State taxes play an important part when choosing a place to retire.
According to Kiplinger?s 2014 analysis of state taxes, not all states impose the same taxes on pensions and retirement income. Some states are considered more tax-friendly than the others so make sure you take these things into consideration before you settle on a place to retire. To make sure you make the right decision, here are the types of taxes that you should consider when choosing a place to spend your golden years.
Income Tax Rates
According to the Federation of Tax Administrators (FTA), the income tax rate across all brackets in North Dakota, Arizona, Kansas and New Mexico is less than 5% while Pennsylvania, Indiana, Illinois, Michigan, Colorado and Utah all have a low flat income tax rate of 5% or less. Interestingly, there are seven states that do not tax individual income at all. These include Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming. In addition, New Hampshire and Tennessee only collects taxes from dividends and interests, and offer special tax breaks for seniors.
State Sales Taxes
While sales tax range from 2.9% to 7.5% in most states, Alaska, Delaware, Montana, New Hampshire and Oregon do not impose any sales tax.
Social Security Taxes
While most states exclude Social Security from state income tax, 13 states still impose taxes on Social Security benefits to some extent. This includes Rhode Island and West Virginia which tax benefits the same way the federal government does. On the other hand, Connecticut, Kansas and Missouri impose taxes on Social Security benefits when the taxpayer’s income exceeds a certain threshold.?
State and Local Property Taxes
Since property taxes can constitute a significant amount, it is not enough that you know the current property tax rate in the area where you want to retire. You should also try to discover how a particular area?s property tax rate changed over time and do not forget to check for tax breaks.
Estate and Inheritance Taxes
Most states do not impose estate tax or inheritance tax but 17 states impose one or the other. In addition, the states of Maryland and New Jersey impose both.
Based on these parameters, Kiplinger came up with a list of tax-friendly and unfriendly states. According to their data, the most tax-friendly states include the following:
?? South Dakota
On the other hand, the following states make it to the top of the most tax-unfriendly list.
?? New Jersey
?? New York
?? Rhode Island
Tax planning is an important consideration when choosing where you want to retire so do your research before relocating. Keep this in mind and you can surely stretch your retirement income.