BEST & WORST STATES TO BE A TAXPAYER

Economic mobility, that is, our ability to climb the proverbial ladder, has a strong correlation to where we live. Children from Seattle whose families are in the 25th percentile in terms of income, for example, end up at roughly the same economic stature as kids from the median family in Atlanta.

Why? State and local taxes. At least that’s what a group of Harvard and Berkeley researchers collaborating on The Equality of Opportunity Project have to say. They “found a significant correlation between both measures of mobility and local tax rates.”

Want to know which states have the most and least burdensome tax rates?

WalletHub analyzed how state and local tax rates compare to the national median in the 50 states as well as the District of Columbia. We compared eight different types of taxation in order to determine:

1) Which states have the highest and lowest tax rates;

2) how those rates compare to the national median;

3) which states offer the best tax rates when adjusted by the cost of living index.


COMPLETE RANKINGS

 

Rank State Avg. Annual State & Local Taxes % Difference from National Avg. Adj. Rank (based on Cost of Living Index)
1 Wyoming $2365 -66% 1
2 Alaska $2791
-66% 4
3 Nevada $3370 -52% 2
4 Florida $3648 -48% 3
5 South Dakota $3766 -46% 5
6 Washington
$3823 -45% 6
7 Texas
$5193 -25% 7
8 Delaware $5195 -25% 12
9 North Dakota $5588 -20% 13
10 Colorado $5674 -19% 14
11 New Mexico
$5822 -16% 8
12 Alabama $5846
-16% 9
13
Arizona
$6057 -13% 17
14 Utah $6098 -13% 11
15
Mississippi
$6210 -11% 10
16 Indiana $6358 -9% 15
17 Louisiana
$6564
-6% 18
18 West Virginia $6598 -5% 19
19 Montana $6641 -5%
20
20 Oklahoma $6795 -2%
16
21 Massachusetts $6884 -1% 35
22 Rhode Island $6905 -1% 40
23 South Carolina $7070 1% 24
24 Missouri $7220 4% 22
25 Tennessee $7252 4% 21
26 Georgia $7319 5% 25
27 Virginia $7333 5% 29
28 New Hampshire $7419 6% 41
29 Hawaii $7427 7% 48
30 Kentucky $7472 7% 23
31 Arkansas $7557 8% 26
32 Ohio $7604 9% 28
33 Kansas $7695 10% 30
34 Idaho $7776 12% 27
35 North Carolina $7789 12% 32
36 Michigan $7867 13% 31
37 District of Columbia $8034 15% 46
38 Minnesota $8261 19% 36
39 Pennsylvania $8344 20% 34
40 Oregon $8416 21% 42
41 Maryland $8571 23% 44
42 Maine $8622 24% 43
43 Iowa
$8788 26% 33
44 New Jersey $8830 27% 47
45 Vermont $8838 27% 45
46 Wisconsin $8975 29% 39
47 Illinois $9006 29% 38
48 Connecticut $9099 31% 49
49 Nebraska $9450 36% 37
50 California $9509 36% 50
51 New York $9718 39% 51

 

 

Lowest Real Estate Tax Rates
1. Hawaii (0.28%)
2. Alabama (0.43%)
3. Louisiana (0.45%)
4. Delaware (0.51%)
5. South Carolina (0.56%)

No Income Taxes (State & Local)
T-1. Alaska
T-1. Florida
T-1. Nevada
T-1. South Dakota
T-1. Texas
T-1. Washington
T-1. Wyoming

Lowest Vehicle Sales Taxes
1. Alaska
2. Oregon
3. New Hampshire
4. Montana
5. Delaware

Lowest Sales Tax Rates (State & Local)
T-1. Delaware (0%)
T-1. Montana (0%)
T-1. New Hampshire (0%)
T-1. Oregon (0%)
5. Alaska (1.69%)

Lowest Fuel Taxes (per gallon)
1. Missouri ($0.173)
2. Mississippi ($0.184)
3. Alaska ($0.308)
4. New Jersey ($0.329)
5. South Carolina ($0.352)

