Quote:
Originally Posted by oldjudge
Bob—If you had a client auctioning off a card like that and he lived in a state with onerous capital gains taxes, would you recommend that he plan ahead and spend 6+ months as a resident of a state with no capital gains before he sold the card? Seems like he could save a ton of money even if he rented a palace for that period.
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Absolutely. Had a client company a few years ago owned by two brothers-in-law and a couple others, who sold a majority interest in it to a New York investment firm that infused more money to do acquisitions, leaving the current owners in charge. The plan was to build the business' EBITDA up even further, and then resell everything to an even bigger buyer in a 5 - 7 year period, at an even bigger multiple (of EBITDA) than they had bought it for.
I also did the personnel taxes for the brother-in-laws, and one of them had a Summer home in Florida, in addition to his regular home here in the Cleveland, Ohio suburbs, where the company was headquartered. We talked about him changing his legal residence from Ohio to Florida, and I gave him a list of things to do about a year or two before they expected the New York firm to pull the trigger on the resale of the business. After the New York investment firm took over, they took the original business from $80M in gross sales yearly to just over $500M a year in about 5 years, and then found a buyer. The one brother-in-law who I helped change his residence to Florida ended up with a LTCG from the subsequent sale of a little over $15M. Ohio has a top individual income tax rate of about 5%. Florida has no income taxes, state or local, whatsoever. So simply having my old client change the mailing address on where his mail and bank statements get sent, getting a driver's license from Florida instead of Ohio, having the company put his Florida address in his checks, having him start filing as a Florida resident on his personal tax returns a year before the sale, and a few other fairly simple things, and we figured he ended up saving approximately $750,000 in state taxes.
LTCG from the sale of a business, or LTCG from the sale of a baseball card, same result and tax savings by changing one's residence to a state with no income taxes. And the brother-in-law still kept and stayed at his Ohio residence as well. Just made sure he stayed there in Ohio less than half the year the year of the sale, which was easy as he traveled and worked outside the office mostly anyway.
Here's a list of the US states, and the current top tax bracket in each one. Those with a 0.00% tax rate have no individual state taxes, and would be the perfect candidates for doing something like you're suggesting. But moving from a high taxing state, like California or Oregon, to a much lesser taxing state, would pose a similar tax savings as well.
Alaska 0.00%
Florida 0.00%
Nevada 0.00%
New Hampshire 0.00%
South Dakota 0.00%
Tennessee 0.00%
Texas 0.00%
Washington 0.00%
Wyoming 0.00%
North Dakota 2.90%
Pennsylvania 3.07%
Indiana 3.23%
Michigan 4.25%
Colorado 4.55%
Ohio 4.80%
Utah 4.95%
Illinois 4.96%
Alabama 5.00%
Kentucky 5.00%
Massachusetts 5.00%
Mississippi 5.00%
Oklahoma 5.00%
North Carolina 5.25%
Missouri 5.40%
Kansas 5.70%
Georgia 5.75%
Maryland 5.75%
Virginia 5.75%
Arkansas 5.90%
New Mexico 5.90%
Rhode Island 5.99%
Louisiana 6.00%
West Virginia 6.50%
Delaware 6.60%
Nebraska 6.84%
Montana 6.90%
Idaho 6.92%
Connecticut 6.99%
South Carolina 7.00%
Maine 7.15%
Wisconsin 7.65%
Arizona 8.00%
Iowa 8.53%
Vermont 8.75%
New York 8.82%
Minnesota 9.85%
Oregon 9.90%
New Jersey 10.75%
Hawaii 11.00%
California 13.30%