“Taxes, as many know, are among the biggest expenses people face in retirement. So it should come as no surprise that many retirees and would-be retirees ponder the thought of moving to a tax-friendly state.
But which are the most tax-friendly states? Well, it’s not an easy question to answer according to Kathleen Thies, a state tax analyst with CCH, a Wolters Kluwer business. States that have high personal income-tax rates might have low property tax rates and states with low personal income-tax rates might have high property tax rates.
And so the end game for those looking to find the most tax-friendly state is to review all their sources of income in retirement including earned income, Social Security, pensions, and unearned income; all the different types of taxes they might face in retirement including personal income, sales, property and the like; and their overall tax burden, Thies said in an interview.
For instance, those who depend less on Social Security and more on earned income in retirement might consider moving to a state with lower or no income-tax rates. Others who rely heavily on Social Security, by contrast, might consider moving to a state that doesn’t tax such benefits.
“People think they will move to Florida, or Texas, or Nevada and they won’t have any income tax,” she said. “But you have to remember that every state is a business and they need to create revenue. So if they aren’t doing it through income tax they will get it some other way, such as sales or property taxes.”
To be fair, taxpayers who contemplate retiring to one state or another or who contemplate retiring in place also have to calculate whether deducting certain taxes—income, sales, and property—on their federal tax return will make a difference on their overall tax burden…..”
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