Aspiration & Struggle
Should You Save Taxes by Moving? Here’s What to Consider
Income taxes were not created equal. In fact, not all states even levy income tax on their residents. So when you live in a state and city like New York, which smacks residents with state and local taxes, it’s easy to dream about how you might save taxes by moving. And there’s no need to stop there. Here’s what to consider if you want to make paying low or no income taxes your reality.
The Cost of Living in New York City
New York City may be the financial center of the United States, but it’s a financially draining place to live if you aren’t earning well into six (or seven) figures. For that reason, many residents decide not to stay. In fact, according to “How Money Walks,” New York County lost $13.90 billion in annual gross income from 1992 to 2011. And that figure doesn’t include the city’s other four boroughs.
As with other municipalities, New York City residents pay federal, state, and local taxes. The difference? The Big Apple charges some of the highest tax rates in the country. The amount varies by tax bracket, but nevertheless, it’s a big hit each pay period.
How Much Could I Save by Moving?
For four years, I’ve watched my wallet bleed money to various levels of government. While I recognize that cities and states need funds to operate on, it’s still painful to see such a significant chunk of my pay leave each month.
Sometimes, I daydream about how much I could save if I moved to a state with little or no state income tax. So I decided to do some research.
According to Save Taxes By Moving, a website that offers a free calculator, I could save approximately $5,785 per year by moving to Nashville, Tennessee. If I invest these savings at 6 percent until retirement at age 67, I’d end up saving $954,811—nearly one million dollars!
The States Without Income Tax
Seven states currently don’t require income tax from their residents: Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming.
In addition, New Hampshire and Tennessee collect only minimal income tax. New Hampshire taxes interest and dividend income that exceeds $2,400 for singles or $4,800 for joint filers. Tennessee doesn’t tax your salary, but the state will collect on interest income from bonds, notes, and stock dividends exceeding $1,250 for singles or $2,500 for joint filers.
Money to support the state does have to come from somewhere, however, so these states may make up for the lack of revenue through higher property or sales taxes.
Considering Salary and Career Growth
While the idea of moving to Tennessee or Texas crosses my mind each pay period, I always wonder if my base salary would decrease if I left, and by how much. Moving to a city with a lower cost of living often correlates with a lower salary.
But because of that same cost-of-living decrease, a dip in salary could end up being negligible. Plus, if you work a second job such as freelance writing, graphic design, or consulting, you can keep your rates the same because your work isn’t dependent on location—and all that money will be free from state income tax.
So, determine what’s best for you. If a big move would help more than it hurts, think about picking a new home where low or no income taxes equal a higher take-home pay. After all, by managing your money and making the right investments, it could mean retiring as a millionaire.