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I am a man in my 20's and currently live in Jersey City. I work from my apartment every day. I would prefer to live directly in NYC (for lifestyle reasons), but do not currently do so in order to avoid the NYC resident income tax.
However, what if:
1) I share an apartment in NYC with a friend. However, only his name is on the lease. He pays the monthly rent in full to the landlord, and I pay my share to him in cash under the table.
2) My friend (who lives in NYC already) rents another apartment in NYC. Only his name is on the lease. He pays the monthly rent in full to the landlord, and I pay that full amount back to him under the table.
With both of these methods, my official domicile would be my parents' house located in another state within the US. My friend and I share no connections on any paperwork, so it should be difficult/impossible to link our names together (i.e. it's not like my parents are renting an apartment in NYC in their name for my to live in, in which case it would be obvious to tax regulators that I am trying to avoid paying NYC taxes with some loophole).
Are these viable methods of avoiding the NYC resident income tax?
I really appreciate any comments you may have. Thanks!
I am a man in my 20's and currently live in Jersey City. I work from my apartment every day. I would prefer to live directly in NYC (for lifestyle reasons), but do not currently do so in order to avoid the NYC resident income tax.
However, what if:
1) I share an apartment in NYC with a friend. However, only his name is on the lease. He pays the monthly rent in full to the landlord, and I pay my share to him in cash under the table.
2) My friend (who lives in NYC already) rents another apartment in NYC. Only his name is on the lease. He pays the monthly rent in full to the landlord, and I pay that full amount back to him under the table.
With both of these methods, my official domicile would be my parents' house located in another state within the US. My friend and I share no connections on any paperwork, so it should be difficult/impossible to link our names together (i.e. it's not like my parents are renting an apartment in NYC in their name for my to live in, in which case it would be obvious to tax regulators that I am trying to avoid paying NYC taxes with some loophole).
Are these viable methods of avoiding the NYC resident income tax?
I really appreciate any comments you may have. Thanks!
You would still be obligated to pay NYC income tax. The only way to avoid NYC income tax is to reside in NYC for 182 or fewer days of the year, which many very rich people do manage, but they will be audited if the city thinks it can catch them shaving things close.
Of course, you may be able to avoid detection through the convoluted but illegal methods you describe, but that will not stop your legal liability, huge fines and likely serious prison time for tax fraud if you get caught. When you claim deductions on your taxes, if you get audited by the federal government or the state where your parents live if they have state income tax (which you probably will some day if you're self-employed), you will have to provide evidence of those deductions--which of course will show that you're living in NYC, and then you'll be in deep trouble. Thus, for your strategy to have even the slightest hope of "working", you'd have to claim only the standard deduction, which is going to be a financial disaster for someone self-employed and cost you far more money than city tax would.
Also, NYC tax is just not that much money. Even if you're pretty well-off, you're only talking a few thousand dollars a year (and if you were truly very rich, with an income of say $500,000 or more, you would have the means to manage the perfectly legal strategy of not living in NYC for at least half the year). Clearly not worth the serious risk of completely ruining your life by a tax fraud conviction--especially when living in Jersey City/Hoboken or the suburbs is a legal option for avoiding NYC tax.
Quote:
Originally Posted by mathjak107
if you work in nyc you pay your taxes first to ny and nyc and your home state 2nd if anything is leftover when ny is done with you.
Not quite true--you don't pay NYC taxes if you don't live in NYC. Also, NJ (and possibly CT?) has a tax-sharing arrangement with NY that I don't quite fully understand but that means a portion of your state taxes are paid in NY and a portion in NJ if you live in one state and work in the other. You don't pay the full amount in either state.
Last edited by BrownstoneNY; 03-21-2014 at 05:26 PM..
Thank you for your reply. In all honesty, I am not hoping to do anything that is considered illegal. Suppose that my friend simply allows me to sleep at his apartment (without asking me to pay him any money for that favor...I realize that paying him "under the table" would be considered illegal). In that case, I would simply be couch surfing at his place for an extended period of time. Is there any part of that scenario that is actually illegal?
Also, do you mind clarifying your point with the tax deductions? I assume you are referring to the deduction that is calculated as a fraction of the rent that an apartment-renting individual pays for his apartment. If so, then yes, I would have to forgo that deduction. But besides that, I am not sure why other random deductions would pose a problem. By the way, I am not self-employed, I am simply able to work from home all the time.
Actually I would say almost all the people doing the room shares in NYC whose parents live in either upstate/LI/NJ/CT do this. However, you cannot work in NYC and file resident taxes in any state. It has to at least be believable, or else you risk a high chance of an audit. But if you parents live just outside of NYC I don't even think the lease even matters since it's not like the gov't can easily check it so it's not really a red flag for audit since it's hard to prove. Call it a loophole or whatever you want, but residency tax avoidance is probably costing NYC millions each year.
Thank you for your reply. In all honesty, I am not hoping to do anything that is considered illegal. Suppose that my friend simply allows me to sleep at his apartment (without asking me to pay him any money for that favor...I realize that paying him "under the table" would be considered illegal). In that case, I would simply be couch surfing at his place for an extended period of time. Is there any part of that scenario that is actually illegal?
Also, do you mind clarifying your point with the tax deductions? I assume you are referring to the deduction that is calculated as a fraction of the rent that an apartment-renting individual pays for his apartment. If so, then yes, I would have to forgo that deduction. But besides that, I am not sure why other random deductions would pose a problem. By the way, I am not self-employed, I am simply able to work from home all the time.
Extended period of time, whether you call it couch surfing or not, is still residency depending on the amount of days.
Are you self-employed? Where is your employer located?
I am not self-employed. My employer has multiple offices over the globe, one of which is in NYC, but that is purely by coincidence...I have never worked a single day in that office.
My parents do not live in NY/NJ/CT, they live elsewhere in the country. But the fact of the matter is that I do all of my work remotely on my computer, so it really shouldn't matter I'd imagine (or, I'd *hope*, at least).
If all I am taking to my friend's apartment is a couple bags and a laptop, then I am not really moving all of my belongings there, etc.. Is that still considered residency then?
I am not a lawyer, but I believe this is pretty cut and dry:
1. Yes, legally, that is residency. See here: Income tax definitions
2. Although doing what you describe to avoid income tax is illegal, you could probably easily get away with. Obviously I'm not advocating that, just pointing it out.
1) yes it is illegal. Your primary residence is where you spend majority of your time. If it's your jersey city place, nothing to worry about. But if it's the nyc apartment, that is where you should pay taxes for. 2) you'll likely get away with it, at least for a few years.
But what if you don't? If irs even gets a slight idea of this - and it's something they are extremely well area of and actively seek out - they will do things such as talking to your coworkers - and given you are paid thru work and your state of residence is on record there, do you feel like lying to your coworkers every single day? They will look at credit card / debit card receipts. They will do things like ask for your transportation records, eg paying for path, bus, or ferry tickets. Sure I'm sure you can lie about this, but you dig a much deeper hole if caught.
Every action has consequences....you have to weigh if it's worth it.
So you want to sleep in the city, walk the streets, use the transportation/amenities, yet lie about the whole thing in order to avoid a tax that works out to less than $100 per month for most people? Why?
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