Strategies for Success and Mistakes To Avoid When Moving to a Lower-Tax State

Shonda and Darrell spent 18 months planning their move from New York to Florida to be closer to their children and grandchildren. While motivated mostly by family, they also expected a lower cost of living and the ability to pass on more assets. They hired a tax attorney, documented every step, sold their Long Island home and followed state residency rules to the letter.

Three years later, they’re living the retirement they envisioned. Their tax savings have been substantial, and they spend weekends with their grandkids. “The tax savings made it financially smart,” Shonda says, “but we’d have been miserable if we didn’t want to be in Florida. The grandkids were the real reason.”

Melissa and Scott made a similar move—also for family and savings—but did it in two months. They kept their Connecticut beach house for summers, maintained their country club membership and sold their business six months after relocating.

Two years later, they’re facing a Connecticut audit assessment, including back taxes, penalties and interest, that has eroded most of their anticipated savings. They’ve spent months in appeals and tens of thousands of dollars on legal fees. “If I’m honest,” Scott reflects, “I wanted to keep my Connecticut life while getting Florida’s tax rate. That’s not how it works.”

While neither of these couples is real, these hypothetical scenarios demonstrate possible outcomes—positive and negative—that wealthy individuals may face when relocating to a lower-tax state. Here’s what you need to know if you’re contemplating this kind of move.

The Lure of Tax Savings and Hidden Drawbacks

State income tax rates range from zero (Alaska, Florida, Nevada, New Hampshire, Tennessee, Texas, Wyoming) to over 13% in California. For high earners, this can translate to a substantial difference in savings—often tens to hundreds of thousands of dollars over time depending on income level.

For couples like Shonda and Darrell, with significant income from pensions, investments and rental property, the long-term wealth preservation opportunity was significant. Combined with being closer to family, moving to Florida made financial and personal sense.

But successful relocation requires understanding the complete picture. States with no income tax compensate through other revenue sources. For example, property tax rates in Texas and New Hampshire are among the highest in the nation. Other states have combined state and local sales tax rates approaching 10%. Florida homeowners also may face higher insurance costs due to hurricane risk. Some states, like Washington, have no income tax but have costly estate taxes and tax high earners on capital gains.

That’s why before you move, it’s important to consider your total tax burden (income, property, sales, estate/inheritance, business) and total cost of living (insurance, utilities, goods and services, health care, housing). Then subtract one-time and ongoing move-related expenses (legal/CPA fees, moving and home sale costs, dual state filing and documentation fees).

Melissa and Scott calculated income tax savings but didn’t adequately factor in higher property taxes, insurance costs and increased sales taxes. Their true net benefit was roughly half what they’d projected.

Know the Legal Residency Requirements

Changing state residency isn’t as simple as filing a form or buying a condo. It’s proving you’ve made a permanent move to a new home.

State tax auditors typically use two tests. The domicile test examines your permanent home—where you intend to return indefinitely. You can only have one domicile, and proving you’ve changed it falls entirely on you. The 183-day statutory test is more mechanical: spending 183 or more days in a state plus maintaining a permanent abode there equals automatic resident status, even if you’re domiciled elsewhere. Any part of the day counts, including airport layovers if you leave the terminal.

“We treated it like legal proceedings from day one,” Darrell explains. “We knew New York would scrutinize everything, so we made sure to document everything our team recommended.”

That meant establishing genuine new state presence: purchasing a primary residence, updating driver’s license and vehicle registration immediately, registering to vote, applying for homestead exemptions, potentially establishing primary banking relationships, updating wills and trusts, finding new doctors and dentists, joining local organizations, even registering pets.

Equally important—and where Melissa and Scott stumbled—is failing to show intent to permanently relocate. You may want to sell your primary residence or rent it to an unrelated party at market rates and cancel your old state homestead exemption. Consider terminating club memberships and season tickets and relocating valuable personal property.

Melissa thought keeping their beach house wouldn’t matter since they’d bought a place in Florida. “We didn’t realize Connecticut would see that as evidence we never really left,” she says. “The house was larger, worth more, and where we spent summers with the grandkids. In retrospect, I wish we’d taken more time to plan and consulted our legal and financial advisors before setting things in motion.”

What’s at Stake If You Are Audited (Count on It)

States such as New York, California, Connecticut, New Jersey and Massachusetts aggressively audit residency changes, using dedicated teams and detailed data—they don’t want to give up tax revenue. High-net-worth individuals moving from these states to no-tax states face a high probability of an audit. This means you need to be aware of your state’s rules. For example, New York and Massachusetts use “days and home” tests to determine if personal use of property for out-of-state residents is at odds with their domicile. If you spend more than nine months in California, it counts you as a resident. Illinois doesn’t count days, but it considers someone a resident if they are in the state for non-temporary purposes.

Depending on the state, auditors conduct complete day counts using credit cards, E-ZPass records, phone location data, airline tickets, utility bills and even social media posts. They scrutinize property ownership, family location, professional ties, business activities and where you receive medical care.

If an audit goes against you, both states may claim you as a resident, taxing your worldwide income. You may owe back taxes—with no statute of limitations if you never filed in the claiming state. The cost to you could be substantial; some states impose penalties equal to a large percentage of the unpaid taxes, and interest compounds daily at rates ranging from 7% to 15% annually. In egregious cases, criminal charges are possible.

Melissa and Scott’s total assessment, including back taxes, penalties and interest, was hefty—several multiples of a single year’s tax savings. Legal fees cost tens of thousands of dollars more. Many states offer credit for taxes paid to other states, but these credits are intended to make sure the taxpayer pays the higher of the two states’ rates.

Planning a Successful Move

Moving to lower your taxes makes sense when you’re genuinely ready to relocate permanently—when the new location serves your life, not just your tax return.

It may be prudent to spend time in the state and the neighborhood you plan to move to. You can try renting to see if the life and lifestyle work for you. Success may also require professional guidance from the start. Consider engaging a legal or financial professional with multi-state residency experience six to 12 months before your planned move and creating a detailed action plan you can follow.

The first two to three years typically bring the highest risk. Stay well under 183 days in your old state—many tax advisors recommend under 100 days for a safety margin. A big red flag is reporting that you moved on Jan. 1. You may think this makes filing state taxes more convenient, but almost nobody moves on New Year’s Day. Instead, report the actual move date and file partial-year returns in both states. Continue building ties in your new state through community involvement, local relationships and spending consistent time there. And as noted above, maintain meticulous documentation.

Finding Your Happy Place

Today, Shonda and Darrell are happy with their decision to move—they see their children and grandkids frequently and have built ties to their community. The financial benefits are a plus, but what they value most is the life they’ve made in Florida.

Scott and Melissa also enjoy being closer to their family, but the emotional and financial toll of the audit made them wonder more than once if they made the right decision. “If I could do it over again, we would have been better prepared or delayed our move until we were actually ready to give up our life in Connecticut,” Melissa says.

If you’re considering relocating to a lower-tax state, your RWA team can help you evaluate whether it makes financial sense and guide you through the planning process. Contact us if you’d like to discuss your options.