Is it Worth Moving to Another State Just to Save Taxes?

So, we’re talking about ways that we can decrease our taxes. We’ve talked about retirement plans and investing, and we’ve talked about real estate and being a small business owner. Now, this next one I think might be surprising, and at first sniff, you might say, “Oh, what are you guys talking about?” But this can be a substantial tax savings technique for you. It just may not be one that you thought of, or it may not be one that is practical until you think through it.

But you actually have the ability to choose where you live, and depending on where you live and where you choose to domicile can have a huge impact on what your overall tax bill is. Well, I think this has gotten so much attention because, during the run-up in real estate here in Tennessee, there were actually real estate companies cutting promo videos. They would show people very luxury neighborhoods, you know, high-dollar, high-value neighborhoods, telling California residents that your tax savings each year would actually pay for this beautiful mansion of a house.

Because if you compare the 13.3% taxes that you’d pay in California to the 0% potentially you could be paying in Tennessee, it probably could pay for a lot of real estate. So, it is worth noting that there are opportunities to live in tax-free states. Want to know what states those are when it comes to income tax? Specifically, Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming all fall into the no-income tax states. Now, Washington and New Hampshire have unique things there that you need to be aware of as it relates to capital gains, but these are lower-tax states.

But this is specifically around earned income. You do not necessarily need to live in one of these states to get a benefit. There are other states like the state of Georgia that have huge benefits for retirees. They provide a large exclusion on retiree income, and there are even some states that will exclude pensions from the amount of taxable income on your state tax return. So, when you think about where you’re going to work, where you’re going to start a family, where you’re going to grow a family, and even where you want to retire, you may want to think about what state you’re going to choose to live in because some states are more attractive from a tax-saving standpoint than others.

So, yeah, you can see choosing your states can have an impact. By the way, for everybody who out there’s got a little adventure in their heart, there’s one that’s out there, and it’s legitimate. And we cannot do a tax avoidance show without at least putting this in there: Puerto Rico. This is—I mean, I’ve heard so many rumors, and I’ve even—I’ve even gone down the rabbit hole of researching this, not that I came really close to moving there. But it is interesting that if you actually have a business in Puerto Rico, there are some unique opportunities.

It can be a business; it can be investments. There are substantial opportunities to where if it’s structured appropriately—look, there’s a lot of stuff you need to research on this—but you could avoid a lot of the federal income taxes and pay a much lower local tax on some of this. It is something you ought to at least be aware of. But what I’d like to close it, though, what I’d like you to do is build so much financial independence that you get to live where you actually want to live.

Not to do it just to minimize taxes. We talk about all the time; I don’t want your tax planning to be the tax tail wagging the entire dog because tax and good sound tax planning can be very effective in essentially boosting your financial goals. But don’t let that make all your decisions. There’s a lot more to life than just minimizing taxes. That’s right; no one loves paying taxes. But what I hope you’ve learned here is that if you are willing to do a little bit extra, a little bit more research, think through a little bit more around your financial plan, there are ways to minimize what you pay in taxes. Remember, tax evasion is illegal; it’ll get you arrested; it’ll get your stuff taken away.

But tax avoidance is highly encouraged, and what we want to help you do is figure out what are the prudent and practical ways that I could avoid paying any more taxes than I absolutely have to. Maybe for some of you, that involves moving states. Maybe for others of you, it just involves increasing your 401(k) contribution. But we think that those folks who can practice tax avoidance are much more likely to keep more dollars in their back pocket so that they can save more so those dollars can grow so that they can have a great big beautiful tomorrow. For more information, check out our free resources.