States with the highest and lowest tax burdens
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Where you live can have a big impact on your overall financial situation, including the taxes you pay.
There are three main categories of taxes: income tax, property tax, and sales tax, and each of them varies depending on the state in which you reside.
Each of these rates change regularly depending on your state tax assessor, but several states have a tradition of either more tax or less tax. And with the shift to working from home, many tax-efficient states like Tennessee and Florida have seen waves of new residents from more heavily taxed states like New York and California.
If you are planning to relocate, it is important to assess each state’s respective taxes to see how much of your salary and assets will be taxed.
Below, Select details the top five states with the highest and lowest tax burdens, what you need to know about each, and how to save on taxes, wherever you live.
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The tax burden is the total amount of taxes paid by residents of a state, taking into account the three largest tax brackets of income tax, property tax and sales tax. Of course, there are many other taxes to consider, including federal income tax, social security taxes, and capital gains taxes.
In total, the average American will pay more than half a million dollars in taxes over their lifetime, according to Self-financial. However, the Big Three are what Americans spend the most on.
Here are the top five states with the smallest and largest tax burdens:
States with the lowest tax burdens
Alaska has the lowest tax burden in the United States. It is one of nine states currently with no state income tax. Property tax is higher at 3.68%, but sales tax is near low at 1.42%.
Total tax burden: 5.10%
Tennessee comes second on the list. Its residents pay a low property taxes of 1.70%. There is no state income tax, however, the sales tax is high at 3.96%.
Total tax burden: 5.74%
Wyoming has the third lowest tax burden among the 50 states. The state has no income tax and a low sales tax of 2.81%. However, Wyoming has an above average property tax rate of 3.33%.
Total tax burden: 6.14%
Delaware has the fourth lowest tax burden, however, it is in the top 10 for state income tax at 3.25%. But for property and sales taxes, they fall almost last in both categories at 1.77% and 1.19%, respectively.
Total tax burden: 6.21%
The fifth lowest-taxed state is New Hampshire, which also does not levy income tax. However, it makes up for lost tax revenue with the highest property taxes in the United States at 5.47%. There is a modest sales tax of 1.24%, so if you plan to rent in New Hampshire your taxes will be extremely low.
Total tax burden: 6.84%
States with the highest tax burdens
Not surprisingly, New York has the biggest tax burden in the state. Residents pay 4.4% property taxes, 4.96% income tax and 3.43% sales tax.
Total tax burden: 12.79%
In 2019, nearly 850,000 non-residents visited Aloha State. As a result, the state’s sales tax is the highest in the country at 6.65%. Residents pay 2.45% property tax and 3.09% income tax.
Total tax burden: 12.19%
Green Mountain State comes third on the list. Owning a property in Vermont comes with the second highest property tax rate of 5.04%. This is combined with an average income tax rate of 2.41% and a sales tax rate of 3.3%, respectively.
Total tax burden: 10.75%
The Pine Tree State comes in fourth on the list. Similar to Vermont, Maine has high property tax rates of 4.6%, supplemented by a moderate income tax of 2.45% and a sales tax of 3.45%.
Total tax burden: 10.50%
Coming fifth on the list, Connecticut is in the top 10 for property and income taxes at 4.06% and 3.56%, respectively. Sales tax is on the lower end of the scale at 2.82%.
Total tax burden: 10.44%
No matter where you live, there are several legal steps you can take to reduce your tax burden.
Benefit from tax-efficient retirement accounts
Retirement accounts as a 401 (k) or IRAs are great ways to defer taxes to a later date while increasing your net worth. In 2022, you can contribute up to $ 20,500 in pre-tax income to your employer-sponsored 401 (k) and defer paying them until you’re ready to start withdrawing the money in retirement. If your employer doesn’t offer a 401 (k), it’s easy to open an IRA through a financial company like Wealth front Where loyalty.
Also, if you have a high deductible health plan (HDHP), you can contribute to a health savings account (HSA) if your employer offers one. If they don’t, you can contribute with after-tax money and you will get a tax deduction for your contribution.
Make charitable donations
Donating can be a great way to help your favorite nonprofit, but also to reduce your taxable income. By donating to a verified nonprofit such as a 501 (c) (3), you may qualify for a tax deduction. Plus, many nonprofits accept credit card donations, allowing you to earn points and miles along the way.
Sell ââlost investments
As the popularity of investing in stocks through popular apps like Robin Hood skyrocketed during the pandemic, you could end up with a few losing stocks. If you have investments that are in the red, you can sell them to take advantage of the tax loss crop. By entering these losses, you can write them off to reduce your taxable income.
At the end of the line
Paying taxes is inevitable, but where you live and work can have a big impact on how much you pay. If your tax bill is too much to bear and you have the option of working from home, moving states might be something to consider. But if circumstances keep you where you are, there are several ways to reduce your taxable income, including: saving for retirement.
If you are interested in more complex tax saving strategies, you should consider hiring a qualified tax professional such as a CPA.
Editorial note: Any opinions, analysis, criticism or recommendations expressed in this article are the sole responsibility of the editorial staff of Select and have not been reviewed, endorsed or otherwise approved by any third party.