Fund Manager Taxes When Moving From New York to Florida or Texas

When does New York stop treating me as a resident?

New York resident taxation generally ends when you establish a permanent home elsewhere and avoid its full-year residence test. Start by documenting the move and counting every New York day, including days before departure.

Domicile means your permanent home, where you intend to return after an absence. New York requires clear and convincing evidence that you abandoned your New York domicile and established a new one. A Florida declaration of domicile, voter registration or driver's license alone does not establish that change. Your actual home, family, business and daily life must support it. New York residency FAQs.

Under the New York statutory resident rules, you can be a resident for the whole move year if you maintain a permanent place of abode in New York for substantially all the year and spend at least 184 days there. An abode is a home you maintain that is suitable for year-round use, whether owned or rented. Any part of a day normally counts, including work visits and pre-move days. Meeting this test means full-year resident taxation and Form IT-201, even after your domicile changes. Form IT-203 instructions, resident definitions.

New York's audit policy generally treats more than 10 months as substantially all the year in years when you acquire or dispose of the residence; temporary rentals do not necessarily break maintenance of the abode. The home's availability and your relationship to it still require factual review. Count state days and City days separately when you retain a City apartment. Nonresident Audit Guidelines, statutory residence.

Are California, New Jersey and Connecticut residency rules the same?

California, New Jersey and Connecticut each have their own tests. Staying below New York's day limit does not establish nonresidency in another state.

California's employment-related absence safe harbor applies to someone who remains domiciled in California while working outside it under an employment-related contract for at least 546 consecutive days. A permanent mover uses the ordinary residency tests above and need not wait for this safe harbor. Return visits must total no more than 45 days per taxable year. The safe harbor is unavailable if intangible income exceeds $200,000 in a covered tax year or the principal purpose of the absence is avoiding personal income tax. Failure to qualify returns you to the ordinary residency analysis; it does not itself prove residency. FTB Publication 1031, Safe Harbor.

Florida and Texas do not impose individual state income tax, but that does not determine when the departure state releases you from resident taxation. Florida Department of Revenue; Texas Comptroller.

Does New York have an exit tax?

New York does not impose a separate tax simply for moving to Florida or Texas. Its special accrual rules can nevertheless tax income in the resident period before you receive the cash.

Income generally accrues when the amount is fixed and determinable and you have an unrestricted right to receive it. A bonus already earned and fixed before departure may belong to the resident period even if paid afterward. Deferred gain from an installment sale made while you were a resident must also accrue to the resident period unless you post acceptable security. These rules do not mean every unrealized investment gain is taxed on departure. Form IT-203 instructions, Special accruals.

Tax Law section 639 allows acceptable bond or other security in place of required accruals, with the amounts taxed in later years as though resident status had not changed. Posting security changes timing rather than eliminating the obligation. Have accrued items and any proposed security arrangement reviewed before filing. If you elect deferral, file the security and Form IT-260 (surety bond) or IT-260.1 (collateral) with your move-year return, following the separate registered-mail instructions. You sign; your spouse signs for a joint return, and the surety signs IT-260. The security remains until the deferred obligation is satisfied. A former City resident also owes City resident tax on these accruable amounts when reported in later years. Section 639; special accrual and security instructions.

Connecticut also accrues fixed bonuses, severance and deferred installment-sale gains to the resident period. You can elect security using CT-12-717A (surety bond) or CT-12-717B (collateral); you and any spouse on a joint return sign, and the surety also signs CT-12-717A. Send the security separately and attach the form and accrual statement to your move-year CT-1040NR/PY. The deferral agreement binds your heirs and estate representatives until its obligations are satisfied. If all accruable amounts arrive later in that same year, you may instead report them as Connecticut-source nonresident income without security. Section 12-717(c); DRS security instructions; special-accrual regulation.

The separate federal expatriation rules concern relinquishing US citizenship or ending long-term US resident status, rather than moving between states; see exit tax and the federal exit-tax guide.

What records support the move in a residency audit?

A residency position needs dated evidence of where you lived and how your life changed. New York's five primary domicile factors are home, active business involvement, time, personally important possessions and family connections. Nonresident Audit Guidelines, domicile factors.

For a fund manager, continuing to run a New York firm remotely remains relevant to the business factor. Physical absence does not erase active involvement. Keeping the firm in New York also does not, by itself, settle domicile: the factors must be weighed together. Nonresident Audit Guidelines, active business involvement.

