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How You Could Save a Million Dollars by Relocating to Another State

It’s that time of the year again – tax season – which has given me pause to reflect on just how much I pay to the state/town that I live in.  I never really added it up before, but I pay more than $15,000 a year between state/local income taxes, sales tax and property tax.  That’s a boatload of money.  It occurred to me if I could save even half of that and invest it, I would get to my financial much quicker.  This prompted me to research what the tax rates are in other states.

What I found, shocked me.  I live in a New England state which is in the highest ten in terms of average taxes paid per year.  If I moved to one of the lowest ten, I could be saving more than $10,000 a year.  If I invested that $10,000 a year over 10 or 20 years, the return could be huge.  For example, an investment of $10,000 a year over 10 years at a rate of 5% would yield $131,500.  But it really kicks in if you extend the investment horizon.  Over 20 years, you would see $345,800.  And over 40 years, it would be a staggering $1.2 million.  Yes, you heard me right.  Living in a state with low taxes could free up enough investment capital to earn more than a million dollars over the course of most people’s careers.

This blew my mind.  So, I decided to do the research for you and share what the effective tax rates are in different states.  And, here are the best 10 states to live in if you want to minimize your taxes.

10. Indiana
9.  North Dakota
8.  Washington
7.  Texas
6.  Alaska
5.  South Dakota
4.  Florida
3.  Nevada
2.  Tennessee

and … drumroll, please … the state with the lowest aggregate taxes is …

1. Wyoming

 

So what makes up this tremendous state and local tax burden.  Well, across the country, 6% of state taxes are sales tax, 32% of state taxes are property tax, and 62% of states taxes are personal income taxes.  It’s no wonder then that all eight of the states that don’t have a personal income tax made it into the top ten.  It’s also heartening to see that there are actually some states that people would want to live in.

It’s also heartening to see that there are actually some states that people would want to live in.  For beach lovers, there’s Florida.  For ski bums, there’s Wyoming.  For chill coffee drinkers, there’s Washington.  And, if you really want to get away from it all, there’s always Alaska.

It’s worth noting that there are things one can do to change their tax status and pay much fewer taxes even if you live in a high-tax state.  Probably the most impactful is to own a business, pay yourself a living wage, and take the majority of your earnings in the form of dividends.

For those of you who are data geeks, I have included two tables below.  The first shows the total yearly taxes paid to your state and local government (my assumptions are also included below the charts).  The second shows, what the key tax rates are in every state, so you can calculate how much you’re paying and, more importantly, how much you could save if you moved to a more tax advantageous state.

The huge variability of state/local tax rates is yet another very strong argument for transitioning to the type of job that can be done from anywhere in the US.

An Estimate of Actual Taxes Paid by State 

 Sales TaxState Income TaxAvg House ValueProperty TaxTotal TaxMG Tax Index
Wyoming$540$0$292,200$1,782$2,3221
Tennessee$946$0$213,150$1,599$2,5452
Nevada$798$0$260,550$2,215$3,0133
Florida$680$0$238,500$2,528$3,2084
South Dakota$639$0$210,750$2,824$3,4635
Alaska$176$0$375,000$4,425$4,6016
Texas$819$0$204,000$3,876$4,6957
Washington$892$0$389,250$4,204$5,0968
North Dakota$678$2,652$230,700$2,584$5,9149
Indiana$700$4,199$186,300$1,621$6,52010
Alabama$901$6,500$187,500$8,06$8,20711
Arizona$825$5,512$251,250$2,035$8,37212
Mississippi$707$6,500$154,650$1,222$8,42913
Pennsylvania$634$3,991$249,000$3,810$8,43514
New Mexico$755$6,370$240,450$1,779$8,90415
Oklahoma$886$6,500$176,850$1,556$8,94216
Colorado$750$6,019$371,700$2,230$8,99917
Utah$676$6,500$323,850$2,202$9,37818
Michigan$600$5,525$183,600$3,268$9,39319
Kansas$862$5,980$198,000$2,772$9,61420
Ohio$714$5,976$194,850$3,040$9,73021
North Carolina$690$7,137$232,350$1,975$9,80222
Louisiana$998$7,800$216,150$1,059$9,85723
Kentucky$600$7,800$184,800$1,571$9,97124
West Virginia$629$8,450$155,700$903$9,98224
Delaware$0$8,580$347,250$1,875$10,45526
Georgia$700$7,800$222,150$2,088$10,58827
Missouri$789$7,800$207,600$2,076$10,66528
Arkansas$930$8,970$167,100$1,036$10,93629
Virginia$563$7,475$367,500$2,940$10,97830
South Carolina$722$9,100$209,850$1,196$11,01831
Montana$0$8,970$290,250$2,467$11,43732
Maryland$600$6,175$430,350$4,734$11,50933
Illinois$864$4,875$260,700$5,996$11,73534
Idaho$603$9,620$244,350$1,857$12,08035
Rhode Island$700$6,175$357,000$5,819$12,69436
Minnesota$730$9,165$279,300$3,296$13,19137
Maine$550$9,295$260,700$3,389$13,23438
Hawaii$435$10,725$772,950$2,087$13,24739
Massachusetts$625$6,630$499,650$5,996$13,25140
Nebraska$689$8,892$199,800$3,696$13,27741
Wisconsin$542$8,151$248,700$4,875$13,56842
New Hampshire$0$6,500$355,950$7,653$14,15343
Vermont$618$8,840$326,250$5,677$15,13544
Iowa$680$11,674$193,800$2,868$15,22245
Oregon$0$11,700$355,950$3,844$15,54446
Connecticut$635$7,150$405,750$7,993$15,77847
New York$849$8,385$425,100$6,887$16,12148
California$825$12,090$578,250$4,684$17,59949
New Jersey$685$6,825$473,850$11,135$18,64550

