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Contrary to popular belief, nothing in the U.S. Constitution or federal law prevents multiple states from taxing the same income. While many states offer tax credits to prevent double taxation, these credits are not always available. If you own property or maintain residences in more than one state, you could face unexpected tax liabilities. Working with an experienced McAllen CPA can help you understand and manage these complexities.

How to Establish Domicile

State tax laws vary, but a key factor in avoiding double taxation is proving where you are domiciled. Domicile refers to your primary, permanent home—the place you intend to return to, no matter how much time you spend elsewhere. If two states both claim you as a domiciliary, neither may recognize the other’s right to tax your income, leading to a potential double-taxation scenario.

To establish domicile in a new state and avoid tax disputes, consider the following steps:

• Obtain a driver’s license and register your vehicle in your new state.
• Open bank accounts in the new state and use your address for important financial documents (e.g., tax returns, insurance policies, and wills).
• Register to vote in your new state.
• Receive medical care from local providers.

Since laws differ from state to state, consulting a McAllen CPA can help ensure you meet the legal requirements for domicile in your preferred state.

Understanding Domicile vs. Residence

While domicile and residence sound similar, they have different tax implications.

• Domicile: Your true, fixed, and permanent home. Even if you spend most of your time elsewhere, you remain domiciled in a state until you establish domicile in another.
• Residence: Often determined by the amount of time you spend in a state. Many states consider you a resident if you have a “permanent place of abode” and spend at least 183 days there.

Some states tax all income earned by their domiciliaries, regardless of where they actually live. Others tax residents on their worldwide income, even if they are domiciled elsewhere. This distinction can significantly impact your tax burden.

Potential Double Taxation Scenario

Imagine you live in State A but work in State B. Due to your long commute, you maintain an apartment near your office in State B but return home to State A on weekends.

• State A taxes you as a domiciliary.
• State B taxes you as a resident because of your apartment and time spent there.
• Neither state offers a credit for taxes paid to the other, resulting in double taxation.

One possible way to minimize taxation in this situation is to avoid maintaining a permanent place of abode in State B. However, State B may still have the authority to tax the income earned from your job there. A knowledgeable McAllen CPA can analyze your unique situation and help identify the most tax-efficient approach.

Strategies to Minimize Double Taxation

Every tax situation is unique, but a few common strategies can help reduce double taxation risks:

1. Take advantage of reciprocity agreements – Some neighboring states have agreements that allow residents to pay income tax only in their home state, regardless of where they work.
2. Claim state tax credits – If a state allows credits for taxes paid to another jurisdiction, ensure you claim them properly to offset your liability.
3. Limit residency ties in secondary states – If possible, avoid maintaining a permanent residence in a second state where you spend significant time.
4. Plan income sources strategically – If you earn income from investments or other non-wage sources, structuring them properly can help prevent unnecessary taxation.

A McAllen CPA can guide you through the specific state tax rules and help you implement these strategies effectively.

The Importance of Professional Tax Guidance

Multi-state tax situations can be complex and costly if not handled correctly. Working with a knowledgeable McAllen CPA ensures you:

• Comply with state tax laws while minimizing double taxation risks.
• Properly establish domicile to avoid disputes.
• Claim all available deductions and credits to reduce your tax burden.

If you split your time between multiple states, don’t wait until tax season to address potential issues. The experienced professionals at Burton McCumber & Longoria can provide expert guidance tailored to your situation.

Contact us today to schedule a consultation and ensure your tax strategy is as efficient as possible.