RETIREE TAX HEAVEN (AND HELL)
July 15, 2008
Some states are more tax-friendly for retirees than others. Although your federal tax remain the same no matter where you live, your state and local tax burden can vary dramatically from one location to another, says Kiplinger's Personal Finance.
Don't assume that a state with no income tax qualifies as a tax haven; in fact, high sales and property taxes can more than offset the absence of an income tax, says Kiplinger's.
In addition, the tax bite can vary greatly within a single state, says Kiplinger's:
- A retired couple with an annual income of $90,000 and a home worth $525,000 would pay about $13,000 in total state taxes if they lived in Fort Lauderdale, Florida.
- But if that same couple lived across the state in Siesta Key, they would pay only $9,000 -- thus saving nearly $4000 a year.
- By comparison, if that same couple lived on Hilton Head Island, they would pay less than $6,600 in total taxes because although South Carolina has an income tax, it has relatively low property taxes.
There are four important factors that must be considered, says Kiplinger's:
- Pensions -- the level of taxes imposed on retirement income varies from states that fully tax pensions to states that impose no taxes on retirement income.
- Social Security Benefits -- while most states are moving away from taxing Social Security benefits, about 14 states still tax those benefits to some extent.
- Sales tax -- some states will exempt essentials such as food and medicine from sales tax, while others tax every dime you spend.
- Property taxes -- they are an especially important consideration for individuals on a fixed income.
Source: Mary Beth Franklin, "Retiree Tax Heaven (and Hell)," Kiplinger's Personal Finance, August 2008.
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