Whether you’re in it for the sunshine, the savings, or both… It’s a great time to be a Floridian! While the new tax changes make moving to Florida seem like a no-brainer, the ideal conditions are likely to raise red flags for tax authorities.
If you are planning to change your domicile to Florida in the coming year, it is critical that all details are reviewed with an experienced tax advisor.
SALT Limitation Enhances Change of Domicile
The recent Federal Tax law changes have placed a huge limitation on the amount of State and Local Taxes that an individual can deduct (referred to as the SALT limitation). You will not be able to deduct state and local taxes that exceed $10,000 per year. By way of example, if you live in New York and pay state and local real estate taxes of $15,000 per year, $20,000 of state income taxes and $10,000 of Florida real estate taxes, you will only be able to deduct up to $10,000 of these taxes.
What does this mean for you? Unlike many Northern states, Florida taxpayers enjoy NO income tax and relatively low real estate taxes across the board. Therefore, changing your domicile to Florida will eliminate the state income tax (except on certain income on rental property and other directly related local investments). Another benefit of Florida domicile is the fact that Florida has NO estate tax.
To change one’s domicile to Florida there is a list of suggested action steps which need to be in place by December 31st. They include by way of example, registering to vote, obtaining a Florida driver’s license, and developing ties to Florida professionals.
Due to the major tax incentive of becoming a Florida resident, it is likely that your northern state tax authorities will be keeping a closer eye on those that have relocated in the past 12 to 18 months. One thing that can help show your full commitment to your new domicile is making charitable contributions to your favorite Florida charities including your local church, temple or other organizations that indicate you have greater ties to Florida than up north.
Local charitable contributions support Florida domicile.
An excellent place to make your local tax-deductible charitable contributions is the Community Foundation of Collier County (it is a Public Charity – IRC Section 501 (c)(3)). Furthermore, all of your subsequent distributions from the CFCC may be private, allowing you to make contributions to organizations of your choice, regardless of location or timeframe – you can continue to support your favorite Northern organizations and you can also deduct the contribution immediately, but advise CFCC to disburse the money at any interval. This is a vast difference from a private foundation that is required to file a publicly accessible Form (990 – PF).
New Standard Deduction Promotes Bunching.
With the doubling of the income tax Standard Deduction (from $12,700 to $24,000 for married couples) many individual taxpayers will not need to itemize their deductions (make a laundry list of your tax-deductible expenses). Instead, you may wish to itemize your deductions every other year and use the Standard Deduction in the alternate years. This technique is called Bunching. Note, in the year you use the Standard Deduction you will not enjoy the significant deductions you would otherwise receive from charitable giving.
IRA Charitable Rollover Enhanced by Bunching.
Finally, the now popular IRA Charitable Rollover is a fabulous technique to use in the year the taxpayer chooses the Standard Deduction instead of itemizing. The Rollover allows you to take out up to $100,000 per year from your IRA and give it directly to your favorite charities (this avoids increasing your Adjusted Gross Income followed by making tax-deductible contributions). This will result in the equivalent of a full deduction of your contribution on top of the Standard Deduction. E.g., you give $100,000 to the CFCC and use the Standard Deduction every other year. Note, distributions to a donor-advised fund do not qualify for the IRA Charitable Rollover, however, distributions to a field of interest, scholarship or designated fund will qualify.
As always, before implementing any serious tax strategies, seek the advice of a qualified tax and financial professional, so that they may guide you in the right direction for your individual financial situation.