Ending New York Residency While Operating a New York Professional Corporation
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January 28, 2026January often feels like a quiet month when it comes to taxes. The holidays are over, April feels far away, and many people assume there’s plenty of time to deal with tax matters later. After working with U.S. taxpayers—particularly professionals, business owners, and Americans living or working abroad—I can say with certainty that this assumption leads to some of the most expensive tax mistakes I see each year.
Overview
We recently worked with a client who had lived and worked in New York for many years, then made a deliberate decision to relocate abroad while continuing to operate a U.S. based professional practice. Like many professionals in this situation, her biggest concern was simple but critical.
Would forming or maintaining a New York entity undo everything she had done to terminate New York tax residency?
The short answer was no. But getting there required careful planning, documentation, and an understanding of how New York actually evaluates residency. This article walks through what we did, why it worked, and how similar professionals can approach the same issue.
This fact pattern is especially common for U.S. citizens now living abroad, including those residing in Singapore, who continue to hold New York professional licenses or serve U.S. clients.
How New York Actually Determines Residency
When we analyze New York residency, we focus on personal facts, not business paperwork.
New York taxes individuals as residents under two tests.
The first is domicile. Domicile is your true, fixed, and permanent home. It is where your life is centered and where you intend to return after any absence. Once you establish a New York domicile, it continues until you clearly abandon it and establish a new one elsewhere.
The second is statutory residency. Even if you are no longer domiciled in New York, the state can still treat you as a resident if you both maintain a permanent place of abode in New York and spend 184 days or more in the state during the year.
If neither test is met, you are treated as a New York nonresident.
What the Client Did to Terminate New York Residency
Before we addressed entity structure, we confirmed that the residency break itself was solid.
In this case, the client:
Relocated her primary living activities outside New York
Limited her physical presence in New York to well under 184 days
Rented out her former New York residence to third parties
Surrendered her New York driver’s license and voter registration
Established banking, insurance, and daily life connections outside New York
Taken together, these steps demonstrated a clear and consistent departure from New York. Importantly, they were not isolated actions. They told the same story.
The Core Question About Forming a New York Entity
After leaving New York, the client needed to formalize her professional practice. Because of licensing requirements, a New York Professional Corporation was the most practical option.
Her concern was that forming a New York Professional Corporation would allow New York to argue that she was still a resident.
This is a common fear, but it is not how the law works.
Why the New York Professional Corporation Did Not Recreate Residency
Entity formation does not control personal residency. New York looks at where you live, where you spend time, and where your life is centered.
A Professional Corporation is a separate legal person. Its state of formation does not override domicile or statutory residency analysis.
That said, we are always realistic with clients. A New York entity can increase audit attention. The risk is audit scrutiny, not automatic reclassification. Our job is to make sure the facts are strong enough that scrutiny does not change the outcome.
Why We Recommended a New York Professional Corporation With S Corporation Election
For this client, a New York Professional Corporation with an S corporation election provided the best overall result.
The structure gave her:
Clear separation between her personal residency and her business operations
Professional and legal compliance with New York licensing rules
Liability protection that a sole proprietorship could not offer
Administrative clarity through formal payroll and corporate banking
Improved tax efficiency compared to reporting all income on Schedule C
Most importantly, it allowed compensation to be tied to where services were actually performed, not where the entity was formed.
S Corporation Versus Schedule C in This Situation
Had the client operated as a sole proprietor, all net income would have been reported on Schedule C and subject to self employment tax.
By using an S corporation, we were able to establish reasonable W 2 wages for the services she performed. Only those wages are subject to Social Security and Medicare taxes. Remaining profits flow through as distributions.
For professionals earning meaningful income, this distinction often produces substantial annual tax savings while also creating cleaner documentation.
Performing Services Abroad and the Foreign Earned Income Exclusion
Because the client performs her work outside the United States, we also evaluated eligibility for the Foreign Earned Income Exclusion.
When services are physically performed abroad, wages paid by an S corporation can qualify as foreign earned income if the individual meets the physical presence or bona fide residence test.
The key point we emphasized is that New York entity formation does not affect this analysis. What matters is where the work is actually done.
Coordinating With Singapore Tax Rules
In this case, the client resides in Singapore. Singapore generally taxes foreign sourced income only when it is remitted into Singapore, subject to specific rules and exceptions.
By coordinating U.S. and Singapore tax treatment, we were able to structure income in a way that avoided double taxation while remaining fully compliant in both jurisdictions.
Managing Audit Risk
The primary risk in situations like this is not that New York will automatically reclassify residency. The real risk is audit attention.
We addressed this by ensuring:
Consistent travel and day count tracking
Clear documentation of where services are performed
Formal payroll and separate corporate banking
No personal use of New York property
Clear separation between personal life and business activity
When the facts are consistent and well documented, New York has little room to argue continued residency.
Conclusion
This case illustrates an important point. Leaving New York does not require abandoning New York based professional opportunities.
With proper planning, it is entirely possible to terminate New York residency, live abroad, and operate a compliant and tax efficient New York Professional Corporation.
Residency is personal. Entity formation is structural. When those two concepts are kept distinct and properly documented, the result is both defensible and practical.
Important Notice
This article is intended for general informational purposes only. It describes a representative fact pattern and planning approach based on a real world situation, but details have been simplified and anonymized.
Nothing in this article is intended to constitute legal, tax, or accounting advice, nor should it be relied upon as such. Tax residency, entity structuring, compensation design, and international tax outcomes depend heavily on individual facts and circumstances. Readers should consult with their own professional advisors before taking any action based on the information discussed here.orth pursuing.”
