What’s coming between you and your savings goal? Is it housing costs or medical expenses? Maybe it’s the ever-escalating college tuition fees or the general cost of living increases we’ve been seeing? For many people, especially those living in high-tax states, their answer might include state and local taxes. Now, with the new Tax Cuts and Jobs Act, people who live in states like California or Oregon are hurting even more and, as seen by the influx of people moving to Florida, are looking for a solution to their tax burden.
What Does SALT Have To Do With It?
The new tax code brought a new cap on state and local taxes (SALT), including property taxes. This means that while the bill keeps the itemized deduction for state and local taxes, it caps it at a combined $10,000 for property and income or sales tax for married filers and $5,000 for single filers.
This isn’t much for many people living in high-tax states. If you normally pay $30,000 in taxes, you’ll now only be able to deduct $10,000. As a result, many families may begin taking the standard deduction now instead of itemizing in order to save the most. But even at $24,000, this is still less than if you filed in previous years and were paying more than that in taxes.
To see what this looks like in reality, The Oregonian estimates that 40% of its residents used the sales and local taxes (SALT) deductions under the previous tax code, and the new law will add around $2,800 to the average tax bill. (1) In other words, changing residency could save you thousands of dollars in taxes, and it could save your heirs a significant amount of money as well.
For many residents in states like New York and Connecticut, Florida looks very attractive, and not just for the sunshine.
Florida boasts no personal state income tax and no vehicle tax, and currently has the seventh lowest tax rates in the country, with residents paying 8.44% of median household income on state and local taxes. (2) In looking at the impact of the Tax Cuts and Jobs Act on 2019 tax returns, Florida refunds were up by about 4%, with tax liability decreasing by over 25%. (3) In dollar amounts, it’s estimated that a New Yorker earning a $650,000 salary can save more than $69,700 in taxes per year by moving to the Sunshine State. (4)
Inheritance And Gift Taxes
Then there’s estate planning to consider. High inheritance and gift taxes often go hand-in-hand with high income taxes. Once again, Florida comes to the rescue. Florida has no state estate or inheritance tax. That means if someone dies in Florida, their estate will only face federal taxes, and even then, only if their estate is worth more than $11.4 million (for 2019).
And with the mass exodus from higher-tax states into Florida, Florida’s economic growth is increasing and new opportunities are aplenty, especially for business leaders and executives. Experts expect more than 300,000 to migrate to Florida each year for the next three years, plus another 884,960 between 2022-2025. (5)
Cost Of Living
While cities like Miami are going to be more expensive to live in than smaller towns, in general, Florida’s housing expenses, transportation costs, and healthcare expenses are lower than the national average. (6)
Ready To Make The Move?
If taxes are hurting your wallet and you are tempted to move to a lower-tax state like Florida, there are some basic steps you need to take to establish residency and benefit from the lower tax liability, such as:
- File a Florida “Declaration of Domicile.”
- Change your driver’s license and passport to your new home address.
- Register and insure your vehicles in your new state.
- Register to vote in Florida.
- Transfer your bank accounts to a Florida bank.
- Notify tax officials and the Social Security Administration of your new address.
- Update your estate plan to align with Florida laws.
- Change your address on your tax forms and with those who issue your W-2s, 1099s, K-1s, and other tax documents.
At Security Financial Management, we can help you make the most of your money in your new state. Schedule a call with us today to talk to a financial planner who can walk you through how an interstate move could affect your finances and the legacy you leave to future generations.
About Security Financial Management
Security Financial Management is an independent financial services firm dedicated to delivering exceptional service built on reliability and trust. With three locations in Central Florida and one in Rochester, MN, SFM has been partnering with clients for over 25 years, providing comprehensive financial planning and acting as a personal CFO. To learn more about Security Financial Management, connect with them on LinkedIn.
Advisory services offered through Investment Advisors, a division of ProEquities, Inc., a Registered Investment Advisor. Securities offered through ProEquities, Inc., a Registered Broker-Dealer, Member, FINRA & SIPC.
Security Financial Management is independent of ProEquities, Inc.