of tax laws!
Tax Range | States | Day Count for Statutory Residents | ResidencePolicy |
High | New York, California | 183 days | A person who meets at least one of the five factors of intent and spends more than 183 days in the state is considered a resident |
Low | Maryland, Pennsylvania, Virginia, West Virginia, District of Columbia | 183 days | A person who spends more than 183 days must provide necessary documents for evaluation |
None | Florida | None if permanent residence is in the state | No documentation needed for out of state personnel |
Tax in the Different States
If you thought that your income tax is billed according to your address of permanent residency and traveling period is excluded from it, you could not be more wrong. Though tax laws differ from state to state and city to city, all your residencies and traveling periods are included in the annual tax with some simple rules. Different states have different tax laws.
Florida is a tax-free state, where the residents don't need to pay income tax for their residency or high-paying jobs. On the other hand, busy states like California and New York are high taxes requiring states. It's not that you have to pay a huge amount of tax just to stay a week or two in these states. There are certain rules and criteria. More on that will be discussed later in this article.
The 183-Days Rule
There's a much known and popular rule called the 183-days rule throughout the US. The 183 days sums up to mostly six months. The day count defines that if you travel to a different state than the state you reside in, you won't have to pay any taxes for up to 183 days. That being said, the rule further creates many confusions as the day count can be quite tricky.
The most common confusion when it comes to the 183 days rule is how different states count this time period. Is there math behind it or is it just simple count from the number of days stayed at the state? Frankly, there's definite math behind the day count and it really is a little bit hysteric. Here are all the information surrounding the confusion created by this law throughout the states!
The Math
Suppose you spend nearly six months at another state and travel back to your home state for a week or two on the holidays. If your home state is New York or California, you would have to pay your income taxes on your annual income to New York. It doesn't matter if you were there for even a day or two, if the 183 days count passes while you're in a state, you have to abide by their rules and pay your taxes there. On top of that, if you again travel back to the state you lived 6 months in, you might need to pay the taxes there too. Have I made you confused? That's because this is a weird law indeed but it keeps the track of the visitors and locals inside an economically progressed state like New York.
Strict Policies
Those states which do not require income taxes from their residence do not care about the change in residency as wherever the people reside inside the state the rule is the same. But, high tax requiring states keep detailed notes on the whereabouts of each of its residencies and try to increase permanent residency inside the state. These states benefit from the income taxes of each of their residents. That's why they strictly follow the rules regarding income taxes.
Variation in Tax Charges
When it comes to charging taxes, your permanent residency matters the most. It's also called domicile, as you will be staying there for an indefinite amount of time. If you permanently wish to reside in a state like California or New York, you would have to pay a high amount of tax each year. But, if you wish to permanently make your domicile in Florida, you won't need to pay any taxes. There are other states like Florida which do not require so much tax from their population. So, how much tax do you want to pay each year? The decision is up to you.
Day Count Policy
The day count helps in keeping track of residents while creating the tax outlines. On the other hand, the day count can get bizarre. Suppose you're traveling from one state to another and stop at a third state for gas. Stopping at that state will be counted as a day spent in that state. Actually, spending even a minute at a state would be counted as a full-day spent at that state.
Get Rid of High Annual Taxes
There's always a way around everything. For the snowbirds, there's a definite path they can follow to get the high bounty of taxes off their heads. Here's some detailed info on how you can pay your taxes in the most efficient way while clinging on to the life of a snowbird!
Your Domicile, Their Rules
As I've mentioned before, domicile is defined by the residence at which a person spends an indefinite amount of time with his/her family or alone. The home definitely is where the heart is and your domicile is that place for you. This is the principal and permanent address of a person until he/she changes it to a different one. Here's what your domicile represents to the state:
1. Your Tax Paying State
Your domicile is your primary home and it defines your identity to the state. The state where you've established your permanent residency is basically the state where you need to pay the taxes. You might have different temporary residencies in different states. But the domicile decides which state actually owns the rights to your taxes.
2. Your Will and Estate
The permanent residency decides the obligations of a person. The state at which I have my domicile owns all the legal obligations and rights over me. To put it in an easy way, my permanent state will completely get my probated will and my estate will be monitored and administered by the state government.
