It s a good question to ask yourself, “What would be the best way to get rid of income tax?” After all, we all know that the federal government takes a lot of our hard-earned money and gives very little back to us in return. The situation for eliminating an individual income tax usually goes something like this:
First, a state collects its own share of the national income tax burden. For example, if you live in Alaska, you have to shell out more money in taxes to the national government than you would in, let’s say, California. The same goes for Wyoming. Yet, other states, such as Oregon, have very low combined state and federal tax burdens.
This is where you can start to look at some of the ways the national government could reform itself in order to lower tax rates across the board. In particular, the issues are how nine states – Alaska, California, Colorado, Florida, Hawaii, Kentucky, Maryland, Massachusetts, Montana, New Hampshire, Oregon, and Washington – combine their personal income taxes. And then there is the interstate highway system. The federal government, by the way, collects no income tax from people living in any of these nine states.
The states with the highest overall tax burdens are Alaska, Arkansas, Connecticut, Delaware, Florida, Hawaii, Montana, North Dakota, Oregon, and West Virginia. On the other hand, the states with the lowest overall tax burdens are Massachusetts, Wisconsin, Rhode Island, California, New Jersey, New York, Minnesota, Illinois, and Rhode Island. You may have noticed I didn’t mention Alaska or West Virginia. Why?
One of the reasons Alaska and West Virginia do not rank high in regard to income tax burden is because they don’t have an income tax. Alaska’s residents only pay a one-percent assessment home value tax. Meanwhile, the median property tax rate in Washington is five percent. And yet, Washington has some of the most expensive real estate.
On the other hand, those are only two out of the nine states without personal income taxes. So, what do you do when you live in one of those nine states without an income tax? Are you stuck paying Washington’s personal income taxes? Not, if you have effective tax resolution in place. This means that you have made arrangements with your state income tax agency so that they do not send you a levy.
When you incorporate, you are making yourself liable for the taxes you pay on your own income. You make an assumption about your taxable income when you go to get married, or even when you decide to have children. While people who marry and have children do not typically owe income tax on their relatively high incomes, it is possible that they might if they take certain deductions or use certain credits. That’s why it’s a good idea to consider the implications of incorporating when you make your family budget.
Assessments for income tax are based on your adjusted gross income, and there is a fairly strong correlation between the rates you will owe and your adjusted gross income. The higher your AGI, the more likely you are to have to pay a lot in taxes. For instance, the assessed home value in Tennessee is relatively high compared to the national average. In this case, the value of your home in Tennessee is more important than the national average because it is your “tangible” asset (your home) that is taxable.
Most people are familiar with income tax and what it means. They are less familiar with the other types of tax that are imposed by states and municipalities. Examples of these include sales tax, property tax, franchise tax, vehicle registration tax, and amusement tax. Collectively, these states and municipalities take in about ten percent of all personal income. Here are some examples of states that impose several types of tax:
If you were a homeowner in Tennessee, and the assessed value of your home were about one third less than the national average, you might expect to pay about one hundred dollars in income tax. This would be the Tennessee average income tax bill. However, if you happen to have children who live in another state, such as Georgia, you might expect to pay slightly different rates, depending on which state’s income tax code you use. Even though you cannot look at the income tax rates of other states when you are calculating your own personal bill, you can still get a rough estimate by looking up the income tax rates for the states that you are considering living in.
If you are considering living in Minnesota, you can compare your estimated income tax rate to the median property tax rate in the state, as well as the average combined state and local sales tax rate in the area. You can then determine how much your taxes will be in North Dakota, according to the numbers that you see there. (You can also look up the property tax rate in North Dakota, if you’d rather not look at the assessed home value.) Assessments are based on the current market price of similar homes in the area. Therefore, they may slightly over or under represent the true market value. While this can affect how you’ll pay taxes, it is important that you are aware of the numbers you come up with before you decide where to live.