I chanced upon an article recently that ranked my state among the ten worst states concerning taxes. It didn’t surprise me – I knew it was factual based on my experience. For the first time in our ten years of marriage, we owed state income tax in the last two years. It’s truly disheartening to owe thousands in taxes! The article sparked my interest in researching ways to lower state income taxes. Here are four strategies I discovered to mitigate our colossal tax bill this year.
MOVE IT
Our first option to alleviate the tax burden involves relocation. Though moving isn’t precisely a walk in the park, it could significantly shrink our tax bill. We previously resided in Tennessee and Texas, states devoid of income tax. Nevertheless, our current state charges high income tax, so moving to any of the lower-rate states would be advantageous. A valuable resource to check your state’s ranking in income tax rates can be found here. Furthermore, it’s advisable to examine cost of living comparisons; lower taxes don’t necessarily equate to lower living costs in a state.
SLASH YOUR PAY
It sounds illogical, yet decreasing my wages would lower my tax bill. Funds funneled into a 401(k) are pretax, which reduces my taxable income. It creates a win-win scenario – bolstering my retirement savings while reducing my tax output. However, this isn’t the best fit for us, as we can’t sacrifice much for our 401(k) due to steep student loan payments.
GRAB WHAT YOU’RE ENTITLED TO
By conducting personal research or hiring a competent tax professional, you can find additional deductions or tax credits to lessen your tax load. Make a wise decision – I’ve known individuals who purchase a new vehicle to receive a tax credit, though they don’t necessarily require one. The equation here doesn’t add up; it’s only rational to buy something if needed. Otherwise, you end up purchasing costly appliances or vehicles for a meager tax deduction.
EXPLORE ALTERNATIVES
If all else fails to reduce your state income taxes, contemplate withholding extra money from your salary. While it’s not ideal to owe a substantial money when tax season rolls in, it’s equally unfavourable to receive a hefty refund. A large refund means you haven’t utilised your money optimally such as through investments.
In our case, after researching the state tax laws, I found relatively few deductions available. Our only option is to request greater withholding from our salary. We’re barely over three months away from ending the year, so if you’re seeking to lower your state income taxes, act now!
