Your tax home state and residency determine in part where you pay state income taxes, according to tax lawyer Martin Shenkman, who continues to provide tax help and advice to working RVers.
Your Home State Will Tax You – But Which State is That?
by Martin M. Shenkman, CPA, MBA, PFS
For most folks, if you lived in one state, and continue to own a home there, that state will be the one for you.
But, what if you've set up a new "home" in Texas, South Dakota, or elsewhere? Will your old home state respect the move and give up its tax hold on you? Will the new state really be your new tax home? What about the other states you work in during the year?
Caution: Be very careful trying to apply someone else's facts, or tax audit results, to you. Everyone's situation is a bit different, and those bits can make a huge different in the results. When in doubt, consult a Certified Public Accountant (CPA). Yes, it may be costly, but it is always much cheaper to pay to plan right before an audit, then to clean up a mess with the state tax auditor in the next room.
State tax authorities are trying to get connected to you. What types of tax connections do you have? They are important in determining your tax home.
You can have only one permanent home. This is the place you intend to return to whenever you are away. This permanent home is called your "domicile." Since domicile is a matter of your intent – a subjective determination of what is in your mind and heart, state tax authorities have to look at external factors that evidence that intent. This is a complicated, yet critical, topic for many working RV'ers.
Example: If you lived in Kansas, but now claim to be domiciled in Texas, is that really true? You can tell the Kansas tax auditor that you've changed your permanent home to Texas, but if you still maintain a church membership in Kansas, have burial plots in Kansas, and all your children live in Kansas, you should expect the Kansas tax folks to argue that the external factors are inconsistent with your claimed move to Texas.
To change your place of permanent residence, your domicile, you must do two distinct things under most state's tax systems. First, you must leave your existing domicile. Secondly, you must land in a new state. If you're on the road most of the time, have you landed in your new tax home? Is setting up a post office box and registering your motorhome in Florida enough?
Example: You leave California in a recreational vehicle and travel as a full-timer for three years. At the end of three years, you've gotten some of the wonderlust out of your system and decide to set up semi-permanent shop in Texas, and to thereafter RV on a somewhat more part-time basis. For the three years of full-time RVing, California may continue to tax your income on the basis that you never landed in a new domicile.
Planning tip: Make sure you land in your new tax home. Perhaps your first stop should be in your new tax home state, where you spend enough time and set up enough connections to make it your new home state for income tax purposes. Buy burial plots (really!). Join a church or lodge or other organization. Go to the dentist. Get a local library card. Open a bank account and move your accounts. Hire a CPA to handle your tax returns (including your final return from your old home state). Ask your new CPA what else you should do and follow his or her advice.
However, as a statutory resident, many states can tax you regardless of where your permanent place of domicile. The state can tax you based on the actual time you spend in that state. For example, Ohio may tax you if you spend 90 days in state. New York may tax you if you spend 183 days in the state.
Planning tip: Did we say to keep a log book? Maintain a detailed and accurate calendar showing where you were, which days you worked and in which states. Staple RV park receipts and receipts for gas and shopping to the calendar as they will prove where you were.
Planning tip: Be consistent. If you claim you've left a state, don't go back to get a resident fishing or hunting license in your former home state. Ditto on library cards (hold one in the state in which you reside, not the state you moved out of), and so on.
One of the first steps in your state tax planning is to figure out the starting line. Which state currently thinks you live primarily there? Learn the rules as to how you can end that tax relationship and keep detailed records supporting your tax home state.
Martin M. Shenkman, CPA, Esq. sponsors a free legal website LawEasy.com.
Martin is an RVer with a special cause. He is an avid fundraiser for the National Multiple Sclerosis Society and The Michael J. Fox Foundation For Parkinson's Research. See his RV4TheCure.com website for how you can help him fight MS. Besides RV business tax and legal information, he will share some of his RVing and fundraising experiences with us.
Caution: This article and other columns can never substitute for professional legal, tax, and accounting guidance. These columns can provide only broad general advice, which may not apply to your situation. The rules differ substantially from state to state. Tax, business, and other laws change rapidly over time so there can be no assurance that the information in this column is current. The best approach is to review the ideas in this article with your own CPA and attorney. The application of general tax and legal principles to some of the unique facts presented by RV working is particularly complex and there is little specific law providing guidance to rely upon.
Go to the previous article in this income tax series.
Go to the list of articles written by tax attorney Shenkman.
Go from this Tax Home article to the Workers On Wheels Work for RVers and Campers blog.
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