Being double-resident means a person is deemed a resident of two different states simultaneously for taxation purposes. This is common because every state has its own method of gauging residency, meaning a person can satisfy both sets of rules in a given year.
How Does It Happen?
In most cases, double residency occurs in scenarios like:
- Splitting time between two states: Take, for instance, snowbirds who winter in Florida and summer in New York.
- Relocation mid-year: For work or personal reasons, both the old and new states may claim you as a resident.
- Owning multiple homes: This is a common problem posed to high-income earners, business owners, or families who own multiple or vacation homes.
- Working remotely: Residing in one state while working for a company in another can result in conflicting residency obligations.
Why Does It Matter?
Being considered a resident in two states can create difficulties with taxation, including:
- Mandatory filings in both states: You may be required to file resident or part-year resident returns in both states.
- Possibility of double taxation: This is especially true if there is no tax credit or reciprocity agreement. Both states may tax the same income.
- Each state has its own tests, such as domicile, statutory residency, or number of days spent in the state, which are considered complex rules.
Best Practices
To avoid the problem of double state residency, ensure that you:
- Keep a close track of your days spent in each state.
- To establish domicile, maintain ties such as driver’s license, voter registration, and primary home.
- For compliance and minimization of double taxation, seek a multistate taxation professional.
Conclusion
Even though double state residency is not a crime, it can lead to expensive tax bills if not properly managed. With an understanding of the rules and some planning, you can avoid overpayment. If you require professional aid, reach out to Dimov NYC CPA today. Our taxation experts are here for expert guidance on resolving double residency as well as minimizing tax liabilities.