Simplified Guide to Establishing Dual State Residency
Are you considering establishing dual state residency to potentially reduce your tax burden or for other purposes?
Dual state residency refers to being a resident of two different states.
As you can imagine, this process has its own set of rules and requirements, making expert guidance essential in navigating its complexities.
The stakes for getting residency right are higher than many realize. If your former high-tax state disputes your claim of relocation, you could face an audit, back taxes, penalties, and interest—especially if you continue to earn income or maintain property or professional connections there. States like California and New York have entire audit divisions focused on residency challenges. That’s why the paper trail matters just as much as your plane ticket. Your driver’s license, voter registration, credit card statements, travel records, and even veterinary visits may be examined to assess where you really live.
It’s not just a matter of days spent in a state, either. The 183-day rule often gets cited, but states also assess “intent to remain” as part of domicile tests. That includes where your family resides, where your favorite doctor is located, and where you keep your most cherished possessions. Think beyond the obvious. If you're spending six months in Florida but still hosting Thanksgiving and maintaining your country club membership in New Jersey, your former state could argue that your true ties never changed.
High-net-worth individuals often underestimate how easily they can fall into dual taxation—where both states claim taxing rights on the same income. This can happen with investment gains, business earnings, and even retirement distributions. One state may see you as a full-year resident while the other considers you a part-year filer. In these situations, consulting a cross-border tax advisor is essential, and our team at Select Advisors Institute can connect you with experts who understand the intricacies of multi-state compliance for affluent clients.
It’s also worth considering the non-tax benefits and lifestyle trade-offs of your new domicile. States without income taxes may offer financial upside, but they may differ dramatically in public services, infrastructure, or even legal protections in areas like estate planning and creditor laws. Your decision should balance tax efficiency with quality of life, proximity to business interests, and access to high-caliber healthcare and schools. This is especially important for business owners, retirees, or those managing multigenerational wealth.
Ultimately, the decision to establish dual residency is a deeply personal one—but it should never be done alone. At Select Advisors Institute, we collaborate with top-tier wealth advisors and tax professionals to ensure your administrative and logistical steps align with the broader financial plans you’ve developed with your chosen advisors.
If you’re preparing to relocate or simply want to evaluate your options, our team is here to guide you through a process built for clarity, compliance, and confidence.
If you have any of the following questions, it’s time to call us!
What is dual residency?
How do I establish dual residency in two states?
Can I be a resident of two countries simultaneously?
What are the tax implications of dual residency?
How does dual residency affect my tax obligations?
What is a dual-status alien?
How do I file taxes as a dual-status individual?
What forms are required for dual-status taxpayers?
Can I claim deductions as a dual-status alien?
How does the substantial presence test determine residency?
What is the green card test for tax residency?
How do tax treaties impact dual residency?
Can I choose to be treated as a U.S. resident for part of the year?
What is the first-year choice for residency?
How do I determine my residency starting date?
What income is taxable during my resident period?
What income is taxable during my nonresident period?
Can I file a joint return as a dual-status individual?
What are the restrictions on filing status for dual-status taxpayers?
How do I report worldwide income as a resident?
How do I report U.S. source income as a nonresident?
What is effectively connected income?
How do I determine if income is effectively connected?
What is the 183-day rule for state residency?
How do states determine domicile for tax purposes?
Can I be taxed by two states on the same income?
How do I avoid double taxation between states?
What documentation supports a change in residency?
How do lifestyle factors influence residency determination?
What are the consequences of incorrect residency claims?
Select Advisors Institute is not a financial firm, but we work with hundreds of financial firms and have guided 1000’s of firms since our inception in 2014. Our founder, Amy Parvaneh, has also been in the financial services industry since 2001, and has worked with financial advisors since 2006.
We can help refer you to the best financial professional that is knowledgable and advanced in this area.
Further information on dual residency:
1. Understanding Dual-Status Taxation
A dual-status individual is someone who has been both a U.S. resident and a nonresident in the same tax year. This status typically arises in the year of arrival or departure from the United States. For tax purposes, income is divided based on residency periods: worldwide income is taxable during the resident period, while only U.S. source income is taxable during the nonresident period.
2. Filing Requirements for Dual-Status Individuals
Dual-status taxpayers must file a special tax return. If you are a resident at the end of the year, file Form 1040 with "Dual-Status Return" noted at the top, and attach a statement (often Form 1040-NR) detailing income for the nonresident period. Conversely, if you are a nonresident at year-end, file Form 1040-NR with "Dual-Status Return" indicated, and attach Form 1040 as a statement for the resident period.
3. Limitations on Deductions and Credits
As a dual-status taxpayer, you cannot claim the standard deduction. However, you may itemize certain deductions. Eligibility for credits such as the earned income credit, education credits, or the credit for the elderly or disabled is generally restricted unless specific conditions are met, such as electing to be treated as a resident for the entire year.
4. Impact of Tax Treaties
Tax treaties between the U.S. and other countries may influence your tax obligations. These treaties can provide benefits like reduced tax rates or exemptions on certain types of income. It's essential to consult the specific treaty provisions applicable to your situation to determine any potential advantages.
5. Importance of Accurate Residency Determination
Accurately determining your residency status is crucial to ensure compliance with tax laws and to avoid potential penalties. Factors influencing residency include the substantial presence test, green card status, and ties to the U.S., such as family, property, and business interests. Maintaining thorough documentation can support your residency claims during audits or reviews.
To establish dual state residency, you need to decide on your new state, acquire a residence, establish domicile, update important documents, change your IRS address, register to vote, obtain a new driver's license, file taxes, update your banking information, register your pets (if applicable), and inform your family and friends.
Each state has different laws and benefits related to residency, so thorough research is necessary to select the most suitable state based on your financial requirements. Whether buying or leasing a residence, having a permanent address is crucial to establishing residency.
Also, formalizing the new state as your legal domicile is essential to avoid being double taxed, and it may involve filing a "Declaration of Domicile" in some states.
Additionally, you need to notify institutions such as banks, Social Security, and governmental agencies of your change of address and update your records accordingly. Transferring your driver's license and vehicle registration to the new state further solidifies your residency status. Moreover, you need to file tax returns in the new state and ensure that your credit card billing address and bank account information reflect the new state.
Finally, if moving with pets, you will need to adhere to the new state's pet registration and licensing requirements within the specified timeframe. Announcing your relocation to your network completes the process.
It's essential to weigh the pros and cons and seek professional advice when considering relocating to states without income taxes.
At Select Advisor's Institute, we can share the names of financial advisors - at your request - who have experience working with high-net-worth clients on complex tax planning. Clients always make their own decisions about who to engage.
Schedule a meeting with our team today to determine the best course of action based on your unique circumstances.
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Our founder, Amy Parvaneh, is a former Goldman Sachs private wealth advisor who worked with ultra-high-net-worth clients and families. After Goldman, she joined PIMCO, advising some of the largest wealth management firms in the country. She holds a certificate in luxury branding from ESSEC Business School in Paris and has served as a professor on wealth management topics at multiple universities. With nearly two decades of experience and an extensive network of top financial professionals, Amy offers a rare vantage point for those navigating complex wealth questions—especially when the stakes are high and the details matter.
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