Start the day log before departure and preserve the supporting records as events occur. A retained apartment, frequent office visits, family remaining behind or conflicting records warrant review before relying on a move date. We prepare principals' part-year returns and K-1 splits, and management-company and GP state and City returns: see hedge fund tax and accounting. Bring the day log, leases, K-1s and deferral plans.

How is my K-1 split in the year I move?

New York generally splits your partnership income between resident and nonresident periods by days in the partnership's reporting year. The resident portion includes income from all sources; the nonresident portion includes only income derived from New York sources. Tax Law section 639(f).

For ordinary management-company income using proration:

1. Multiply your annual share by resident days divided by total days in the entity's reporting year.
2. Multiply your annual share by nonresident days divided by those same total days, then apply the entity's New York allocation percentage.
3. Add the two amounts for the New York State income amount.

The denominator is the entity's reporting period, which may differ from your calendar year. Obtain the allocation percentage and New York Partner's Schedule K-1, Form IT-204-IP, from the partnership. The cash-distribution date does not determine this split. Form IT-203 instructions, partnership income and proration method.

Alternatively, you can elect direct accounting using the entity's federal accounting method to identify the income actually attributable to each period. New York can require that approach. Apply the method to all items from that entity rather than selecting only favorable items; different entities can use different methods. Large gains or fees concentrated around departure make the choice consequential. You choose the method on your move-year IT-203, which you sign. Request books that support the dates before filing. Form IT-203 instructions, direct accounting method.

California also divides partnership income between resident and nonresident periods, taxing all-source income for resident days and California-source income for nonresident days. Use actual realization dates when known; otherwise use daily proration. FTB Legal Ruling 2003-1. New Jersey and Connecticut require their own calculations. Publication 1031, Partnership Income.

Can New York still tax management-company income after I move?

New York can continue taxing a nonresident partner's share of management-company income derived from New York operations. The principal's new home does not remove an office, employees or business activity from the company's allocation. Tax Law section 632.

A nonresident partner can also owe metropolitan commuter transportation mobility tax (MCTMT) if net self-employment earnings attributable to either district zone exceed $150,000. Report it on your personal return after the move. New York MCTMT guidance.

The partnership generally pays New York estimates on your behalf through IT-2658; claim those payments on IT-203. You can sign and give the partnership IT-2658-E to certify that you will meet your own filing and estimated-payment requirements. Other exceptions and payment details belong in fund state returns and nonresident payments. IT-2658 instructions; exemption certificate.

Ask the company's preparer how the move changes its actual operations and allocation. Unless it uses books and records or an authorized alternative, the partnership averages its property, payroll and gross-income factors. Services performed by or through a New York office can count as New York receipts, including work by staff connected with that office. A new mailing address alone does not establish that services moved. Form IT-204 instructions, business allocation.

If you also receive wages and your primary office remains in New York, remote work days generally remain New York work days unless your employer establishes a bona fide office at the remote location. Review the employee sourcing rules separately from partnership allocations. New York telecommuting FAQs.

Keep management fees separate from a GP's incentive allocation. Partnership items retain their federal character, and New York's rules distinguish business income from income on intangible property; the management company's allocation cannot automatically be applied to the GP's income. Sections 617, 631 and 632.

Whether New York or California can tax carry after departure belongs in carried interest and the three-year rule.

Are deferred bonuses, fees and guaranteed payments still taxable in New York?

Payment after departure can remain New York income when it relates to work or a business previously carried on there. First check resident-period accruals; then determine the source of amounts properly reportable after departure. TSB-M-10(9)I.

The memorandum distinguishes employee compensation from business income. For a business carried on in several states, its stated method uses the business allocation percentage for the year the contract or agreement producing the income was entered into. Do not assume the payment year's smaller New York footprint controls deferred fees. Preserve the contract, earning-period records and historical allocations. TSB-M-10(9)I, Businesses.

Guaranteed payments to a partner need partnership sourcing review. Describing a payment as compensation for the partner's out-of-state services does not itself override New York's nonresident partnership rules. Section 632(b).

Federal law protects specified retirement income paid to someone who is neither resident nor domiciled in the taxing state. Covered plans include qualified retirement plans and individual retirement accounts. Certain nonqualified arrangements, including qualifying written retired-partner arrangements, require substantially equal payments at least annually over life expectancy or at least 10 years. A separate exception covers certain excess-benefit retirement plans. Merely paying a bonus in installments does not establish protection. Review the actual plan against 4 USC 114.

