State taxes can consume a sizable portion of your income, and they are an unavoidable aspect of life. There are ways to lessen or even completely avoid paying state taxes, though. Here are some pointers and strategies to help you pay as little state tax as possible.
1. Transfer to a state without income taxes Moving to a state without income taxes is one of the simplest methods to get around them. By 2020, nine states—Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming—will not impose an income tax. Earned income is not taxed in Tennessee or New Hampshire, but investment income is. If you can move to one of these states, you’ll be able to significantly reduce your state income tax burden.
2. Benefit from tax credits and deductions
By utilizing deductions and credits, you can lower your tax burden even if you don’t reside in a state with no income tax. The deductions and credits that are available to you will vary depending on where you live because each state has its own tax law. Typical credits and deductions include: Education costs, child care costs, property taxes, charitable donations, energy-efficient home upgrades, mortgage interest, and more. Make sure to review the tax regulations in your state to determine the credits and deductions you qualify for.
3. Make sure you live in a state where there are no taxes. If you are unable to relocate there, you might be able to do so by establishing residency. You must make the tax-free state your principal residence and spend a sufficient amount of time there in order to accomplish this. This can entail obtaining a driver’s license, registering your vehicle with the state, and registering to vote. In the event that you are successful, you will be subject to the state’s tax regulations, which may be more benevolent than those in your own state.
Another significant cost for homeowners is property taxes, which differ greatly from state to state. With an average rate of 2.47% in 2020, New Jersey has the highest property tax rate in the US. Texas (1.81%), New Hampshire (1.86%), and Illinois (2.30%) are some additional states with high property taxes. Hawaii, on the other side, has the lowest average property tax rate in the US, at just 0.29%.
Finally, even though paying state taxes might be a major financial burden, there are ways to minimize or even completely avoid them. It’s crucial to conduct research and comprehend your state’s tax regulations if you’re thinking of moving to a state with no income tax, taking advantage of credits and deductions, or establishing residency in a more advantageous state. You may retain more of your hard-earned money in your pocket by taking proactive measures to reduce your state tax burden.