MOAA State-by-State Assessment

Research Tax Factors

By Vera Wilson

WHEN YOU HEAR THE WORD “TAXES,” you probably think about what Uncle Sam takes out of your paycheck every month. But your overall tax burden can vary widely depending on the state and municipality in which you live. It pays off to consider state and local taxes before you move.

Percentage-wise, federal income tax is likely the highest of any of the taxes working people pay. But states, counties, and cities can as- sess taxes on purchases, property, services, and even death. These as- sessments could aff ect whether you decide to set down roots in New York City or Fulton County, Ga. No fi nancial plan is complete with- out identifying and, whenever pos- sible, quantifying your total tax bill.

Name that tax Before you get your paycheck, payroll and income taxes have been with- held at the national and state levels.

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But a myriad other taxes you pay are part of the fabric of our everyday lives. For example, if you head to the mall, you’re paying a gasoline tax and maybe even a vehicle license tax to get you there, plus a sales tax on that new pair of jeans you buy. Even staying at home can cost you with a tax on the utilities you use and property taxes on the roof over your head. If you think saving or investing your money will protect it from the tax man, you’re forgetting about interest income, divi- dend income, and capital gains taxes. Retirement won’t save you, either; income from pensions, annuities, and the like can be taxed. Enough to drive

you to drink? Yes, there’s a tax on al- cohol, too. If death and taxes are the only certain things, so is a tax on your death if your estate is large enough.

Income taxes: the lion’s share Generally speaking, only income is taxed at the federal level, not goods and services. State income tax cal- culations typically use your federal taxable income as a starting point, but after that, it can get tricky. De- ductions and exemptions you enjoy on your federal tax return might not apply on your state return — case in point, interest on municipal bonds. The fl ip side of that is you might be able to claim a deduction on your state tax return that you can’t on your federal; for example, a few states, like Illinois, exempt all or part of military income. Your state tax return will spell out all the additions and deductions you must make. Income from investments can

vary widely at the state level, as well.