Could Where You Live Be Costing Your Family Six Figures Annually?
For many high-income families, where you live isn’t just about lifestyle—it’s a six-figure financial decision.
Robert and Linda discovered this truth sitting in their Chicago home office one November afternoon. Robert had just received the final valuation for his manufacturing business—a sale was imminent, and the proceeds would be substantial. As they reviewed the numbers with excitement, one line on the projection stopped them cold:
Illinois state income tax: $487,000
“There has to be another way,” Linda said quietly.
There was—but it required a decision they’d been avoiding for years: leaving the city where they’d built their careers, raised their children, and established deep community roots.
At Gatewood, we’ve guided families through these exact crossroads. While sunshine and palm trees may be tempting, residency changes are less about weather and more about strategic planning. When done right, the tax savings can be transformational. When done wrong, the audits can be devastating.
Let’s explore how residency planning works, what to watch for, and how to ensure your move truly pays off.
Why State Residency Matters More Than Ever
State residency determines which state gets to tax your income, investments, and eventually, your estate. With top state income tax rates exceeding 13% in California and 10% in New York, the savings from strategic relocation can exceed hundreds of thousands of dollars annually.
The numbers are staggering:
High-Tax States:
- California: 13.3% top rate
- New York: 10.9% top rate
- Illinois: 4.95% flat rate, plus estate tax on estates over $4 million
No-Tax States:
- Florida, Texas, Tennessee, Nevada (0% state income tax, no estate tax)
For a family earning $1 million annually, moving from California to Florida saves $133,000 per year—$1.33 million over a decade.
But taxes aren’t the only factor. Estate laws, lifestyle, healthcare access, family proximity, and business considerations all influence the right decision. What begins as a financial strategy often becomes a broader life transition—which is why planning matters so much.
Robert and Linda’s Journey: When Timing Saves (or Costs) Everything
When Robert and Linda came to Gatewood Tax & Accounting in November 2024, they were facing a compressed timeline. The business sale would close in early 2025, triggering the massive tax bill.
“Can we just move to Florida before the sale closes?” Robert asked.
The answer was more nuanced than they expected.
The challenge:
They’d spent nearly the entire year in Illinois—about 320 days. Even if they moved to Florida immediately and stayed there through the sale, Illinois could still claim them as residents for 2024 and potentially argue constructive residency for early 2025.
The solution:
We helped them implement a two-year strategy:
- Phase 1 (Late 2024): Buy a Florida home, establish presence, start documentation.
- Phase 2 (2025): Spend 200+ days in Florida, complete all legal changes, file as part-year Illinois resident
- Phase 3 (2026): Close the business sale as Florida residents, saving $487,000 in Illinois taxes
“The discipline of waiting one more year saved us nearly half a million dollars,” Robert later told us. “And it gave us time to make the move feel right, not rushed.”
This is why timing matters—and why planning a year in advance makes all the difference.
The 183-Day Rule: Why You Can’t Change Residency at Year-End
Most states use the 183-day rule to determine residency: spend 183 days or more in a state, and that state can claim you as a resident for tax purposes.
What this means:
- If it’s December and you’ve already spent 183+ days in Illinois this year, you cannot establish Florida residency for the current tax year
- You must plan ahead—ideally 12+ months before you want to claim new state residency
- Simply buying property in a new state doesn’t change your residency; your physical presence and intent matter most
Here’s the complication:
Even spending fewer than 183 days doesn’t guarantee exemption if you maintain strong ties—like property, driver’s license, voter registration, or family connections—in your prior state.
Gatewood Tip: Start tracking your travel and residence patterns before you move. Apps like TaxBird or simple spreadsheets become your best defense in a residency audit.
Document everything.
Part-Year Residency: The Often-Overlooked Strategy
The year you move is especially complex. You may owe tax to both states – but you can also leverage this to your advantage.
How part-year filing works:
Many states allow you to file as a part-year resident, paying tax only on income earned during the months you were a resident.
