Retirement living taxes can drain your income if you are not careful The taxes of most concern to retirees are state income taxes, property taxes, sales taxes (including fuel taxes) and the taxation of pensions and social security. This article gives you the basics. Read it carefully. Then think about where you want to live after you finish full time work. Taxes should not be your only criteria for choosing your retirement community BUT taxes are certainly worth considering.
State Income taxes. There are 7 states that have no income tax: Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming. In New Hampshire and Tennessee only certain amounts of dividend and interest income are taxed. This lack of Retirement living taxes is one reason why these states have become 'retirement havens' in recent years.
Property Taxes Property taxes are based are on the worth of your home. They have no relation to your income or ability to pay. Many Southern states have low property taxes. Some cities and states in financial difficult have raised property taxes 20 - 55% in the last few years. And then of course there are the school taxes. These have risen so quickly that some states, eg. NY, have discussed 'capping' school tax increases - much to the frustration of school officials and parents of school aged children who are seeing severe services cuts.
There are ways to 'write off' some of your property taxes on your federal returns Example: if you rent some part of your property, then taxes, maintenance, repairs and services can be listed as 'costs' against any rental income and so your overall federal tax bill may be lower - despite receiving rental income. Many retirees now use this tax abatement technique. But you need to study the issue carefully.
Becoming a landlord is not always easy. But if you plan to 'share a home or apartment with friends or family members' it would worth investigating the possibilities of one person 'owning' the unit while the others 'pay rent'. Of course this could lead to social difficulties down the road but as a financial strategy it is worth investigating for anyone concerned about Retirement living taxes.
Before buying any retirement property or entering into a contract for any form of retirement living arrangement be sure to consult a local attorney about potential tax liabilities. Get it in writing - signed and dated. This is important. More than one retiree has found the taxes in their new living arrangements 'ate up' so much of their income that over time they found themselves hard pressed to live the lifestyle they expected.
Renters do NOT pay property taxes - except as part of the costs owners include in their rental price. Rent controlled apartments can offer real protection to retirees....if you can find one.
Sales taxes Alaska, Delaware, Montana, New Hampshire and Oregon are the only states without sales taxes. Delaware collects a Gross Receipts Tax (GRT). Some states have a single rate but many states allow local cities and counties to add their own sales tax to the state's basic rate. As of this writing Connecticut, Hawaii, Indiana, Kentucky, Maine, Maryland, Massachusetts, Michigan, Mississippi, New Jersey, Rhode Island, Vermont, Virginia, and West Virginia have a single state sales tax and local governments can not add their own to this amount. Other states allow such local 'add ons'.
Special Note: Most states exempt prescription drugs from sales tax. (A few exempt non-prescription drugs.) Some exempt food and/or clothing purchases or they offer special 'tax free days' eg. just before school opens. Sales tax requirements is worth checking before you decide where to live in your retirement. Remember that a 10% sales tax on all goods bought, is like taking a 10% reduction for much of your income. Any calculation of Retirement living taxes needs to take sales tax into consideration.
Fuel tax Besides the Federal tax on fuels, every state collects excise taxes on gasoline, diesel fuel and gasohol. The differences among the states can be considerable and residents near state lines often 'cross over' when filling their tanks. The savings can re than make up for the fuel used driving there.
So that is it. BEFORE you decide to move, find out about taxes. For many of us taxes will not be a 'deal breaker' but you do want to know what you are getting into before you move.
End of Retirement living taxes.
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