What is the Closer Connection Test

The Closer Connection Test is a rule used by the Internal Revenue Service (IRS) to determine an individual’s state of residency for tax purposes. The Closer Connection Test is used when an individual does not meet the Tax Home Test, but they have a closer connection to one state than to any other state.

To meet the Closer Connection Test, the individual must have a closer connection to one state than to any other state based on a number of factors, including:

  • The individual’s place of residence
  • The individual’s family ties
  • The individual’s social ties
  • The individual’s business ties
  • The individual’s recreational ties

If the individual has a closer connection to one state than to any other state, then that state is their state of residency for tax purposes.

The Closer Connection Test is just one of the factors that the IRS uses to determine residency. Other factors include the individual’s domicile, the location of their permanent home, and the location of their family and friends. If you are unsure whether you meet the Closer Connection Test, you should consult with a tax advisor.

Here are some additional things to keep in mind about the Closer Connection Test:

  • The Closer Connection Test is applied on a calendar year basis. This means that the location of your closest connection is determined on a yearly basis.
  • The Closer Connection Test is not the only factor that the IRS uses to determine residency. Other factors include the individual’s domicile, the location of their permanent home, and the location of their family and friends.
  • If you are unsure whether you meet the Closer Connection Test, you should consult with a tax advisor.

Here are some examples of how the Closer Connection Test might be applied:

  • An individual who works in State A but lives in State B would not meet the Tax Home Test because they do not have a principal place of employment in State B. However, if the individual has a closer connection to State B than to State A, then they would meet the Closer Connection Test and be considered a resident of State B for tax purposes.
  • An individual who works in State A but travels frequently to State B for business would not meet the Tax Home Test because they do not have a principal place of employment in State B. However, if the individual has a closer connection to State B than to State A, then they would meet the Closer Connection Test and be considered a resident of State B for tax purposes.
  • An individual who works in State A but owns a home in State B would not meet the Tax Home Test because they do not have a principal place of employment in State B. However, if the individual spends most of their time in State B and has a closer connection to State B than to State A, then they would meet the Closer Connection Test and be considered a resident of State B for tax purposes.

The Closer Connection Test can be a complex and subjective rule, so it is important to consult with a tax advisor if you are unsure whether you meet the test.

If you are considering relocating to Puerto Rico, Act 60 can be a great way to lower your taxes. Talk to us, we are accountants and tax advisor to see if you qualify and help you with the application process.

I hope this article was helpful. Is there anything else I can help you with? Feel free to reach out at [email protected] or 787-473-8985.

Disclaimer: The information provided on this website is for informational purposes only and is not legal or tax advice. You should consult with a qualified attorney or tax advisor to discuss your specific situation.

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