Should the management company move too?

Moving the management company is a separate decision from moving the principal. Compare where the work will actually occur, which offices and staff remain, and the resulting state and City filings before changing the entity's address.

These choices affect the allocation under New York's partnership instructions. Changing the company's address alone does not change where its income is earned.

California assigns a multistate business's service receipts to where the customer receives the benefit. Moving staff to Texas does not by itself end California tax on fees whose benefit is received in California. Publication 1031, Business Income.

New York City's unincorporated business tax (UBT) is a tax on the business, separate from the principal's City personal income tax. For ordinary management services, the City's receipts allocation uses where services are performed, with special rules for certain businesses. Keeping City staff performing the work can preserve City receipts even after the principal leaves; a genuine transfer of work can change the allocation. See NYC-204 instructions and UBT for fund managers.

A management company or GP relocating to Texas needs Texas franchise tax review, including legal-form eligibility for passive status: an LLC cannot qualify, even if taxed federally as a partnership. Only a partnership or a trust other than a business trust can qualify, and it must have that legal form for the entire accounting period; conversion from an LLC does not qualify for that period. Texas passive entities FAQ.

The legal steps, EIN and elections belong in moving your company to another state; payroll for staff who remain belongs in employees in another state.

Which move-year returns do I file, and what changes in New York City?

A New York part-year resident generally uses Form IT-203, with Form IT-360.1 for a change in City resident status. City personal income tax generally ends for the nonresident period, subject to the special accrual rules above, while the business's UBT can continue. Recheck statutory residency before selecting a part-year return. All IT-203 filers complete Item H: if you or your spouse on a joint return had New York living quarters available during any part of the year, also complete Schedule B of IT-203-B. Form IT-203 instructions.

If one spouse remains a full-year New York State resident and the other is a part-year resident or nonresident, a joint federal return generally requires separate New York returns: IT-201 for the resident and IT-203 for the other when required. Electing a joint IT-201 instead taxes both spouses' income as full-year residents. IT-203 instructions, Item A.

Rent from New York real property remains New York-source income after residency ends. Include it in the nonresident-period IT-203 calculation; see rental property taxes for reporting. Tax Law section 631(b)(1)(A).

An eligible City part-year resident partner completes the Part-year resident UBT allocation worksheet in the IT-219 instructions and enters its result in Part 1, line 5; see IT-219 instructions and the UBT guide.

Move-year income can change required estimated payments; filing choices and payment timing when a K-1 is delayed are covered in late fund tax forms. File and pay the New York return by April 15 following the tax year. A return filed more than 60 days after its filing deadline, including extensions, generally incurs at least the lesser of $100 or unpaid tax after timely payments and credits; reasonable-cause relief can apply. Tax Law section 685(a)(1).

Example

An illustrative Manhattan portfolio manager establishes a Miami domicile on July 1 and gives up the Manhattan apartment as part of the move, retaining no other New York home. This avoids statutory residency. The management partnership uses a calendar year and proration. The manager's annual share of its fee income is US$2,000,000 and its New York allocation is 90%. Assume no special accruals or other adjustments.

The manager has 181 resident days and 184 nonresident days in this non-leap year. These period-allocation days differ from days physically spent in New York:

Had the manager retained the apartment all year and spent at least 184 physical days in New York, all US$2,000,000 would be resident income instead.

The move leaves most of the fee-income share within New York's income calculation because the firm retains substantial New York allocation. These are income amounts, not tax due. New York first calculates a base tax using full-year income and then apportions it, so the final tax requires the rest of the return. The example excludes carry and the City's separate tax calculation. Form IT-203 instructions.

Different for you?

• Large K-1 amounts, deferred pay, a retained home or a firm relocation: bring the day log, leases, K-1s, entity books and deferral plans for hedge fund tax planning.
• Carry remains after departure: see carried interest and the three-year rule.
• Fund K-1s show income in several states: see state returns for fund investors.
• You expect a nonresident credit for pass-through entity tax (PTET): see pass-through entity tax elections.
• You retain a City business: see UBT for fund managers.
• You are moving to Canada: see US state tax after moving to Canada.
• You hold a visa or green card and are leaving the United States: see leaving the US.
• You are a US citizen moving abroad: see filing while living abroad.