Do You Live in a Tax-Friendly State?

If you are working and you have a terrific job, chances are you will not uproot yourself and your family to move to a state that has lower taxes. However, as more and more people find ways to work electronically, it may become an option. Many doctors who are finding malpractice insurance ridiculously expensive are considering relocating to a state where that expense would be lower (in addition to lower overall state taxes).

Keeping More of Your Earnings
Bloomberg completed a recent study that compares how states stacked up on various criteria. The study used Quicken’s TurboTax to calculate state income tax for varying levels of salary. Here are the top 10 best states for wealth in salary and the 10 worst:

Best States for Keeping Salary

1. Wyoming
2. Alaska
3. New Hampshire
4. Nevada
5. Tennessee
6. Washington
7. Florida
8. South Dakota
9. Texas
10. Alabama

Worst States for Taxing Salary

1. Rhode Island
2. Vermont
3. California
4. District of Columbia
5. Maine
6. Oregon
7. New York
8. Idaho
9. North Carolina
10. Nebraska

Wyoming doesn’t tax personal or corporate income, while Rhode Island levies a 25% tax on taxable income. If we look at sales tax, Wyoming’s tax is 4% versus Rhode Island at 7%. Alaska doesn’t levy state income tax or sales tax. To find out more about any state, go to http://www.bankrate.com/brm/itax/state/state_tax_home.asp.

Keeping More of Your Retirement Income
While you may not want to move during your peak earning years, you may find it more feasible to consider living in a different state once in retirement. Not only may the climate be more hospitable, you may end up saving money too. Here are the best and worst states for taxing retirement income:

Best States for Retirement

1. Hawaii
2. Wyoming
3. Delaware
4. Colorado
5. Arizona
6. Alabama
7. Nevada
8. Louisiana
9. Alaska
10. Washington

Worst States for Retirement

1. Wisconsin
2. Nebraska
3. Connecticut
4. Kansas
5. Rhode Island
6. New Jersey
7. Illinois
8. New York
9. Texas
10. Maine

Of course, taxes are only one of many considerations in deciding where to retire. Here are a couple of Web sites that help you weigh what’s important to you:

http://www.bestplaces.net/
http://www.findyourspot.com/

Overall Wealth Friendliness
This measure from the Bloomberg study took into account not only the effect on income and retirement benefits, but also the tax on real estate and personal property. Here are the results for overall wealth:

Best States Overall

1. Wyoming
2. Nevada
3. Tennessee
4. Alabama
5. Alaska
6. Colorado
7. Washington
8. Louisiana
9. Delaware
10. Arizona

Worst States Overall 

1. Rhode Island
2. Wisconsin
3. New York
4. Vermont
5. Nebraska
6. New Jersey
7. Maine
8. Idaho
9. Ohio
10. Oregon

If you are considering a move at some point, your best bet is to go to that area and rent for a while. You want to experience the lifestyle firsthand. Renting also gives you a chance to look around and really find the ideal area for you to buy in.

Keep in mind too that many states are in financial distress as they try to balance their budgets. In those states, don’t be surprised to see any number of changes to tax rates. It pays to stay on top of these developments. For a more comprehensive guide to state taxes, you can purchase CCH’s 2004 State Tax Handbook.