Tax Residency Tips for Owners Approaching Retirement

Our latest video discusses considerations for state tax residency in retirement, emphasizing that taxes are not the only factor but are significant, especially since some states offer more favorable tax treatments than others. 

Key points covered include:

• State Residency and Taxes in Retirement: If you retain ownership in a pass-through entity, taxes will be paid where the work is performed. For example, if you become a resident of Florida but still own part of a contractor operating in Maryland, you will pay Maryland tax on your income share from that contractor.
• Advantages of New State Residency: Moving to a state that doesn’t tax retirement income or capital gains might offer tax advantages, despite where your business operations occur.
• Determining State Tax Residency: In addition to the number of days spent in a state, consider factors like the location of employment, state of driver’s license, car registrations and insurance, voter registration, board directorships, social club memberships, children’s school location, and whether you retained a house in your old state.
• Tax Residency Audits: Some states perform audits to assert tax claims on individuals, examining credit card transactions, banking, ATM usage, EZPass records, airline records, church attendance, and doctor visits.

Tax Residency Tips for Owners Approaching Retirement: Transcript

Hi, contractors. Kristen Bailey here, CPA and certified construction industry financial professional at KatzAbosch, a CPA consulting firm that specializes in construction contractors. After our last video about performing work in other states, we got a lot of questions about state residency, especially in retirement. 

Now, taxes are certainly not the only factor when determining a retirement location, but as several other states have more favorable tax treatments than Maryland, taxes are often brought up when discussing retirement. So here’s a few things to consider:

If you retain any ownership in a pass-through entity, taxes will be paid where the work is performed. So if you move and become a resident of Florida, but you still own part of a contractor that operates in Maryland, you will still pay Maryland tax on your share of the income from that contractor. Now, there still might be a tax advantage to your new state, especially if it doesn’t tax retirement income or capital gains.

Now when determining your state residency, the main factor is often the number of days spent there, but you also want to consider the following factors: location of employment, state of driver’s license, where your cars are registered and insured, where you are registered to vote, if you serve on the board of directors where that organization is located, if you’re a member of a social club where those clubs are, where your children go to school, and did you retain a house in your old state of residency.

Now, some states will perform residency audits to try to pull more income into their state. Now, the auditor will be looking at your credit card transactions, your banking transactions, where you went to the ATM, your EZPass records, your airline records, your church attendance, and even where you visited the doctor.

So, we’d hate to see you be surprised by an extra tax bill in retirement and would love to discuss your future plans with you in more detail. So give us a call or shoot us an email. And also, if you haven’t checked out our recent video on performing work in other states, you can find it on our website under our thought leadership. Thanks, and I’ll see you next time.

Get More Tax Solutions From KatzAbosch

We hope you find this educational video from KatzAbosch’s Construction Service group beneficial. As mentioned in today’s video, below is a link to our recent video on performing work in other states:

• Kristin’s Construction Corner – Multi-State Tax Issues for Construction Companies

If you found value in our tax residency insights and are curious about managing multi-state tax issues, KatzAbosch is here to guide you. Our experts specialize in tailored tax strategies for construction companies expanding beyond state lines. Contact us today to navigate your tax planning with confidence.