Should Advisors Move to Texas Over Taxes?

Expert on domicile decisions says advisors need to focus on the top line, not the bottom line

Sure, Texas has lower taxes. But living and working in California has its perks. Sure, Texas has lower taxes. But living and working in California has its perks.

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Surveys of business-friendly places frequently put Texas on top, and many businesses—manufacturers in particular—are indeed relocating to the Lone Star State. But is it sensible for retail-oriented financial advisors to make such a move?

Tax-weary advisors in places like New York, Chicago or Los Angeles may dream about Florida or Texas – especially after reading on AdvisorOne that Miami and several Texas cities are among the Top 10 wealth zones with fewest advisors (although – surprise, surprise – so are Chicago and L.A.).

But according to L.A.-based CPA Steve Frankiel, who specializes in helping clients make domicile decisions, for most people taxes are simply not the primary motivation for a move of that magnitude.

“The main drivers are access to referrals and clients as well as family issues,” Frankiel told AdvisorOne in a phone interview. “I’ve only seen 2 people move [because of taxes] in 30 years,” he added.

It’s not that such a move won’t save the advisor money. By moving from California to Texas or Florida, an advisor “would save income taxes on net business earnings and forgo the benefit of the deduction of state income taxes,” Frankiel said. So an advisor earning $200,000 would on balance save roughly 7% of his income, or $14,000.

An advisor may save even more than that if he’s fleeing a city that imposes income taxes or gross receipts taxes. An L.A.-based business pays roughly $5 for every $1,000 earned, he says.

But the vagaries of different tax jurisdictions can also adversely affect those who move in what might be surprising ways to those unfamiliar with the different ways of taxing.

“What you waive in income taxes may be given back in property taxes,” Frankiel says, noting that property taxes in California are comparatively low while they are on the higher side in Florida.

Residents of the Sunshine State also pay taxes on consumer services, even on rent, Frankiel says. “Each state has its own method of collecting revenue,” he adds.

The bottom line therefore is that advisors need to give primary thought to the top line—where can they generate income.

“If you’re a wealth advisor, you’re going to be concerned about getting referrals for clients,” Frankiel says. “Conferences are nice, but having steady contact with a group of people who can refer…business is wonderful. And that’s not likely to be in some small town in north Mexico. If you want to grow your business, you need to be in a place where you can grow your referrals.”

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