Legal way to avoid NY state and city tax?

[tk2356]

Please tell me if this sounds legitimate to you:

I was a Texas resident while stateside and maintained that residency while stationed in Germany. In 2016 I separated from active duty, joined the reserves, and became a resident of my wife’s European country until 2018. We both moved to NYC this summer, me in grad school and my wife working full time, and are now unsure what to do for tax purposes.

I wish to remain a Texas resident in order to avoid state/city tax on my investments and military drill income. The university says there’s no need to become a NY resident, but I’m not sure if my time abroad prohibits that. What’s more, if I was a TX resident while my wife was a NY resident, could we invest her income in my vanguard account to avoid NY taxes on the gains?

Other info if applicable:
I have family in Texas and really do wish to move back in several years, and we intend to file jointly.

Thanks in advance for any advice!

[tk2356]

@Steeze I have no intention of lying. I’m just wondering if what I described is legal or not.

[secondcor521]

I think if you're filing jointly, you and your wife will have to choose the same residency.  There is room for only one address at the top of Form 1040.

There are two different terms:  residency and domicile.  You may be a resident of NY but be domiciled in TX.  Unfortunately, it looks like NY taxes you on your residency status, and you earn residency status if you live in NY for more than half the year.

Take a look at:

http://ccbjournal.com/articles/11580/tests-statutory-residency-versus-domicile-new-york-state-and-city

I think if you arrived in NYC after July 1st, you might be able to make a case for part-year NY residency for 2018.  In situations like this, you would allocate income earned before your arrival to your TX part-year residency (and thus taxed at TX's 0% income tax rates), and income after your arrival to your NY part-year residency.  It's logically obvious how it should work, but in practice it can get tricky to get all of the allocations and percentages correct.

If you and your wife continue your school and job this year, I don't see how you could avoid NY residency and taxation for 2019.

Finally, if you're filing jointly your Vanguard income is joint and would be reported on your joint return - MFJ means everything gets piled into one.

[stevef941]

Hi,

I am a lifelong Florida resident (as my intent so far has been FL as my permanent residency) and have lived in NYC on and off for 12 years.  You can maintain your residency in Texas and not pay taxes in NYC if you meet certain conditions as detailed by this complicated instruction manual (starting on page 7);

https://www.tax.ny.gov/pdf/current_forms/it/it203i.pdf

Basically, you must not have income derived in nyc.  You also need to satisfy non-resident, part-time resident or full time resident status for tax purposes.  This will determine if you have to pay NY/NYC income tax on passive income. 

Even if you do meet residency for a year or two, As I understand the law you are not required to change your residency if you intend to return to Texas.  You would essentially be a dual resident for those years.

What was the outcome for me? Most years I worked outside of nyc and was considered a non-resident.  A couple of years I was considered a part-time resident and hand to fill out a state return and pay taxes on income derived in nyc.  I never had to pay taxes for passive income.

Hope this helps

[tk2356]

Steve and Secondcor,

Thanks for the responses! It sounds like with my wife’s NYC-based income, the only chance to file jointly is for me to become a NY resident — even as a student. Good to know!!

[Nords]

I wish to remain a Texas resident in order to avoid state/city tax on my investments and military drill income.

I'm not an expert on every uniformed service in every American state, but the "military exemption" to state taxes is for active duty (>29 days) and not for drilling Reserve/Guard servicemembers.

When you left active duty to become a Reservist, you defaulted to Texas residency.  (That was the last place you declared your domicile or did things to act like a resident.)  When you moved to New York, you could continue to claim Texas residency unless you did something to change that:  buying NY real estate, registering to vote in NY, getting a NY driver's license, or registering a vehicle in NY. 

You might still be considered a Texas resident.  However if you earn income in NY (including military income) then you're eligible to be taxed on that income in NY even if you're still a Texas resident.  The most popular example of that situation is professional sports.  NBA players end up filing dozens of state income-tax returns because they're earning income at every out-of-state away game.

As mentioned by 2ndCor and Steve, you might have become subject to NY taxes and residency just because NY says so... usually based on the number of days you spend in the state.  Hawaii has a similar law.