Tax Rates by State

 Sales Tax Rate
Income Tax Rate
Property Tax RateAvg House ValueMG Tax Index
Wyoming5.40%0.00%0.61%$292,2001
Tennessee9.46%0.00%0.75%$213,1502
Nevada7.98%0.00%0.85%$260,5503
Florida6.80%0.00%1.06%$238,5004
South Dakota6.39%0.00%1.34%$210,7505
Alaska1.76%0.00%1.18%$375,0006
Texas8.19%0.00%1.90%$204,0007
Washington8.92%0.00%1.08%$389,2508
North Dakota6.78%2.04%1.12%$230,7009
Indiana7.00%3.23%0.87%$186,30010
Alabama9.01%5.00%0.43%$187,50011
Arizona8.25%4.24%0.81%$251,25012
Mississippi7.07%5.00%0.79%$154,65013
Pennsylvania6.34%3.07%1.53%$249,00014
New Mexico7.55%4.90%0.74%$240,45015
Oklahoma8.86%5.00%0.88%$176,85016
Colorado7.50%4.63%0.60%$371,70017
Utah6.76%5.00%0.68%$323,85018
Michigan6.00%4.25%1.78%$183,60019
Kansas8.62%4.60%1.40%$198,00020
Ohio7.14%4.60%1.56%$194,85021
North Carolina6.90%5.49%0.85%$232,35022
Louisiana9.98%6.00%0.49%$216,15023
Kentucky6.00%6.00%0.85%$184,80024
West Virginia6.29%6.50%0.58%$155,70025
Delaware0.00%6.60%0.54%$347,25026
Georgia7.00%6.00%0.94%$222,15027
Missouri7.89%6.00%1.00%$207,60028
Arkansas9.30%6.90%0.62%$167,10029
Virginia5.63%5.75%0.80%$367,50030
South Carolina7.22%7.00%0.57%$209,85031
Montana0.00%6.90%0.85%$290,25032
Maryland6.00%4.75%1.10%$430,35033
Illinois8.64%3.75%2.30%$260,70034
Idaho6.03%7.40%0.76%$244,35035
Rhode Island7.00%4.75%1.63%$357,00036
Minnesota7.30%7.05%1.18%$279,30037
Maine5.50%7.15%1.30%$260,70038
Hawaii4.35%8.25%0.27%$772,95039
Massachusetts6.25%5.10%1.20%$499,65040
Nebraska6.89%6.84%1.85%$199,80041
Wisconsin5.42%6.27%1.96%$248,70042
New Hampshire0.00%5.00%2.15%$355,95043
Vermont6.18%6.80%1.74%$326,25044
Iowa6.80%8.98%1.48%$193,80045
Oregon0.00%9.00%1.08%$355,95046
Connecticut6.35%5.50%1.97%$405,75047
New York8.49%6.45%1.62%$425,10038
California8.25%9.30%0.81%$578,25049
New Jersey6.85%5.25%2.35%$473,85050

Assumptions Made:

  1. State/local sales tax is paid on $10,000 worth of goods per year
  2. State/local income tax is paid on $130,000 worth of taxable income for couples filing jointly
  3. Property tax is calculated based on 150% of the average house price in the state (to account for the fact that apartments are included in the average house price)

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