What is Your State’s Tax Burden, and How Can You Lower It?

Depending on where you work and live in the United States, there is quite a bit of variance when it comes to tax rates. Both how much you make and where you reside factor into the amount you ultimately pay.

According to 2016 data from WalletHub, the state with the highest taxes is New York. While California often gets a bad rap for its local taxes, it didn’t even place in the top ten of all fifty states.

Who pays the most? The least?

These rankings were compiled regarding overall tax burden, meaning the percentage of total income that is paid toward state and local taxes. When collecting the data, WalletHub aggregated three types of taxes: real estate taxes, individual income taxes, and sales and gross receipt taxes. That aggregation was then measured as a percentage of total personal income within each state.

Among all fifty states, New York’s overall tax burden was highest at 13.12%. Multiple states in the Northeast made the top ten, with Maine and Vermont tied for third at 11.13%, while Connecticut (10.91%) was fifth, New Jersey (10.38%) was seventh, and Rhode Island (10.36%) was eighth. Hawaii placed second with 11.86% overall tax burden. California was eleventh at 9.91%.

According to the data, Alaska’s residents have the lowest overall tax burden, at just 5.18%. Runners-up include Delaware (5.91%), Tennessee (6.56%), and New Hampshire (6.88%).

Lowering your tax burden

While certain local taxes are tough to escape, there are measures you can take if you feel your overall tax burden is too high. One way is to start contributing a share of your earnings into a tax-advantaged retirement account, including a 401(k) plan or a traditional IRA.

Earnings allocated to those accounts are deposited on a pre-tax basis. If your salary is $50,000 and you decide to put $5,000 into a 401(k), you will only owe taxes on the remaining $45,000. That $5,000 will help build your retirement nest egg.

Another way to ease your tax burden is to sign up for commuter benefits or a flexible spending account (FSA) through your employer. Programs like these make a certain amount of pre-tax dollars eligible for commuting and healthcare expenses.

In 2016, the tax-free allowable limits for commuters are $255 for transit and another $255 for parking. The FSA limit is $2,550 for healthcare expenses. These programs operate on a use-it-or-lose-it basis, so only set aside the amount you will actually use.

Finally, be sure to look into various credits and deductions for which you may be eligible. Certain tax benefits are available for homeowners and parents, so read up before filing your tax return. Another option is relocating to a state with a lower tax burden. While moving is a significant expense, some states, like Alaska, will actually pay you to live there.

For more advanced tax strategies, the tax law specialists at Cohen & Burnett can help.

Tax Law and Preparation with Cohen & Burnett

Cohen & Burnett has served the Washington, D.C. area with tax preparation, estate planning and administration, and retirement planning for over 25 years. Our experts have years of experience preparing returns for:

● 1040 personal income tax
● 1041 estate or trust income tax return
● 1065 partnership income tax return
● 706 estate tax return
● 709 gift tax return

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