When it comes to taxes, being tracked can be a good thing

When it comes to taxes, being tracked can be a good thing

This article is part of our new series, Currents, which examines how rapid advances in technology are transforming our lives.

Two months ago, Jeff Sheu, a private equity executive, moved from San Francisco, where he had lived for nearly 20 years, to Summerlin, a suburb of Las Vegas. During the period of stay at the pandemic house, he realized that he no longer needed to be in a city where property was expensive, taxes were high and his quality of life was high, now that ‘he was married with a small child, had changed. .

And with the vaccinations available and the resumption of business travel, he could live somewhere he liked as long as he could fly to work.

“I love California, but over time the cost of living has become sky-high,” said Mr. Sheu, who was born and raised in this state and attended the University of California at Berkeley. “I grew up outside of California.”

Getting out of a city for more space in the suburbs is a fairly common goal. This often marks a maturing point for Americans with young children, who value well-regarded schools over nightlife.

But given the state Mr. Sheu had left and the high pay for his job, he feared that his departure would go smoothly. As the CEO of a private equity firm, he’s exactly the type of high income California doesn’t want to lose. When people in its tax bracket leave, the state is likely to check them to make sure they are really gone.

As the May 17 filing deadline approaches, people who have moved to another state or are working remotely should be extremely vigilant with their tax documents. For Mr. Sheu, this involves an app on his smartphone that uses location services to constantly track him. What he sacrifices in privacy he gains in peace of mind, knowing that he will be able to show exactly when and where he was in a particular state, should California tax authorities follow him.

Tax-starved states are not very happy to see big taxpayers leave. Enter the need to meticulously follow where you are all the time.

“As part of the move, there is a list of things to do, such as changing your voter registration,” said Mr. Sheu of Atlanta (after being in Tampa, Fla., And Philadelphia for the 36 hours previous ones, while traveling. for work). “Then there’s the tracking of your days. You can use Excel, but if I get a request from the IRS, it’s just in Excel. They might say I have something big fingers. But I am never separated from my phone. It seems to me like a pretty indisputable way of following where I am. “

Tax apps like TaxBird – which Mr. Sheu uses – and TaxDay and Monaeo were created years ago with a different goal: to help largely affluent retirees avoid a tax burden when they return to their second home in a state. with high taxation. But since the pandemic sent people home and in so doing freed them from the office, these apps have become relevant to professionals who want to work where they want to live.

These apps work on a subscription model and are low cost. TaxBird, for example, costs $ 34.99 per year. After a 90-day free trial, TaxDay charges users $ 9.99 per month. Monaeo is geared more towards high earners and offers more options for its service, charging $ 99 per month or $ 999 per year.

“We have seen a fourfold increase in our app without any ads over the past year,” said Jonathan Mariner, founder and president of TaxDay, which was himself audited while working for Major League Baseball. in New York but lived in Florida. “When people are concerned about privacy, I say you probably have a dozen apps on your phone following you, and you don’t even know it.”

People who use the apps understand that their location will be tracked, and the apps acknowledge in their privacy policy statements what data is and is not being used. Monaeo makes a point of describing how the data is cataloged – city, state and country, but without specific locations. He also says up front that he does not share any data. (All three apps are vigilant about this.)

While each tax app has different levels of detail and functionality for uploading supporting documents, they all meet the basic need to prove your location to a tax authority. When it comes time to file taxes, users download reports detailing where they’ve worked with varying degrees of specificity, from simple days counting to more detailed location information.

“Over the past year or so, this has become a controversial interstate issue,” said Chester Spatt, professor of finance at the Tepper School of Business at Carnegie Mellon University. “The question is, what does it mean to have your job in another state in the virtual world? In the world of the physical office, it was easy. “

With hundreds of millions of dollars at stake, states that need the revenue aren’t going to let the money go by without a fight. “It has the potential to get as complicated as you can imagine,” said Dustin Grizzle, a tax partner at MGO, an accounting firm. “States are going to say, ‘Hey, you’re just using Covid to give yourself the ability to work remotely. “”

One thing is clear: the pandemic has, in fact, extended this type of tax debate to middle-income earners who would like to live elsewhere. At the center of the debate is a magic number: 183 days – half of the year, plus a day – which is the time most states use to determine whether a person has traveled elsewhere for tax purposes. (There are exceptions: Ohio requires residents to live out of state for only five months.)

Residence, however, is something you must declare; it is not something that you can establish while traveling. For many workers, the question will be where their employer says their office is located.

David R. Cohen, a lawyer specializing in complex litigation, had been traveling from his home in Ohio for decades. During the pandemic, he rented accommodation in Naples, Florida with his wife and found there was no reason to return to Cleveland in the winter. After renting, he bought a house in Naples a few months ago.

“Covid has proven that anyone can work remotely,” said Mr. Cohen, who uses TaxBird. “That’s when I started to think about residency here.

His incentives went far beyond the weather: he believed most of his cases involved multiple jurisdictions, so he was traveling or working away from home anyway.

This kind of change has some worried states. There is currently a tax dispute between New Hampshire and Massachusetts that could end up in the Supreme Court. The central question: where do people work for tax purposes when they are not allowed to enter an office in another state?

When the pandemic began, Massachusetts issued guidelines saying that if you normally worked in an office in that state, you should continue to pay income tax, even if you worked from home. New Hampshire disputed this by take legal action.

“There is a strong argument that the pandemic should make a difference,” said Eric Bronnenkant, chief tax officer at Betterment, the financial advisory app. “But one of the things that concerns me is that if the Supreme Court rules on the Massachusetts side, other states will say the Supreme Court has given their approval. This will make the taxation of remote workers more complex. “

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