Tax Friendly States
- Many people, especially those living in states with colder climates, hope to eventually move to a warmer state for retirement.
- You may have a list of characteristics you want your destination state to have: warm weather, easy access to fishing or other hobbies, close to loved ones, and a host of other things.
- Another thing to consider when thinking about a permanent move is tax friendliness.
- Five factors affect whether a state is tax friendly: state income tax, sales tax, real estate tax, inheritance tax, and property tax.
- Choosing a tax friendly state for your retirement years may leave you with more money to do what you love to do.
You may not know it, but I lived in Alaska for three years. I absolutely loved it, even though it’s very cold. But now, there’s another reason to love Alaska. A recent article from Kiplinger lists the 10 most tax friendly states and guess which state got number one: Alaska. Even so, I’m not sure how many people would actually want to move there. The next two on the list are Wyoming and South Dakota. These are all cold places, so they’re not necessarily the best places to live out your retirement years. The article lists five states that are in what most people would consider the cold northern climes and five in warmer, southern climes. The five warmer states are Nevada, Florida, Georgia, Kentucky, and Mississippi. But the actual point of the article isn’t about climate; it’s to bring up things to consider—such as tax friendly status—if you end up moving to one of these places, especially during retirement.
What makes a state tax friendly?
Five major factors affect whether a state is or is not tax friendly:
- State income tax. Several of the states on this list don’t have a state income tax. For instance, both Alaska and Florida do not.
- Sales tax. Sales tax ranges all over the place and, if high, can really add to the cost of goods.
- Real estate tax. Some states have very friendly real estate tax policies. For example, when you become older, Florida and some other states lock in a rate for the rest of your life.
- Inheritance tax. This tax comes up after death. It’s very important to avoid a transfer tax after death.
- Property tax. This is different from real estate tax in that it involves a tax on cars and other assets beyond the typical taxes. Many states impose this additional property tax.
If you’re looking around and considering a permanent move, check out these five things in these 10 states, or any other state you’re considering. Since, upon retirement, most people want to end up in the south, where the climate is warmer, it’s good to know what to look for when choosing exactly where to move. A tax friendly state may keep costs down, so you’ll have more money to do what you want to do, even when on a fixed retirement income. By checking things out before the big move, you can avoid the unwelcome surprise of discovering you’ve moved to a state that isn’t tax friendly. Until next time, enjoy.
Gary Klaben is in our Glenview, IL office and serves our clients who are now located all over the country. He has over 30 years of experience and is the author of Changing the Conversation, Wealth of Everything and co-author of The Business Battlefield. Whether advising his clients, mentoring his team, or coaching entrepreneurs, he is always simplifying complexity and motivating others to take the next action that’s right for them.
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