To keep more of what you make, tax planning at both the state
and federal level is essential. Even if you live in an income
tax-free state, you may not be able to escape state taxes
To keep more of what you make, tax planning at both the state and federal level is essential. Even if you live in an income tax-free state, you may not be able to escape state taxes entirely. Here are some common examples of when you need to pay attention to state tax planning:
-If you own property in another state, you need to be aware of how that state’s income taxes and estate taxes will affect you.
-If you have college-bound children, you’ve probably heard about the tax-advantaged college savings plans called Section 529 plans. Most states offer a Section 529 college savings plan to both residents and non-residents. While the federal income tax rules are the same for all plans, state tax rules vary.
-If you buy goods from out of state, you may be subject to use tax in your home state. Use tax is the equivalent of sales tax that retailers charge. If you didn’t pay sales tax at the source, you may be required to report the purchase to your own state’s department of revenue along with the appropriate taxes owed.
-If you own a business and advertise in another state, you might be considered to be doing business in that state. This is called “nexus.” There could be state income tax and sales tax implications.
-If you split the year living in more than one state, you may owe state taxes in each state. Many states require part-year residents to pay state income taxes on some of their income.
-Stay informed about state estate tax changes. Changes to the federal estate tax rules will cost states billions of dollars in lost tax revenue. As a result, many states are expected to change their estate tax laws to make up for the shortfall.
-Finally, don’t assume that because income is tax-free for federal income tax purposes it is free from state income tax. States individually decide how closely the state tax rules will follow the federal rules.
For assistance with all your tax planning needs, please call us.
Mary Hubbell is a tax expert with the accounting and business consulting firm of Bianchi, Lorincz & Co. in downtown Hollister and in Morgan Hill.