Example:
You live in Illinois January–June (181 days), then establish Florida residency July 1st.
Result:
File as Illinois part-year resident, paying Illinois tax only on income earned January–June. Income earned July–December isn’t subject to Illinois tax.
This strategy is powerful for:
- Business owners planning a sale or liquidity event
- Executives with large year-end bonuses or stock vesting
- Anyone with significant capital gains expected later in the year
Gatewood Tip: Coordinate the timing of business sales, option exercises, or investment liquidations with your Gatewood advisor to minimize exposure. If Robert had closed his sale in July instead of waiting until 2026, he could have used part-year filing to cut his Illinois tax exposure in half.
Proving Your Move: The Complete Documentation Checklist
Residency audits often hinge on evidence. States are aggressive—especially when high earners leave. To establish your new domicile, you must demonstrate clear intent to make your new state your true and permanent home.
State Residency Change Checklist
Legal Documentation:
- Establish physical residence (buy or lease primary home in new state)
- Spend at least 183 days per year in new state—track every day
- Change driver’s license within 30–60 days
- Register all vehicles in new state
- Register to vote in new state; unregister from old state
- File Declaration of Domicile with county clerk
Financial & Professional:
- Move primary banking to new state
- Update mailing address on all accounts, credit cards, insurance
- Transfer professional licenses (if applicable)
- Join local clubs, gyms, organizations
- Establish relationships with local doctors, dentist, CPA, attorney
Estate & Legal:
- Update will, trusts, and powers of attorney for new state laws
- Review property ownership structures
- Update beneficiary designations on all accounts
- Consult estate attorney in new state (laws vary dramatically)
Lifestyle Evidence:
- Move meaningful personal property (heirlooms, pets, collections)
- Cancel or downgrade old state memberships
- Update LinkedIn, social media to show new location
- Obtain library card, local IDs
- Keep receipts, hotel records, calendar entries proving presence
Audit Defense:
- Create comprehensive residency file with all documentation
- Maintain day-tracking log (where you woke up each morning)
- Save utility bills, lease/mortgage docs, photos
- Document professional relationships in new state
Common Pitfalls That Trigger Expensive Audits
States look for these red flags when auditing residency claims:
- Waiting until late in the year to move (not enough days to establish residency)
- Keeping your old home as your primary or nicest residence
- Forgetting to update licenses and registrations (suggests you didn’t really move)
- Business ties to former state (continuing to operate there undermines residency claim)
- Spouse or children remaining in old state (suggests split residency)
- Minimal actual time in new state (183 days is minimum, not ideal)
- Social media showing old location (posts, check-ins, LinkedIn profile)
Real consequences:
One family faced an 18-month Illinois audit costing $40,000 in legal fees—even though he ultimately won. The state challenged his Florida residency because he kept a small Chicago condo and his LinkedIn still listed Chicago. Every detail matters.
Why These Conversations Are Hard—But Necessary
Robert and Linda struggled with their decision for months. Linda’s elderly mother lived nearby. Their grandchildren were in Chicago suburbs. Their friends, their favorite restaurants, their entire social network was in Illinois.
“We felt guilty,” Linda admitted. “Like we were abandoning our community to chase tax savings.”
But here’s what we helped them see: This wasn’t just about taxes. It was about maximizing the resources they’d worked decades to build—so they could be even more generous with family, more impactful with charitable giving, and more secure in retirement.
They didn’t abandon their community. They visit regularly (while carefully tracking days). They increased their charitable giving to Chicago organizations. And the tax savings allowed them to fund 529 plans for all five grandchildren—something they couldn’t have afforded otherwise.
These are sensitive, deeply personal decisions—but they’re also essential to preserving family wealth and creating the freedom to live generously.
The right planning process transforms these conversations from difficult to empowering.
How Gatewood Tax & Accounting Guides Your Residency Change
Changing your residency isn’t just a form to file—it’s a life decision. Our team helps you make that decision with clarity, confidence, and coordination across your entire financial life.
