Beware of state taxes where you want to retire


When you retire,you may consider moving to another state — say, for the weather or to be closer to loved ones. State taxes also may factor into the equation. Here’s what you need to know about establishing residency for state tax purposes — and why the process may be more complicated than it initially appears to be.

Identify and quantify all applicable taxes

It may seem like a no-brainer to simply move to a state that has no personal income tax, such as Nevada, Texas or Florida. But, to make a good decision, you must consider all of the taxes that can potentially apply to a state resident, including:

  • Income taxes
  • Property taxes
  • Sales taxes 
  • Estate taxes

For example, the Texas franchise tax may apply to your business if you do business in Texas or locate the business in the state. The absence of a state income tax in Texas is great for individuals, but the Texas franchise tax is definitely something to consider with regard to relocation.

If the states you’re considering have an income tax, also look at what types of income they tax. Some states, for example, don’t tax wages but do tax interest and dividends. And some states offer tax breaks for pension payments, retirement plan distributions and Social Security payments.

Watch out for state estate tax 

Not all states have estate tax, but they can be expensive in states that do. Every dollar you pay in state estate tax is in addition to any federal estate tax owed, except for the federal estate tax savings from the state estate tax deduction. Check with a Sol Schwartz & Associates tax professional about any estate taxes in your state.

Also note that some states may levy an inheritance tax in addition to (or in lieu of) an estate tax.

Make an informed choice

Before deciding where you want to live in retirement, do some research and check with a Sol Schwartz & Associates tax professional about the new state that you’re considering. Taking these steps could avoid making a bad relocation decision when taxes are considered – one that could be difficult and expensive to unwind.

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