3. Residence Obligations
The position of a person's domicile decides to which state the payment of inheritance and property taxes will be paid. The legal rights of a residence are decided by the land occupied by its state. And, the state keeps all the records concerning each and every residence in it.
4. Judicial Law
There are certain states which are controlled by another state's law when it comes to enforcing judicial orders. The legal actions that can be taken against your domicile through the state law and its law only. The law of another state won't come anywhere near in this case.
Changing Your Domicile
If you've gone through the previous section, you already know about the tax situation in different states. Changing your domicile might be a good idea if you want to save some tax money from your annual income. To change the domicile of a person, these are the requirements:
1. Abandoning the Previous Domicile
Once a person decides on changing their domicile, the first thing to do is abandoning the old one. Clearing out from the last permanent residence makes it clear to the state that you are no longer a permanent asset of their population. Abandoning means giving up all the legal rights concerning the previous domicile. If you previously owned that domicile, you'd have to sell it to completely and legally prove that you have no intention of living there and have no further connection to that specific residency.
2. Moving Physically
After you abandon your previous domicile, you must take on a new one and notify the authority about it. Moving to a new residence permanently does not always have to be in the same state. You can either choose a different locality of the same state or move to another state. Moving to another locality of the same state might bring a change to the property taxes, but it won't change anything to your annual income tax. In order to completely get rid of the annual taxes in your state, there are no other options than leaving the state. You have to physically move every bit of everything in your house that you need to be considered moving to a new domicile.
3. Intention to Stay
Another thing required to be considered as changing one's domicile is showing the intention to reside at the new residence on a permanent basis. If you don't have the intent to live at the newly found residence for an indefinite amount of time, it won't be considered as your domicile. The intentions need to be made clear so that the corresponding state can further evaluate your residence and enlist it.
Factors Behind Intent
When it comes to the intention of acquiring a new domicile, it sometimes creates confusion for the state. Suppose, you've been living as a permanent resident in New York for the past few years and suddenly sold your existing house. After selling the house, you bought another house in another state. If the authority is notified about that, it will be clear to them that you're going to change your domicile to the new state and New York won't have any legal obligations or rights over you or your property. On the other hand, if you would've sold your house and bought a new one at another locality in New York, it won't be clear to the authority if you're creating a permanent residence or a temporary one. They will need further clarification from you. And, this clarification comes in five factors as described below:
– Home Difference
To further clarify your intentions, the state will look into your old home and the new one. They will compare the sizes to each other and the facilities they provide to know if you've upgraded to a better home or just seeking temporary residence. States like New York are pretty aggressive when it comes to declaring the domicile of their residence. The state even declares that if a person moves to another state but can't let go of New York emotionally, he/she is still a resident of the state. So, make your moves clear and concise. Your new home should be as gorgeous as the old one, the more the better.
– Connections
The state will look through your business profile and the connections you have with other parties. This includes all your bills, accounts, transactions, business agendas and everything concerning your business life. If you're seeking to get permission to change your domicile but still have a lot of business connections in the city, the state will try to convince you to stay. Many cases like this happened in the past where the state looked through a person's business records and ignored their petition to change domicile because of their large business network. The main reason here is that a developed state like New York can't risk losing their good businessmen. The richer a businessman is, the more amount is added as tax. So remember to close all your business connections before you want to leave a state permanently.
– Sentimental Items
The legal team of your state will look for the items that hold a definite amount of sentimental value to you and see if you are taking them with you or not. If you decide on taking all the items with you, that means you're not planning on coming back and wishing to be permanent at the new state. On the other hand, if you leave a lot of artifacts and furniture at your old domicile, the state will recognize it as a temporary moving case and will hold you as their own permanent resident. Never leave your belongings at the old domicile and make sure you empty the whole house before you leave.
– Location and Time
The amount of time a person spends at a location defines his/her habits and that further defines how much attached that person is to that place. The state will look through your history and see how much time you spend at different locations. That will clarify your intentions of moving permanently. Suppose you've casually spent the last few years toggling between other states and New York for six months or longer periods of time. This will prove that you're a frequent traveler and have no intentions to change your permanent address. So, make sure you declare yourself clearly and define your traveling reasons in the right way.
