Did you know that Florida recently surpassed the state of New York to become the third most populous state in the United States? It’s the sixth fastest growing state in the U.S., and if you live here even part of the time, you know it boasts a very diverse population. Year in and year out, millions of people flock to the state of Florida for vacation – as well as retirement.
As well they should! Besides the warm weather, beautiful beaches, and plentiful attractions the state has to offer, there are lots of financial advantages for people who are considering moving to the Sunshine State. We will highlight a few for you.
Advantage #1: Fewer/Lower Taxes
Perhaps the most widely recognized benefit of becoming a Florida resident is the fact that the state’s constitution prevents the state legislature from implementing a state income tax. This could only be changed through a referendum by a majority vote of Floridians. We don’t see that happening any time soon!
The stability – and savings – of not having to worry about state income taxes by Florida residents could well be worth the move all by itself. But! Residents that have recently moved here or have business relationships in other states should be wary. If a person owns property or maintains certain business relationships in another state after moving to Florida, the other state will likely not easily let go of its tax revenues. New Florida residents with property and businesses elsewhere may still have to file state income returns in those states. Check with your tax advisor to be sure.
In addition to no state income tax, Florida also does not impose separate estate, inheritance, gift, intangibles, or generation skipping transfer (GST) taxes. The state itself also does not collect a real estate or property tax, but Florida counties and some cities & municipalities do. This practice is not unusual: most other states in the U.S. impose at least one of these types of tax sources. And while the State of Florida does impose a state sales tax (6%) that is usually quite a bit lower than most other states, and certainly lower than most other states of Florida’s size.
Advantage #2: Business Friendly
The filing fees to incorporate in Florida are incredibly low. They have even been cut a few times in the past, recently by as much as 25%. Also, Florida has eliminated many of the requirements and restrictions to start a corporation that other states have. For example, while some states require separate individuals to fill each corporate officer role, Florida allows a corporation to consist of one sole individual – and that individual does not even have to be a resident of the state! A P.O. box and good incorporation documents are pretty much all you need. The state also does not require a minimum capital reserve to start up a corporation – another big benefit to starting a small business here.
While there is no individual state income tax, Florida does impose a corporate income tax of 5.5%, but that is quite low compared to other states, like Massachusetts (8%) or Wisconsin (7.9%). And if an LLC incorporates in Florida, by design, the profits of that business pass directly to the owners’ individual tax returns – escaping this state income tax as well.
Advantage #3: Asset Protection
The Florida Homestead Act was passed in 1934 in the wake of the Great Depression to protect homeowners from creditors when they could not afford to pay their property taxes. As such, this exemption allows a property owner to declare their home as their “homestead” which will protect up to $50,000 of the property value from property taxes.
Today, this law truly makes a Florida resident’s home his castle. According to Alper Law Group, that “castle” is “…impenetrable by creditors. Article X, Section 4 of the Florida Constitution exempts homestead property from levy and execution by judgment creditors. This means that a creditor cannot force the sale of your homestead to satisfy a judgment. Florida courts have liberally expanded definitions of homestead property to include more than just a single-family house. Condominiums, manufactured homes, and mobile homes are also afforded homestead protection.”
There is virtually unlimited monetary protection of your homestead and there is no waiting period to get it, provided you follow the steps noted below.
Please note there are special circumstances (such as the size of the acreage attached to the property, bankruptcy, etc.) that do not offer this asset protection, so if you are doing some creative asset protection planning, you should probably consult an attorney.
If you own property in other states as well, you will need to declare which property you wish to be your “homestead,” as you can only have one. And for those properties held out of state, talk to your legal & wealth advisor to make sure they are titled properly for estate settlement purposes. This will help avoid ancillary probate in other states, which is costly and time-consuming.
To be entitled to receive Florida homestead on a property, residents must:
- Show they had title to the property in their name or their trust’s name on January 1st of the year in which they are applying.
- Prove that the property is owned by a naturally living person or a trust, not an entity such as an LLC.
- Reside in the property and intend it to be their permanent residence.
- Fill out an application and provide copies of various documents proving residency, such as the deed to the home, a driver’s license, etc. before March 1st of the year in which they wish to establish homestead.
Advantage #4: Property Tax Control
There’s an additional tax benefit for homestead property owners called the Save Our Homes Act. Once homestead on a property is established, the assessed value of a homeowner’s property for property tax purposes is restricted from increasing by more than 3%, or the annual increase in the Consumer Price Index, whichever is greater, for any given year.
While a homestead property’s market value may increase or decrease over time, the homeowner’s property taxes will never increase by more than 3% or CPI in any given year, regardless of whether or not the assessed value of the home has increased by more than 3% of the purchase price. This benefit can be huge in helping a Florida resident manage the cost of owning a property in this state over time.
Advantage #5: Benefits for Retirees:
There are numerous nonprofits, charitable and volunteer organizations that assist the many retirees and elders living in Florida. Resources are available at The Florida Department of Elder Affairs website, which offers a vast informational database to assist the elderly and their families.
Convinced that becoming a Florida resident might be a good move? While we would always ask you to defer to your tax or legal advisor to confirm this, most of the time, we would agree! Stay tuned for Part II of this article, in which we will describe how to become a Florida resident.