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Tax advantage for Florida residents
Dear Tax Talk:
My wife and I plan to buy a villa in Florida in a few months. I
am 51 years old and plan to have deferred retirement starting next
fall when I will be 52. We plan to live in Florida for more than
six months and come to Massachusetts for the remaining months every
year.
The question is whether I keep residency in
Massachusetts or change residency to Florida in order to save money
in taxes. Please advise me what to do.
Thanks,
Nelson
Dear Nelson:
We may not know how to cast a ballot here in Florida, but we do
enjoy the advantage of not paying state income taxes. Given that,
I think your answer is self-evident: establish residency in Florida.
Of course this means -- among other things -- that you will have
to register to vote in Florida and risk not having your vote count,
but think of all the money you'll be saving in taxes. You should
also apply for a driver's license here in Florida: hint, we vote
better than we drive. You can even register to vote at the same
place you apply for your driver's license, unless you plan to vote
Democrat.
You can make a formal declaration of residence
to your county's clerk of the court. The clerk should have a standard
form of declaration of residency. You should also apply for homestead
exemption on your new home. Homestead exemption provides for a $25,000
reduction in assessed property value for residents of Florida. Check
with your county's property appraiser's office after purchasing
the home.
You should also update your wills and trust
documents to conform to your change in residency. You should also
consider changing your investment accounts to Florida institutions.
You can also visit the state's Web
site for additional tax information.
Computing your withholding
exemptions
Dear Tax Talk:
I am a single homeowner, claiming myself. I've heard that you can
claim "more exemptions" as a homeowner and therefore receive
more dollars to take home. If that is correct, is it a good idea
and, if so, how do you go about figuring how many exemptions you
can take without getting into trouble?
Thanks!
Jaye
Dear Jaye:
You're referring to adjusting your wage withholding to reflect that
you will have itemized deductions from home mortgage interest, taxes,
charity, etc. These itemized deductions are equivalent to additional
personal exemptions for withholding purposes. By changing your Form
W-4 to include these deductions, you will increase your take-home
pay and reduce any refund due you when you file your tax return.
To figure out how many additional exemptions
to claim, estimate your itemized deduction for 2001; it's already
too late in this year to adjust for your 2000 itemized deductions.
From the total itemized deductions, offset any income you may have
on which there is no withholding such as dividends, interest and
estimated capital gains. Add to this any adjustments to gross income
you expect to have such as deductible IRA contributions, student
loan interest, alimony etc.
One hopes the number is still positive, i.e.,
you had more deductions than income. If the number is positive,
subtract $2,500, which is a standard deduction already built into
the wage withholding tables. From the remainder, divide the result
by $2,800, the dollar equivalent of one exemption and round down.
The result would be the number of additional personal exemptions
in addition to one for your own exemption that you should claim
on your W-4.
Revise your Form W-4 and give it to your employer
as soon as possible to begin increasing your take-home pay. IRS
has a Form
W-4 Calculator on its Web site, although I think it's a little
more conservative than what I gave you above.
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