Considering Moving to a No Income Tax State? Here are Key Things to Know
At the moment, seven states in America don’t charge the residents any income tax. You may feel like moving to one of these states now. You will imagine the substantial amount of money you will save when you don’t have to pay the taxes. However, before you rush to make any decision to move or not to it is wise you consider all facts. The goal is to objectively review things and see if it is truly an economic decision to relocate to a no income tax state. Below are the crucial items you need to examine before you relocate.
The no income tax states are great for young people who are starting their career and promote growth. To complete the education, you may have borrowed money which you will immediately start paying when you get your first job. Therefore, you should look for ways to minimize the deductions on your paycheck. It may therefore be wise to move to a state where you don’t pay any income tax. You can therefore use this surplus money to pay off the student debts quickly. It is also relatively easy for young people to relocate than individuals who have bought homes in other states and have families.
The other thing to know is that zero federal income tax states have high rates of other kinds of taxation. You will be excited by the thought that you will be getting all your money with no income tax when you move to this state. The challenge, however, is that the government needs to generate revenue by collecting taxes. Hence, you will have to pay taxes even though the money is not directly subtracted from your salary. Thus, due to the high taxation on commodities and properties, the cost of living in the no-income-tax states may be high. Hence, you may receive more money, but you will end up spending money to purchase basic commodities.
The other thing is to acknowledge that the income tax is supposed to promote equity. Your income level determines the total amount of money that is deducted as tax. Thus, you are not charged the same tax rate as a person who earns more than you. With the sales taxes you end up paying the same rate despite having huge differences in the amount your earn. It is, therefore, unfair for the low-income earners to pay equal taxes as the wealthy people.
It is therefore wise to objective review these things to know whether it is smart for you to move to no income tax state or not.