My client plans to take about $15,000 in distributions in excess of his basis from his S corporation construction business. I know this generates tax for him. He’s in the 32 percent tax bracket and single. Does he also have to pay the 3.8 percent net investment income tax and the 0.9 percent additional Medicare tax on this amount? Is there a way for him to avoid taxes on this amount?
Voter registration, a drivers license, and day counting are what come to mind when people think about residence for state income tax purposes. There is no question that those basics are very important and ignoring them can kill your cause. Nonetheless, many other factors can enter into a determination, including church attendance and pets. That’s because you will generally be a resident of the state in which you have your “domicile.” And domicile as a concept borders on the mystical. It is your true home, it remains your domicile until you abandon it and establish a new one.
Yet, establishing your domicile in a state with no (or low) income taxes can be lucrative. In some cases, this can represent millions of dollars all by avoiding state income tax. The natural progression of a business owner’s life can also include exiting said business at substantial profit. Your domicile at the time of the transaction can be pivotal in determining how much of that profit you’ll be left with in retirement.
To learn more about how to do this, keep reading.