The best and worst states to avoid income taxes

Discussion in 'Business & Economics' started by Plazma Inferno!, Apr 14, 2016.

  1. Plazma Inferno! Ding Ding Ding Ding Administrator

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    Is there a way to reduce your income tax burden? According to this article, you may consider switching states. Federal tax rates are the same no matter where you live, but state income taxes are all over the place. Some have progressive tax systems, where top earners pay a higher marginal rate on their taxable income than those who make less. Eight states have a flat tax, applying the same percentage levy across all incomes. Three states actually have regressive income taxes, where the mega-wealthy pay a lower percentage of their taxable income than those in the middle. And nine states have no income tax at all.
    Take a look at best and worst states:
    http://www.bloomberg.com/graphics/2016-state-taxes/
     
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  3. joepistole Deacon Blues Valued Senior Member

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    There are some holes in Bloomberg's article. For example, in Kansas the lowest income tax rate is zero. Owners of limited liability companies pay zero state income taxes and as a result the state's wealthiest residents (e.g. the Koch brothers) pay no state income taxes. Most farmers are registered as limited liability companies, so most farmers pay no state income tax rates. That fact isn't reflected in Bloomberg's article. So when you look at Kansas, it's income tax structure is in reality very regressive.

    In order to do a meaningful study of state taxation, one must look at the effective tax rates, the rates people actually pay. Sometimes low income tax states have high property and sales taxes, and property and sales taxes are very regressive. In Kansas almost everything including food is subject to sales taxation. So the bottom line here is the Bloomberg article overstates the progressiveness of taxation by American states and understates the "reggressiveness" of state taxation.

    PS: And limited liability company (LLC) is a company which is afforded the benefits of a corporation but isn't taxed separately as C corporations are. Profits and losses flow directly to the owners and taxes are paid by the owners on the owners' individual income taxes filings.
     
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