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When I tell my high-income clients that living in California is excellent, they roll their eyes. But why? The state income taxes here make many people want to move elsewhere.
Lately, we have been working on tax plans and implementing tax strategies for several clients who have moved to Florida and Texas.
Are there benefits to moving to states without an income tax? Let’s find out which states don’t have an income tax.
There are nine states without income tax:
- New Hampshire*
- South Dakota
- Washington, and
*New Hampshire also doesn’t tax earned income. HOWEVER, they will tax investment income. So, any interest income or dividend income will be taxed at 5%, and you’ll have to file a state income tax return in 2022.
Everyone else charges a state income tax that you have to pay; for example, California has the highest rate, 13.3%. And the lowest are the eight states without an income tax.
States Without Income Tax Make Money In Other Ways
While living in a state without income tax may save a deduction from your paycheck and decrease your local tax burden, you will be paying the state in other ways. For instance, you pay other taxes: property tax as a homeowner and sales tax any time you go shopping.
It depends on a lot of factors. It’s essential to keep in mind that you can provide a tax shelter for your income and reduce your total tax burden if you structure your business and investments a certain way.
Are you thinking of moving to another state to avoid the state income taxes?