Step 1: Model the Financial Impact
We compare after-tax outcomes between your current and destination states, factoring in:
- Income tax on all sources (wages, business income, investments)
- Capital gains treatment
- Estate and inheritance tax implications
- Property tax differences
- Overall cost of living adjustments
We show you the real numbers—not just the headline savings.
Step 2: Review Estate and Legal Implications
We coordinate with your estate attorney to ensure:
- Your will, trusts, and powers of attorney comply with new state laws
- Property ownership structures are optimized
- Beneficiary designations are updated
- Community property vs. common law considerations is addressed
Step 3: Create Your Timeline and Checklist
We provide a detailed, customized action plan:
- When to establish residence
- How to track your days
- Which documents to update and when
- How to coordinate with business transitions or liquidity events
Step 4: Coordinate Tax Filings
We prepare:
- Part-year resident returns (if applicable)
- Multi-state tax filings
- Domicile declarations
- Proper sourcing of income between states
Step 5: Build Your Audit-Ready File
We help you compile supporting documentation to defend your residency change if challenged:
- Day-tracking records
- Legal document copies
- Lifestyle evidence
- Professional relationship documentation
Our goal: Not just tax savings today, but confidence and peace of mind that your residency change will withstand scrutiny for decades.
Frequently Asked Questions
Q: Can I change my residency at year-end and save on this year’s taxes?
A: Only if you’ve already spent 183+ days in your new state during the current year. Otherwise, you’re planning for next year.
Q: What if I want to keep a home in both states?
A: You can own property in multiple states, but only one can be your legal residence. Your new home must be your primary residence—where you spend the most time and have the strongest connections.
Q: How aggressively do states audit residency changes?
A: Very aggressively, especially for high-income earners. California, New York, and Illinois are known for particularly thorough audits. Proper documentation is essential.
Q: Should I hire an attorney?
A: For significant wealth ($5M+ estates) or complex situations (business ownership, multiple properties), yes. We coordinate with your legal team to ensure everything is handled correctly.
The Bottom Line: Make the Move Right or Don’t Make It at All
Robert and Linda closed their business sale in February 2026 as Florida residents. The tax savings were exactly as projected: $487,000.
But what surprised them most wasn’t the money—it was the peace of mind.
“We didn’t cut corners. We didn’t rush. We planned it right,” Robert said. “Now when we visit Chicago—which we do often—we enjoy it without worrying about day counts triggering an audit. We made the move with intention, and it shows.”
That’s the Gatewood difference.
We don’t just help you relocate for tax purposes. We help you make a life decision that aligns your wealth with your values, protects your family from audits, and creates confidence that your planning will stand the test of time.
Ready to Explore Whether a State Residency Change Makes Sense?
Schedule a consultation with our Gatewood Tax & Accounting team.
We’ll help you:
- Model your potential tax savings comprehensively
- Identify obstacles and considerations unique to your situation
- Coordinate with your Gatewood Wealth Planner for complete alignment
- Create a detailed action plan if you decide to move forward
- Provide ongoing support through implementation and compliance
Before you pack a box or book a flight, let’s model the real numbers—tax, estate, and lifestyle—so your decision is one you’ll never regret.
Because at Gatewood, we believe great planning isn’t about where you live—it’s about ensuring your wealth continues to serve your life’s purpose, wherever that may be.
Important Disclosures
This article is for educational and informational purposes only and should not be construed as tax, legal, or financial advice. State residency rules are complex and vary significantly by state. Always consult with qualified tax and legal professionals before making residency decisions.
State tax laws change frequently, and residency audits are increasingly common. The information provided is current as of December 2025 but may be subject to change.
Gatewood Tax & Accounting provides comprehensive tax planning, preparation, and advisory services in coordination with Gatewood Wealth Solutions to deliver integrated financial, tax, and estate planning.
