Author Topic: Can I move to FL to save $300,000+ in 2020 taxes?  (Read 1490 times)

webguy

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Can I move to FL to save $300,000+ in 2020 taxes?
« on: June 15, 2020, 12:11:36 PM »
Hey guys,

I sold a stake of my business in Feb of this year and in doing so partnered with a company in Florida.  We currently live in Minnesota but have been considering moving to Florida for a few reasons:
1) I will need to travel there more often now that I'm partnering with a company there so it will make this much easier, 2) we'd like to live somewhere warmer, 3) we are in a high tax bracket and so the tax savings would be significant (MN is 9.85% vs FL being 0%).

We were planning to move to Florida next year for the above reasons, and also in anticipation that when we sell the remainder of the company in a few years then we will be residents and save the state income taxes on the sale. Our plan is to keep our MN house and spend 5 months of the year year and 7 months in Florida.

Combined from the partial sale of the business and the distributions from the company our MN state income tax for 2020 will be around $320,000 (250 in cap gains and 70 in regular income).  It didn't occur to me until yesterday though that if we lived in Florida for 183+ days of 2020 then we could claim residency for this year (along with doing the other things like getting a FL drivers license, local bank account, buy a house, etc) and save the state income taxes.

Putting aside the fact that in order to pull this off we'd have to relocate within the next 2 weeks, is it possible that if we moved to Florida in 2020 for 183 days and claimed residency that we would be able to avoid paying the $320,000 to MN?  Or would we still owe those taxes in MN for 2020 either way?   My understanding is that MN would investigate things like this pretty thoroughly and my concern would be that they would argue that as we were residents of MN when the sale occurred that we would still owe those taxes to MN, even if we were FL residents for the majority of 2020.

Many thanks for any advice or input!  I'm talking to a tax accountant about this too but wanted the input of the MMM community as well.

terran

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Re: Can I move to FL to save $300,000+ in 2020 taxes?
« Reply #1 on: June 15, 2020, 02:24:48 PM »
First, it sounds like you won't owe $320,000 of taxes, you'll owe taxes on $320,000 of income. Very different things.

You could almost certainly establish residency in FL, but even then you may still owe state taxes to MN. It's very state specific, but it's pretty common for money that "comes from" or is "earned in" a state is taxable in that state even if you aren't domiciled in that state. This isn't a problem for retirees since they aren't earning income so all that matters is where their residency is. Owning the business might be a factor too since it's not only a matter of where you're located, but also the business. I don't know enough to speak to that.

secondcor521

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Re: Can I move to FL to save $300,000+ in 2020 taxes?
« Reply #2 on: June 15, 2020, 02:38:39 PM »
I'd look at the part-year resident rules on the FL and MN tax websites.  As @terran mentions, it varies from state to state.

Also, of course, look into what it takes to establish FL residency.  It might be possible to establish residency there without selling your MN house or buying a FL house - you could, for example, fly down, rent a condo, and then start looking for a house.  Shouldn't take too long to switch voter registration, automobile registration, and drivers' licenses.

Also, I don't think the 183 days has to be consecutive, so if you've already spent some time there this year, you can probably add those days on to your days-in-FL total if that's how they calculate residency.

MN may investigate, but if the law is on your side then I would certainly give it a try.

SeattleCPA

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Re: Can I move to FL to save $300,000+ in 2020 taxes?
« Reply #3 on: June 15, 2020, 02:44:33 PM »
First, it sounds like you won't owe $320,000 of taxes, you'll owe taxes on $320,000 of income. Very different things.

You could almost certainly establish residency in FL, but even then you may still owe state taxes to MN. It's very state specific, but it's pretty common for money that "comes from" or is "earned in" a state is taxable in that state even if you aren't domiciled in that state. This isn't a problem for retirees since they aren't earning income so all that matters is where their residency is. Owning the business might be a factor too since it's not only a matter of where you're located, but also the business. I don't know enough to speak to that.

If you sold your business in the early part of the year when you were a MN resident, MN gets to tax you. It's really that simple.

BTW, the states are very adept at nailing down whether you're really in their state on a specific date: lease or rental agreements, CC charges, utilities usage, etc., etc.

webguy

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Re: Can I move to FL to save $300,000+ in 2020 taxes?
« Reply #4 on: June 15, 2020, 03:56:51 PM »
Thanks guys, that's helpful, and pretty much echos what our accountant said.  To clarify, it is 320k of tax savings, not 320k of income, which is obviously a significant amount of money to be saving. It doesn't sound like it would be likely we would be able to pull it off though as we were MN residents when the sale went through, and I know the state would put up a good fight.

FIPurpose

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Re: Can I move to FL to save $300,000+ in 2020 taxes?
« Reply #5 on: June 15, 2020, 04:21:42 PM »
So you built a business off of Minnesotan labor, made 3-4 million dollars, and then wanted to skip on the bill? I get the desire to play the game, but that's a bit low brow for me.

secondcor521

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Re: Can I move to FL to save $300,000+ in 2020 taxes?
« Reply #6 on: June 15, 2020, 05:19:18 PM »
So you built a business off of Minnesotan labor, made 3-4 million dollars, and then wanted to skip on the bill? I get the desire to play the game, but that's a bit low brow for me.

Only if you assume OP had fraudulent or illegal intentions.  Tax minimization is neither.

I choose to assume OP was making an honest inquiry as to whether there was a way to minimize taxes, not evade them.