Lowest Alcohol Taxes (per capita per yr)
1. Oregon ($2.40)
2. Montana ($4.21)
3. Delaware ($4.81)
4. New Hampshire ($9.02)
5. Wyoming ($23.03)

 

FOOD TAX RATES

 

Worst States
51. Mississippi
50. Kansas
49. Idaho
48. Tennessee
47. Lousiana

 

 

VS

35 States with No Tax on Food

 

RED STATES IMPOSE LOWER TAXES THAN BLUE STATES



Now that tax season is over and the learning experience is renewed once again, the following tax advice will be, perhaps, more meaningful providing insights that may be helpful as you prepare for 2015. - Editor

Ask the Experts: Best Tax Advice

Mistakes are common come tax season. They’re expensive too. So, in order to help people avoid costly tax prep errors we asked tax experts from around the country what the most common mistakes are as well as how we can correct them. You can check out their responses below.

“One mistake is not paying attention to all that is on your tax return and related documents. Many people just look at the line that says amount owed or refund thinking that is their federal tax liability. They should look at the total tax line of their Form 1040 (line 61) to see their total tax. They should also look at their W-2 wage forms to see what additional taxes they paid for FICA and Medicare (boxes 4 and 6). The FICA and Medicare tax was matched by the employer, but in effect paid by the worker in the form of lower wages.

Take all of these federal income and payroll taxes and divide it by your taxable income to find your average tax rate. We often hear news stories about people with less than $50,000 of income not paying any tax. That usually is not true. Many of these individuals are wage earners and have at least paid payroll taxes of 15.3% (employee and employer share).

Also, individuals pay federal excise taxes when they buy gasoline, alcohol, tobacco, airline tickets and a few other items. And, don't forget to look at what your state income and other state and local taxes are to get the full picture of what you contribute to funding government operations.”

- Annette Nellen, San Jose State University


“One of the biggest mistakes taxpayers make when having their returns prepared by a paid tax return preparer is not to look over and understand what has
been reported on their returns. By signing the return they are declaring under penalties of perjury that the return is true and correct.”

- Caroline Tso Chen, Santa Clara University School of Law



“One of the most common reasons why people overpay on their investment related taxes is by failing to maximize the use of any capital losses they may have. Generally, if you have sold an investment at a loss, you should try to sell an appreciated investment at a gain so you can benefit from the loss this year. However, be sure to anticipate your tax rate in the following year because in some circumstances it might be better to defer taking your losses.

People also overpay on their investment related taxes by unintentionally purchasing stock, selling it, and then repurchasing it 30 days after the sale. This causes the ‘wash sale’ rules to apply which generally denies the taxpayer from claiming the loss. This issue also arises if the taxpayer purchases substantially identical stock 30 days before the date of the sale of the stock that he or she holds.”

- Orly Mazur, SMU Dedman School of Law


“There are several common mistakes that result in the overpayment of investment related tax that come up with some regularity. The first is that money is not invested in a tax deferred investment like an IRA or a 401k account so it doesn't grow tax free. Related to these types of investments is another common mistake and that is the situation where, even though money is initially invested in these types of accounts, that money is withdrawn prior to age 59 1/2. When that happens, not only is ordinary income tax due on the withdrawal, but taxpayers end up paying a 10% penalty tax for the early withdrawal.

A third common reason for overpayment of tax is that investors often buy taxable investments when tax free investments like municipal bonds might result in a better rate of return once taxes are factored into the calculations.

A final common mistake that is often made is that capital assets are sold prior to the one year holding period that entitles investors to reduced rates of tax.”

- David J Kautter, American University


“Individuals should understand the differences between ‘above the line’ and ‘below the line’ deductions. Above the line deductions are more advantageous because they reduce taxable income, the tax calculation base, while below the line deductions allow taxpayers to realize a savings based on their marginal tax rate.

In addition, many individuals do not realize that certain items touted as deductions (charitable contributions) are in fact only deductible if the taxpayer is eligible to itemize on his/her return.”

- Maureen J. Bruns, Carl H. Lindner College of Business, University of Cincinnati



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