Taxes are as much as a long-term play as a short-term play, and it’s important to plan your tax strategies as far in advance as possible, especially in regards to your golden years, or what some people refer to as “retirement”. We don’t always just stop working and sit in a rocker or on the beach somewhere with an umbrella drink. But stopping what you’re doing and living differently at some point in the future is what most people aim for. The reality is that most individuals will move to some sort of fixed-income in their later years, which means tax planning becomes much more valuable. A very simple strategy for mitigating taxes at this stage is moving to a state that doesn’t tax your income. There are nine different states with no income taxes (WA, AL, FL, NV, NH, SD, TN, TX, WY) and there are an additional four states who have a state income tax, but don’t tax Social Security, IRA’s or 401(k) distributions (IL, IA, PN, MS). Some other states favor retirement income at lower rates or exclude part of it – like Arkansas, where the first 6k of retirement income is untaxed. Keep in mind though, state governments will need to get their money one way or another. To make up for not having any income tax revenue for the state, they will usually collect more via sales tax and property taxes. This means moving solely to save on income tax can backfire on you – you can end up paying even more in other types of taxes. That's why it's important to consider every factor when deciding the correct tax strategy if it involves moving to a lower-tax state. When contemplating a major step like moving your residence, or any other tax strategy, be sure you consult with your tax preparer or a good CPA who can guide you through the options and help with potential pitfalls.
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