In 2018 taxpayers could no longer deduct more than $10,000 of total state and local taxes.
One of the biggest expenses ordinary people have that they think little about is taxes. For many, taxes is the single biggest expense that they pay if all taxes are added up. The more you consume the more you are taxed on the sales of those items. The more you earn the more you are taxed as a percentage of your income.
High income earners and the wealthy focus a lot of time and energy on minimizing tax liabilities because it can be very beneficial in savings. The middle class that are employed in jobs have fewer ways to minimize their taxes except tax deferred retirement funds like an IRA, 401K, or 403B, a sale of a personal residence for tax free capital gains, and the state they choose to live in.
While you must pay federal income taxes no matter where you live, you may also have to pay additional state income tax. In the U.S. we are free to live where we want, why not choose to live in a state without an income tax and keep more of the money you earn?
The current nine states with no income tax as of 2019:
- New Hampshire
- South Dakota
These states have no state tax on earned income for people that live there. It benefits retirees as that means no state income tax on Social Security benefits or when capital is withdrawn from IRAs, 401ks, or 403bs. Also payouts from pensions are income tax free on the state level.
When optimizing your personal finances or thriving for financial freedom this is very important information for planning purposes. The higher your earned income is the more important where you live becomes. In these states you are taxed more on consumption than earnings, buying less and earning more automatically optimizes your taxes. The earlier you choose the easier this decision becomes.