Tax Tips for Switching ZIP Codes - Adviser Investments

Tax Tips for Switching ZIP Codes

February 14, 2022

In a previous post, we touched on the nuances of changing your domicile. Now, let’s take a deeper dive into tax advantages and financial considerations.

  1. Estate & inheritance tax. The IRS exempts taxes on estates valued at $12.06 million or less at the time of passing for individuals (a married couple has a combined exemption of $24.12 million). The state level is a different matter—the excluded amount can be far lower depending on the state. Eleven states levy the so-called death tax and five states impose what is called an inheritance tax. Maryland is the only state that carries both. If avoiding all estate and inheritance taxes is your objective, switching domiciles to a tax-advantaged state will boost your cause.
  2. Income tax. Eight states have no income tax, while 41 tax wage and salary income. (New Hampshire taxes just dividends and interest income.) Before relocating, it pays to cast a critical eye on the state’s tax code. But keep in mind: Some states with low or no income tax make up for it with higher property or sales tax. Be sure to research every facet of a state’s tax picture before moving. Better yet, consult a professional.
  3. Cost of living. Your dollar could be worth more or less depending on where you live. If you’re considering a move (or working remotely in a different state), check out this handy calculator on NerdWallet to see how far your dollar will go. Housing costs are the biggest variable, with transportation, food and entertainment also registering an impact.
  4. Remote work. The pandemic has created a situation where many people find themselves working remotely for a company headquartered in another state. In other words, your ZIP code has changed, but your work situation hasn’t. What does this mean for your taxes? Broadly speaking, you will owe income tax in the state you claim residency. However, states are aware of the revenue they are losing in the age of remote work. It’s become commonplace for the state you live in to grant a “credit” for the state where your company is based. Things can get tricky if you receive a 1099 from a company with state taxes that are higher than the state where you live. Our takeaway: Work with your employer to be sure the appropriate state withholding is taken from your paycheck and talk with your tax preparer to understand how remote work will affect your finances.

About Adviser Investments

Adviser is a full-service wealth management firm, offering investment managementfinancial and tax planningmanaged individual bond portfolios, and 401(k) advisory services. We’ve been helping individuals, trusts, institutions and foundations since 1994. Adviser Investments and its subsidiaries have over 5,000 clients across the country and over $8 billion in assets under management. Our portfolios encompass actively managed funds, ETFs, socially responsible investments and tactical asset allocation strategies, and we’re experts on Fidelity and Vanguard mutual funds. We take pride in being The Adviser You Can Talk To. To see a full list of our awards and recognitions, click here, and for more information, please visit www.adviserinvestments.com or call 800-492-6868.


This material is distributed for informational purposes only. The investment ideas and opinions contained herein should not be viewed as recommendations or personal investment advice or considered an offer to buy or sell specific securities. Data and statistics contained in this report are obtained from what we believe to be reliable sources; however, their accuracy, completeness or reliability cannot be guaranteed.

Our statements and opinions are subject to change without notice and should be considered only as part of a diversified portfolio. You may request a free copy of the firm’s Form ADV Part 2, which describes, among other items, risk factors, strategies, affiliations, services offered and fees charged.

Past performance is not an indication of future returns. Tax, legal and insurance information contained herein is general in nature, is provided for informational purposes only, and should not be construed as legal or tax advice, or as advice on whether to buy or surrender any insurance products. Personalized tax advice and tax return preparation is available through a separate, written engagement agreement with Adviser Investments Tax Solutions. We do not provide legal advice, nor sell insurance products. Always consult a licensed attorney, tax professional or licensed insurance professional regarding your specific legal or tax situation, or insurance needs.

Companies mentioned in this article are not necessarily held in client portfolios and our references to them should not be viewed as a recommendation to buy, sell or hold any of them.

© 2022 Adviser Investments, LLC. All Rights Reserved.

Tags:

taxes

Adviser Investments' logo is a registered trademark of Adviser Investments, LLC.