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Tax planning involves searching for and taking advantage of legitimate opportunities for tax reduction. As clients seek to reduce their tax bite, a common question is, “Should I move to another state to reduce my taxes?” For those on the East Coast, the move might be from New Jersey to Florida. On the West Coast, Californians may consider moving to Nevada.
In many ways, this makes sense. Florida and Nevada are 2 of the 7 states in the U.S. with no income tax. However, the grass isn’t always greener on the other side of the state line. In some states, the cost of high sales taxes and property taxes add up to narrow the incentive gap. And there are other factors to consider. For example, Alaska may not charge income tax, but it would be a trade-off if you prefer sand and sun to ski and snow.
In California, there are 10 income tax brackets. In comparison, New York has 8 income tax brackets. The highest marginal tax rate in New York is 8.82% on taxable income over $2,058,550. New York City also charges a city tax with marginal rates as high as 3.876%. In California, the highest tax rate is 13.30% on taxable income over $1,000,000.
State income tax tables are readily accessible online. If you are considering a move to another state, take the time to do a brief tax analysis. Although income tax rates will most likely not be the sole deciding factor, they can be an influential piece of the decision making process.
Image credit: Callie Neylan/NPR
About Christopher M. Jones, CFP®
Christopher M. Jones is the Founder and President of Sparrow Wealth Management, a fee-only financial planning and investment management firm based in Hermosa Beach, CA. Before entering the investment field, Chris was a management consultant for Deloitte Monitor. He graduated summa cum laude from Brigham Young University with a B.S. in Economics and a minor in Business Management. Chris is a CERTIFIED FINANCIAL PLANNERTM practitioner.