Where You Live Can Impact your Taxes…Dramatically!

Things to consider if your state’s tax bite is hurting you

While federal taxes often take center stage in planning, the state where you live and earn can meaningfully affect your bottom line. Here’s why knowing how your state’s tax rules impact your income, investments, and estate can help you decide the best place and way to manage your money.

Where you live can boost take-home pay

State income tax rates vary dramatically, and where you live can make a five- or six-figure difference in your annual taxes.

• High-Tax States: California (up to 13.3%), New York (up to 10.9%), New Jersey (10.75%), and Minnesota (9.85%) have some of the steepest top rates, with certain cities adding local surcharges. Add in high sales taxes and property taxes and some of these same states have breath taking tax burdens.
• No-Income-Tax States: Eight states including, Florida, Texas, Washington and Nevada impose no state income tax, which could provide immediate savings. But you need to be aware how they receive their income to pay for services. Texas, for example, has one of the higher property tax burdens in the country.
• Moderate-Tax States: More than a dozen states have flat rates between 3 and 6%, offering predictability.

If you are considering a move, perhaps in retirement or for better weather, conduct a state cost-benefit analysis to compare your potential tax savings in a lower-tax state against relocation costs and other factors in your current state of residence.

Using a state move to minimize investment tax bite

Most states tax capital gains the same way they tax ordinary income, which can take a big bite out of profits from stock sales, real estate deals, or use of retirement funds. If a large liquidity event is on the horizon, review and confirm your residency status well in advance. Relocating to a tax-friendly state before the sale of taxable investments can reduce the state tax owed on the gain.

Reduce state taxes on the wealth you pass down

State-level estate and inheritance taxes can quietly chip away at the wealth you hope to leave behind for your family. Even if you’ve already accounted for federal estate taxes, certain states impose their own estate taxes. Some even tax inherited assets. Starting your estate planning early gives you time to structure gifts, trusts, and asset transfers in ways that minimize or even avoid these state-level costs.

If moving: Lock in your domicile

High-tax states pay close attention to residency changes and may challenge your move if it isn’t backed by solid evidence. They look at factors like where your primary home is, where your family lives, your driver’s license and voter registration, as well as your business activity and personal services. If you decide to move, first review your current state’s regulations on their definition of part year versus nonresident status. Then thoroughly document your new domicile and update all legal, financial, and personal records to clearly show that you meet their requirements.

Audit property taxes and watch for emerging wealth taxes

Property taxes can be a significant ongoing expense, especially if you own high-value homes or multiple residences. In some states, rates exceed 2% of a property’s assessed value, with New Jersey, Illinois, and Texas among the highest.

Looking ahead, proposals for wealth taxes in a handful of states suggest that high earners will continue to face added scrutiny and potential new costs. To manage your exposure, consider appealing assessments, optimizing how properties are owned, or shifting part of your real estate holdings to lower-tax states to reduce your overall burden.

State tax planning plays a critical role in preserving wealth for you and your family. From income and capital gains taxes to property and estate taxes, understanding how your chosen state affects your finances can help protect your net worth today and your family’s wealth in the years to come.