Paul der Krake

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Re: Can I move to FL to save $300,000+ in 2020 taxes?
« Reply #7 on: June 15, 2020, 05:53:15 PM »
So you built a business off of Minnesotan labor, made 3-4 million dollars, and then wanted to skip on the bill? I get the desire to play the game, but that's a bit low brow for me.
Play stupid games, win stupid prizes. Besides, there's no indication that any Minnesotan labor outside OP's own was used in the building of the business. For all we know he's a one man shop, or only hires out-of-state employees.

nereo

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Re: Can I move to FL to save $300,000+ in 2020 taxes?
« Reply #8 on: June 15, 2020, 06:00:06 PM »
THis is one case where the advice you get here is worth about what you pay for it, but the consequences of being wrong could be quite severe.

Seriously, for $320k in taxes paid I would consult (pay for) a tax professional who specializes in tax law in one or both states. I have no idea the correct answer, but you don’t want to run afoul of Minnesota’s tax laws and have them audit you and rule against you in a year or five.

Spend a Grand or so to ensure it’s all done by the book (aka tax code).

Archipelago

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Re: Can I move to FL to save $300,000+ in 2020 taxes?
« Reply #9 on: June 15, 2020, 06:43:58 PM »
THis is one case where the advice you get here is worth about what you pay for it, but the consequences of being wrong could be quite severe.

Seriously, for $320k in taxes paid I would consult (pay for) a tax professional who specializes in tax law in one or both states. I have no idea the correct answer, but you don’t want to run afoul of Minnesota’s tax laws and have them audit you and rule against you in a year or five.

Spend a Grand or so to ensure it’s all done by the book (aka tax code).

Agreed. Any lawyer or tax professional worth their salt is going to save the client more than what they would owe.

terran

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Re: Can I move to FL to save $300,000+ in 2020 taxes?
« Reply #10 on: June 15, 2020, 07:39:02 PM »
Agreed, sounds like getting advice from a MN tax attorney would be worthwhile with that kind of money at stake. Even if you can't get out of the tax on the first part of the sale that's already happened maybe you can get out of the tax on some of the subsequent installments.

MustacheAndaHalf

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Re: Can I move to FL to save $300,000+ in 2020 taxes?
« Reply #11 on: June 16, 2020, 12:31:14 AM »
... We currently live in Minnesota but have been considering moving to Florida for a few reasons:
1) I will need to travel there more often now that I'm partnering with a company there so it will make this much easier, 2) we'd like to live somewhere warmer ...
What big obstacles remain between you and a move to Florida?

Mortgage rates are near historic lows, so it could be a good time to buy a house there if that's your goal.  Because of COVID-19, there's actually more home buying activity this year than last year at this time.  If you wait a year, both of those advantages are uncertain.

webguy

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Re: Can I move to FL to save $300,000+ in 2020 taxes?
« Reply #12 on: June 16, 2020, 10:41:28 AM »
So you built a business off of Minnesotan labor, made 3-4 million dollars, and then wanted to skip on the bill? I get the desire to play the game, but that's a bit low brow for me.
Well it's a completely remote business and so our employees are spread around the US.  I just happen to live in Minnesota and work from home here.  We've easily paid half a million dollars in taxes to the state over the past 5-6 years, I don't think it's unreasonable to want to avoid paying another 300,000.  Most businesses use tax strategies to minimize taxes when possible, I haven't done this until now and so was trying to figure out if there's a smarter way to save some money.  Either way, it sounds like it's not a feasible plan after speaking to our tax accountant and MN will claim we owe those taxes as we were residents here at the time of sale.

What big obstacles remain between you and a move to Florida?
Mostly just family, friends, and roots we have in Minnesota.  We are very strongly considering moving at the end of this year though, as if I end up selling the other part of the business I still own a few years from now then the tax savings will be considerable enough to probably entirely pay for our house down there.

FIPurpose

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Re: Can I move to FL to save $300,000+ in 2020 taxes?
« Reply #13 on: June 16, 2020, 11:12:11 AM »
I won't belabor the point since it sounds like it isn't possible anyways, but "Minnesota Labor" involves more than where your employees are. You're using Minnesota infrastructure. You're based in one of the best places for air travel to the rest of the country, decent infrastructure, court system, etc.

I guess my question would be, why did you stay in MN when you could have moved to SD or WY for additional tax savings from both sales, property, and corporate taxes? Moving to SD for 5 years for an additional million dollars would probably get me to move.

Michael in ABQ

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Re: Can I move to FL to save $300,000+ in 2020 taxes?
« Reply #14 on: June 16, 2020, 01:11:20 PM »
A friend of mine moved to Texas after selling a business in Oregon for similar reasons. I think it was a high 6-figure sale so the taxes wouldn't have been nearly as high but Oregon income taxes go up to about 10% so easily tens of thousands of dollars in savings.

MustacheAndaHalf

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Re: Can I move to FL to save $300,000+ in 2020 taxes?
« Reply #15 on: June 17, 2020, 09:40:38 AM »
What big obstacles remain between you and a move to Florida?
Mostly just family, friends, and roots we have in Minnesota.  We are very strongly considering moving at the end of this year though, as if I end up selling the other part of the business I still own a few years from now then the tax savings will be considerable enough to probably entirely pay for our house down there.
I see, you want to wind things down, first.
Are you sure you want to sell your Minnesota home during winter?  You're less likely to find buyers then.

An alternative might be moving into a short-term rental over summer, and selling your home.  You can let your home be staged, and sell it over summer when most home buyers are in the market.  It's more likely to sell, and at a higher price.  Real estate agents prefer homeowners not be at home when they give prospective buyers a look - a rental also avoids that disruption.

webguy

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Re: Can I move to FL to save $300,000+ in 2020 taxes?
« Reply #16 on: June 18, 2020, 10:13:28 PM »
Thanks for the advice, we’re actually not planning to sell our home in Minnesota though, we’re going to come back to Minnesota during the summers to get out of the Florida heat. Summers in Minnesota are pretty awesome! We’ll probably spend 8-9 months or so in FL and the other 3-4 months of the year in MN.