Establishing Nevada as the Place You Reside for Tax Benefits

Decoding Nevada’s Tax Benefits

Another tax benefit is that unlike many other U.S. states, Nevada does not impose an individual income tax. If you do not have taxable income from the state from a source within the state, you might be able to avoid paying Nevada income tax. To make sure, it is always wise to seek guidance from competent legal counsel.
Compare this with some neighboring and nearby states such as California, where the highest individual income tax rate in percentage terms is 13.3 percent applied to income over $1 million for single individuals and over $2 million for married couples filing jointly (16.8 percent for the state’s top rate, including 1.5 percent local assessment) . The percentage rates are even higher in New Jersey, where the top effective tax rate is 8.97 percent on income exceeding $1 million for single filers, 9.97 percent on income exceeding $1 million for married couples filing jointly; 8.97 percent on income exceeding $500,000 for married couples filing separately. Both of these states also impose taxes on interest on money market accounts and savings accounts.
No matter where you reside, whether it is in Clark County or Carson City or anywhere else in the United States, if you engage in activities and investments that include a high rate of return, it may be worthwhile to consider relocating to a state such as Nevada that has a tax code that is favorable toward taxpayers.

What is Legal Residence?

In order to establish residency in the State of Nevada, there are legal requirements you must meet. Nevada Revised Statutes (NRS) 41.100 defines the residence in this way: "A person may have but one residence, and that place shall be considered his residence for all purposes so long as he has not removed therefrom with the intent to establish a new residence elsewhere." NRS 687B.012 defines a "resident" as "a natural person who lives in this State[sic] with the intent to remain and to make this state his or her fixed and permanent home and principal establishment for an indefinite period of time." The legal requirements can be further broken down into the following:
Abandon all legal ties or connections you might have with your prior home state, such as a driver’s license, voting record, vehicle registration, insurance and tax documents. It is also very important that you advise the relevant authorities in your former state that you have established residence in Nevada. Establish your intent by executing an affidavit of intent, which is a statement made under penalty of perjury that you have the intent to establish residence in Nevada. Create on paper the appearance that you are a Nevada resident by obtaining a Nevada driver’s license, voter ID card, electric bills, bank statements, insurance forms, concealed carry permits and other items that you might be able to use to show legal residence in the Silver State.

How to Become a Nevada Resident

To be considered a resident of the State of Nevada and take advantage of the many tax benefits of being a Nevada resident, you must "effect an actual physical presence in the state and intend to live there permanently or indefinitely" (Nevada Administrative Code 360.147). In other words, you must be physically present for the time necessary to establish residency in Nevada and you must show the intent to remain in Nevada even if you have a job that requires you to leave the State for long periods of time. There are a number of steps you should take to make sure you are on the road to becoming a Nevada resident. Some of the first steps you should take include: Obtaining a Nevada Driver’s License – In order to obtain a license, you must apply in person and present proof of identity. In addition, you must surrender your current driver’s license and take a written, vision and driving skills test. Registering with Voting – To qualify as a Nevada resident for voting purposes, you must meet the following requirements: Updating Your Address – You should change the address on all official documents that may contain your current address. Filers, whether or not they will be permanent Nevada residents, should update their vehicle registration, where applicable, to show their Nevada address. A filing, including a Nevada S Corporation, must have a registered agent that lists his/her/its address and that address should list the Nevada address.

Pitfalls to Avoid

It is important to do more than just secure the Nevada driver’s license and then forget about it. We have seen circumstances where a person came in for a meeting to discuss the steps necessary to establish residency and found out that his Nevada driver’s license had been revoked because he had not paid Nevada Department of Motor Vehicle fees. When the DMV revokes your license, it may be very difficult to re-establish residency in Nevada.
The IRS has a series of rules as to what they will accept as proof of residency in order to ensure that people who claim Nevada residency are in fact Nevada residents and not residents of another state who merely have a Nevada driver’s license.
It is not enough to move to Nevada and buy real estate and rent it out . The property must be rented no less than 191 days per year. The reason for the 191 day residency requirement is a way to avoid the debate as to when you could have rented the property. If the IRS audit comes up and they say you were only residing in the property 131 days, the point can be made with ease that the property could have had a tenant for the other 234 days but in fact you were living in the property without a lease in place. You can then contact the tenant and obtain written confirmation of the actual days the property was occupied. There is no argument, no question, as to whether the tenant was there 191 days plus. Having a tenant is very important. It is not enough that just the property is sitting vacant in a city with hotels and motels.

Effect on Federal Taxes

The change in state residency to Nevada does not directly affect federal tax responsibilities. That means you’re still required to file a federal return, and your filing status, exemptions and deductions won’t be impacted. You’ll still be subject to all the same rules, unless you pick up residency elsewhere.
The biggest benefit you may gain by moving your state residency to Nevada is actually in relation to your federal income tax reporting. While you are living out-of-state, you likely have to file an out-of-state tax return in that state, reporting your income that was earned there. Then, you would also need to file a federal tax return that reports all of your income – both the income earned in both your original state and current (Nevada) state of residence. This means you are subject to double taxation on that income – once by your "old" state and then by the federal government.
The time you spent in your old state and the income you earned there is considered taxable to the state in which it was earned. By moving to Nevada though, you would now only owe state income taxes to the state that is now your primary residence (Nevada). Your primary residence is the one that you spend the most time in each year.
But that’s not the only way you could benefit from residing in Nevada for tax purposes. There is an IRS concept called "source-state taxation." This refers to the state in which you earn the income. Some states consider the income earned in that state to be taxable to it. So, if you move to Nevada and get a job there, but then get a job opportunity that has you traveling to other states frequently, this could present a problem. The income you earn in those states may now be taxable to that state.
The good news is that some states allow for source-state apportionment, so only a portion of that income would be taxed by that state. However, not all states are so generous and some do impose taxes on all of the income you earn, regardless of where it was earned.
Because all of this is very complex and specific to your own particular situation, they key to an effective plan that can meet your tax goals is to work with a Nevada tax attorney.

Working with Tax Professionals

Before accepting the advice of internet articles (which almost never apply to your specific facts) or following "friends of friends" recommendations about establishing residency, it is important to set up time to speak with a tax professional who is familiar with both the tax laws of both your current home state and your new state of residence in Nevada. A tax professional can help explain which state or states have the strongest vested interest in taxing you as their resident and provide guidance on how to best transition your affairs to minimize your tax liability when moving to Nevada .
Using the term "tax professional" I am referring in broad terms to an accountant with expertise that includes the tax laws of both your current and new states, a tax attorney (preferably one with additional expertise in wills and trusts), or a financial planner with a CPA and/or legal background. If your tax professional does not have the requisite experience, he or she should refer you to someone who can provide this service.