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Urgent: Domestic Travel Could Mean an Audit - Top 5 Tax Precautions to Take Before Year End

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State audits have increased exponentially in search of new tax revenue streams. Your time in other states puts you at risk of additional taxation. Here's what you need to know.

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MINYANVILLE ORIGINAL Our mobile world has created the opportunity to work, play, learn, and live in multiple states throughout the year. This newfound flexibility produces a convenience no other generation has enjoyed as much as our global society does today, which makes it simple to understand why domestic migration has only increased as a result.

But, as we all know in this cash strapped economy, states are scrambling to capture their piece of the pie… and always at your expense. So if you have spent time in two or more states in the past 12 months, what are the things you need to be concerned with as 2012 comes to a close?

Our top five things multiple-state dwellers and travellers need to know before year end are here to help guide the way.

1. Know the residency requirements for your home state. This may sound silly, but many times it comes down to how clear your residency is or isn't within your home state. Residency Requirement Checklists or Guides can be challenging to find, but following the required steps is paramount nonetheless. If you have fulfilled all necessary residency requirements for your state, it leaves very little to chance when spending time in another. Pitfall items that many people don't fully consider are brokerage/investment accounts, bank accounts, golf memberships (and much more), that are held in outside states. If these items are serviced, housed, or have situs in a state other than your own, you are at risk.

2. Time is a critical factor. Each state has its own set of rules regarding the time necessary for residency. Some states are six months. Others are only one day. More than you think have no clearly defined day requirement, leaving the gray area to be determined in their courts after they have already audited you. Scary we know, but true. Knowing how many days constitutes residency in the states you've visited can be the difference between a seemingly colonoscopic audit versus warm memories of a nice long vacation.

3. Keep good records. Maintaining a clear record of where you were and when can be huge. An audit is tedious, time consuming, and most of all, in-depth. We have seen residency audits come down to a difference of hours in whether the state is able to tax you or not. This means simple flight layovers in tax-aggressive states can tilt the balance of potential taxation. We suggest buying a large desk calendar, or using easy electronic calendars to help you keep track of your travels. This may seem like overkill now, but you will be thankful if the tax man comes knocking at your door.

4. Bad (residency) behavior is frowned upon. Why you entered a state is an important aspect of travel that all states will inquire. Were you on vacation? Or was it for work? Did you work while on vacation? Do you have family in our state? What activities did you participate in while in our state? These are all common state residency audit questions that can trip a lot of folks up. Answering honestly is important given the legal ramifications of perjury, but there is such a crossover these days between the work/life balance it is sometimes a bit of a blur. This means avoiding certain behaviors can be key, and knowing which behaviors trigger audits in the states you frequent can be a wise exercise.

5. Don't cut corners. Each person has a unique residency footprint. Personal circumstances vary for every resident, which unfortunately means no one size fits all. In order to avoid small inadvertent mistakes, being aggressive and thorough in your residency efforts will help ensure you don't run into problems. We understand costs exist for services regarding residency, but they nearly always pay off. Remember, if a state is able to levy taxes against you, it isn't just the taxes you need to worry about. States levy the back taxes, then penalties, plus interest. Brace yourself, because that will sting for quite a while!

Whether it is only a few days or even half the year, multi-state travel has become a complex and hurdle ridden event. Maintaining a clear, concise residency record is more important now than ever. Arm yourself with the best information available and take proactive steps toward fully establishing residency in your home state. With 2012 coming to a close, now is undoubtedly the best time to take action!

Follow ResidencyHQ on Twitter @ResidencyHQ.
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