– Family
Family is the most intriguing thing to clarify the judgments of a person. If a state determines that you're taking your family with you to the new location, it will mean that you're permanently moving out of the place and not coming back. If even a single member of your family stays behind, the authority will not want to grant you permission to change your domicile. There's a famous case against a taxpayer who wanted to change his domicile from Rhode Island to Florida. The state filed a case and presented in court that the taxpayer still has a plot for burial in the state and has the intention to come back to the island after a temporary stay in Florida. It sounds crazy but it did happen and luckily, Rhode Island did not win the debate. Some states are just crazy about their permanent residences and consider burial plots as a symbol of domicile.
Legal Documents
Besides the factors that drive states to fully understand the intentions of a migrating person, there are certain legal documents each state goes through. Each of these documents refers to the intention of the person and legally clarifies the intentions. Though these documents are called "window dressing" by most tax advisors, it is a must for everyone who decides to change their domicile. Otherwise, the state won't even bother to look at your intents and will not permit a domicile change. Here are the required documents you need to provide to your state in order to be counted as changing your domicile:
– Driver's License
Getting a new driver's license from the desired state is the first legal step to take in order to change your domicile. There are many options to get a driver's license in different states. You can even gain driver's licenses for different states at the same time. But, if your intentions are completely clear and you have no business back at the old state, canceling the driver's license at your old state would be the smartest move.
If you keep the old driver's license, the state will argue that you do not wish to permanently leave the state. States like California and New York are pretty intense at creating difficult situations at conditions like this. So the smartest thing to do is getting a driver's license from the new state and submitting a copy of the new license along with the actual old one to the authority. That way, you can easily say that you're leaving this state permanently and have no intention to come back.
– Official Announcement
The official announcement of changing your permanent address is the second step towards a legal obligation. The announcement will include all the necessary information on your past domicile and the time period. And, it should also clarify your intentions in the simplest manner without leaving anything that can create any confusion for the lawmakers. This announcement must be submitted to the proper authority far ahead of your departure so it gets reviewed by the time you're ready to leave the place. The announcement does not necessarily need legal documents of your previous property as the state has everything already. Just clarify your motives and let the authority know your actions way before you commence it.
– Car Registration
Registering your car at the new state by getting a valid license plate there is a very important step. If you're planning on permanently changing your domicile, everything from your driver's license to your car registration must be under the authority of the new state. If the authority at your old state detects that you have not changed your license plate and car registration, they will establish that you have domicile right there. Your request to change domicile will be denied and as a result, you might need to pay taxes to two different states by then. You need to submit your old vehicle registration and license plate along with your previous driver's license with the official announcement in order to avoid any hassles.
– Voting Eligibility
Complete registration documents to become a voter at the new state and submit the old one to the proper authority. Your voter id defines your loyalty to the state and decides which state you choose as your permanent residence. Getting a voter id is easy with the right set of documents. But, submitting the old one is the most important factor here. Without leaving the old one, you won't even be able to get a new one.
Tax Liability
Considering you've moved your permanent residence to a different state by now, there's another thing you need to keep in mind. The annual tax that each state throws at its citizens is basically calculated from the annual income of the people who earn their income while being inside that particular state. To put it clearly, although you have changed your permanent residence to a new state, it doesn't necessarily mean you won't have to pay taxes to your old state anymore. Let me clarify this for you!
Suppose, you've moved permanently to Florida from New York but all your income comes from businesses that you operate in your old state. If this is the case, New York, you have to pay taxes on your income to the state of New York. That clearly indicates that annual tax doesn't completely depend on your permanent address, there are other factors attached too. The state in which your business functions is necessarily the state to which you must submit your income tax. If you don't have permanent residence at the state where your businesses function, you would have to file for a non-resident tax form for the income.
Final Thoughts
As a snowbird myself, I've encountered dozens of problems concerning the huge bill and tax I got from the state. Honestly, if you want to get rid of the cold weather and the huge taxes, you need to follow everything thoroughly. Highly commercial states like New York will always try to find a hole in your request to change domicile and try heart and soul to keep you on their tax radar. If you really want an out, check everything I've mentioned and keep track of all the necessary documents. I hope you enjoy the warmth of the south!
