Moving To A New State? 4 Ways It May Affect Your Taxes
Moving to a new state involves a lot of planning and change. One area that many people don't give a lot of attention to is how it will affect their taxes. To help you enjoy a more financially successful move, here are 4 ways your taxes will change both now and in the future.
Tax Rates. Each state has its own state tax laws and rates. You would do well to look up the relevant rates at the state's department of taxation and compare them with your current state's rates. There could be several taxes that involve you, depending on the state's rules, so be thorough. Common taxes could include income taxes, sales taxes, property taxes, and special local taxes.
Tax Filing Complexity. The year you move to a new state, you should be sure to seek out professional help filing income taxes. This is because you will likely have to file in both your old state and your new one. Multi-state filing involves separating out the income from each state, calculating how much tax is owed according to each state's rules, and possibly receiving a credit for taxes paid to one or both states. This is complex, so talk with an accountant about what you need to do.
Tax Credits. The good news about your taxes when moving is that you may be able to deduct the costs of the move. Your accountant can help prepare the forms involved, but if you move for work (and plan to continue at the same employer) you can often deduct many moving expenses. These include moving companies or truck rentals, gas, overnight lodging, and the costs of transporting yourself and your family.
Selling a Home. If you must sell your home before moving, consult your accountant prior to the sale. There are some IRS rules that must be followed in order to avoid paying capital gains tax on the profit from the sale. Generally, you must have been living in the home for at least two of the last five years and not have excluded such gains recently. If you profit more than $500,000 as a couple, your accountant can aid you in determining if any capital improvements can help offset the gain.
Meet with an experienced accountant or a Certified Public Accountant (CPA) while still in the planning process of your move. This will give you time to ensure you know the rules of your new state, help you keep adequate documentation, and assist you in avoiding any capital gains taxes. Then you can focus on starting this new chapter in your life.