Pay Less Tax by Choosing the Right Place to Live
Joel Bowman writing on financial freedom…
The Beatles were right on the money when they sang…
If you drive a car, I’ll tax the street
If you try to sit, I’ll tax your seat
If you get too cold, I’ll tax the heat
If you take a walk, I’ll tax your feet
When it comes to taxes, most people think of the amount that comes out of their wage. And when it comes to state income taxes, there’s no place quite like (in alphabetical order)…
Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming.
Income taxes for residents of these states weigh in at a nice round number: Zero. Nada. Zilch. No income tax at all. (And that includes retirement income, by the way.)
Two other states – New Hampshire and Tennessee – deserve special mention. They only impose income taxes on dividends and interest earned. At time of writing those rates were 5% for New Hampshire (whose motto is “Live Free or Die”) and 6% for Tennessee (nicknamed, oddly enough, “The Volunteer State”).
States with the lowest, flat-tax rates are Indiana (3.4 %), North Dakota (3.99%) and Pennsylvania (3.07%). As for states with the lowest marginal tax rates on the highest brackets (i.e. the lowest tax on top earners), Arizona, North Dakota and New Mexico are all below 5%.
Of course, there’s plenty more to consider when it comes to taxes than simply the pound of flesh extracted from your wages. At the state level, individuals should also take into consideration:
- Taxes on retirement benefits
- State (and local) property taxes
- State (and local) sales tax and
- State estate taxes.
Although many states offer exemptions for certain age and income brackets, only eight states can claim to impose no tax on pension income.
They are: Alaska, Florida, Mississippi, Nevada, South Dakota, Texas, Washington and Wyoming.
As for state taxes on Social Security income, most states do not directly tax these benefits. Only Minnesota, New Mexico, North Dakota, Rhode Island, Utah and Vermont do so without restrictions…though some others impose a tax, but with certain exemptions (like Connecticut’s exemption based on adjusted gross income (AGI), for example).
Incredibly, 45 of the 50 states in the union (that’s 90% of them…as well as the District of Columbia) impose taxes on virtually any good or service deemed to be “for sale or use.”
Only Alaska, Delaware, Montana, New Hampshire and Oregon offer sales-tax-free living.
That leaves us with the curiously named “property taxes” (is your income, for example, not also your property?) There are many methodologies by which to rank states by property taxes. You might care to know the highest rates relative to average income, for example. Or adjusted for cost of living. Different metrics will, of course, give you different results.
Of course, if you don’t pay the taxes owed, the state (whichever it may be) will eventually evict you…which may cause you to wonder who is the real tenant and who the real landowner when it comes to your “own” home.
Image: ©iStock.com/Courtney Keating