4 Things You Must
Know About How States Tax Retirement
by Karla Bowsher on Money Talks News
Sunshine long has
made Florida one of the most popular places to spend your golden
years. A lack of taxes on retirement benefits and estates can make it
a smart destination, too.
The amount of
taxes retirees pay varies widely depending on where they choose to
settle.
Following are four
types of taxes you should consider when selecting a place to retire. All
tax statistics come from the findings of the Federation
of Tax Administrators (FTA).
1. State taxes on income
Some states have a
relatively low income tax rate across all brackets.
For example, the rate
is less than 5 percent for even the highest income bracket in North
Dakota (3.22 percent), Arizona (4.54 percent), Kansas (4.6
percent) and New Mexico (4.9 percent).
Other states have a
low flat income tax rate of 5 percent or less. They include Pennsylvania (3.07
percent), Indiana (3.3 percent), Illinois (3.75
percent), Michigan (4.25 percent),Colorado (4.63
percent) and Utah (5 percent).
Seven states don’t tax
individual income at all:
·
Alaska
·
Florida
·
Nevada
·
South
Dakota
·
Texas
·
Washington
·
Wyoming
Two states — New
Hampshire and Tennessee — tax only income from
dividends and interest.
For more details on
your state or the one you’d like to retire in, check out the state-by-state
income tax breakdowns from the Federation
of Tax Administrators.
Five states have no
sales tax, according to the FTA: Alaska, Delaware, Montana, New
Hampshire and Oregon.
In the other 45
states, rates vary from 2.9 percent (Colorado) to 7.5 percent (California).
The types of goods and
services that are taxed also vary from state to state. Items taxed in some
states — but not others — include barber services, landscaping, prescriptions,
clothing and food.
For details, check out
the FTA‘s state-by-state breakdown of sales tax
rates, which also lists which states exempt food, prescriptions and
over-the-counter medications.
3. State and local property taxes
Because property taxes
can be significant, you should learn not only an area’s current property tax
rate, but also the history of how it has changed over time.
To learn more about
rates in a specific state or county, try this search engine formula:[state/county]
+ property tax. That should lead you to the appropriate revenue
department’s website.
While reading up on a
state’s property tax rate, don’t forget to check for tax breaks, too. Some
states and local jurisdictions offer some form of property tax exemption,
credit, abatement, deferral, refund or other benefit to homeowners or renters
who are senior citizens.
4. State estate tax
Wealthier retirees
also must consider a state’s estate tax. Fifteen states and the District
of Columbia have an estate tax, according to the nonprofit
Tax Foundation.
If the state in which
you are interested does tax estates, find out both the rate and whether
the likely dollar value of your estate qualifies it for taxation.
To learn more about a
state, try this search engine formula: [state] + state estate tax.
In addition to these
steps, if you’re preparing to retire, you may also want to check out the
following:
Where do you plan to
retire?
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