Deducting State Taxes - trying to identify tax savings if I move?

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sperry8
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Deducting State Taxes - trying to identify tax savings if I move?

Post by sperry8 » Sun Feb 05, 2017 7:20 am

Hello all,

Question... I currently live in CA. I am considering a move to a no-income tax State. I am trying to ascertain how much I'll save in taxes to help me identify if it is worth doing (financially).

I don't just save the monies paid to CA annually because if I do decide to move to FL then I will lose that deduction so my Federal Taxes will rise. What I'm trying to figure out is how much (ballpark is fine).

I currently pay ~$7,200 in taxes per year to CA. I am in the 28% Federal Tax bracket (just into that tier actually but never below it). So would I save $7,200 but then pay an additional 28% of that $7,200 in Fed taxes or about $2k... see below for more details:

Fed Tax bracket: 28%
CA tax bracket: 9.3% (results in $7,200 annual tax payment).
FL: 0% income taxes - so I save $7,200.
However lose deduction so Fed AGI goes up by $7,200 and since this extra is all in the 28% bracket I will actually pay $2k extra in Fed taxes.
Result... $5,200 annual savings by moving from CA to FL.

Do I have this correct or am I missing anything?

PS - I'm just a renter so property taxes are no issue for me.
BH contest results: 2019: #233 of 645 | 18: #150 of 493 | 17: #516 of 647 | 16: #121 of 610 | 15: #18 of 552 | 14: #225 of 503 | 13: #383 of 433 | 12: #366 of 410 | 11: #113 of 369 | 10: #53 of 282

livesoft
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Re: Deducting State Taxes - trying to identify tax savings if I move?

Post by livesoft » Sun Feb 05, 2017 7:24 am

Whether you lose the full deduction depends on whether you will still use Schedule A in Florida or if you will take the standard deduction. The amount of the standard deduction depends on your filing status.
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nps
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Re: Deducting State Taxes - trying to identify tax savings if I move?

Post by nps » Sun Feb 05, 2017 7:25 am

Are you at least $7,200 above the standard deduction when itemizing? If not your AGI will not rise as much.

qwertyjazz
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Re: Deducting State Taxes - trying to identify tax savings if I move?

Post by qwertyjazz » Sun Feb 05, 2017 7:31 am

You can claim the sales tax deduction
https://www.irs.gov/individuals/sales-t ... calculator
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Grogs
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Re: Deducting State Taxes - trying to identify tax savings if I move?

Post by Grogs » Sun Feb 05, 2017 8:15 am

And one nice feature about deducting state sales tax is that it's calculated based off of AGI and where you live. So you get the same deduction whether you made $100k and spent it all on goods, or made $100k and invested $60k of it. The tables just assume you spent some fixed portion of your income on goods that took a sales tax.

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sperry8
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Re: Deducting State Taxes - trying to identify tax savings if I move?

Post by sperry8 » Sun Feb 05, 2017 9:15 am

livesoft wrote:Whether you lose the full deduction depends on whether you will still use Schedule A in Florida or if you will take the standard deduction. The amount of the standard deduction depends on your filing status.
nps wrote:Are you at least $7,200 above the standard deduction when itemizing? If not your AGI will not rise as much.
:oops: Thanks, and duh! Clearly what I was missing. I never lived in a no-income tax State so didn't realize. So my choices would be either the Standard deduction or the sales tax itemized deduction.

My itemized deductions for the past two years were $8 & $10k (which were larger than the single standard deduction). But I see your point now... if I do take the standard deduction, the loss of writing off the $7,200 caps the hit to my AGI due to the standard deduction creating a floor (which is $6,300 for me). So my new calcs would be:

$10k-$6.3k ($3,700 *.28) = $1,036 Fed taxes
$8k-$6.3k ($1,700 * .28) = $476 Fed taxes

So really $500-$1,000 in additional federal taxes to be paid but of course a savings of $7,200 in State taxes... netting me a $6,200-$6,700 savings depending on the year.
qwertyjazz wrote:You can claim the sales tax deduction
https://www.irs.gov/individuals/sales-t ... calculator
Thanks.
Running the calculator for my AGI in FL results in a deduction of ~$1k, so that isn't going to vault me back into itemized. Although that # seems low, even if the actual # was 3x, it'd still place me about where the Standard deduction is anyway. Hard to see how it'd be more than this unless I have a huge expense some year (new car or similar).
Grogs wrote:And one nice feature about deducting state sales tax is that it's calculated based off of AGI and where you live. So you get the same deduction whether you made $100k and spent it all on goods, or made $100k and invested $60k of it. The tables just assume you spent some fixed portion of your income on goods that took a sales tax.
I'm not sure I follow. Are you saying you can use their table estimates without receipts so you can actually spend less on sales taxes and still get a # that you can use towards itemizing if you'd like? Of course, if you do spend and have receipts you can then calculate your actual #. is this what you are trying to explain?
BH contest results: 2019: #233 of 645 | 18: #150 of 493 | 17: #516 of 647 | 16: #121 of 610 | 15: #18 of 552 | 14: #225 of 503 | 13: #383 of 433 | 12: #366 of 410 | 11: #113 of 369 | 10: #53 of 282

qwertyjazz
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Re: Deducting State Taxes - trying to identify tax savings if I move?

Post by qwertyjazz » Sun Feb 05, 2017 9:25 am

If you are itemizing anyway (as you correctly point out) - you can get the sales tax deduction even if you do not spend any money which I think is grogs point
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Grogs
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Re: Deducting State Taxes - trying to identify tax savings if I move?

Post by Grogs » Sun Feb 05, 2017 9:27 am

sperry8 wrote:
Grogs wrote:And one nice feature about deducting state sales tax is that it's calculated based off of AGI and where you live. So you get the same deduction whether you made $100k and spent it all on goods, or made $100k and invested $60k of it. The tables just assume you spent some fixed portion of your income on goods that took a sales tax.
I'm not sure I follow. Are you saying you can use their table estimates without receipts so you can actually spend less on sales taxes and still get a # that you can use towards itemizing if you'd like? Of course, if you do spend and have receipts you can then calculate your actual #. is this what you are trying to explain?
Yes, with the income tax it gets taken out as you're paid. With the sales tax, you pay as you buy things. You're entitled to take the standard deduction for sales tax based on your AGI even if you buy nothing. That assumes that you itemize, of course. Also, note that if your state applies sales tax to large purchases like a car, you can deduct that separately, and then take the standard AGI-based sales tax deduction on top of it. You can find the details in the instructions for Schedule A. There's a table that walks you through how to calculate the deduction.

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sperry8
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Re: Deducting State Taxes - trying to identify tax savings if I move?

Post by sperry8 » Sun Feb 05, 2017 9:42 am

Thanks all - this helped me understand the floor the current standard deduction places and allows me to more appropriately identify current tax savings if I decide to move. In actuality the loss of the itemized deduction in my case does not materially impact my tax savings in dollar amounts (which was different than my understanding before this post). Much appreciated!
BH contest results: 2019: #233 of 645 | 18: #150 of 493 | 17: #516 of 647 | 16: #121 of 610 | 15: #18 of 552 | 14: #225 of 503 | 13: #383 of 433 | 12: #366 of 410 | 11: #113 of 369 | 10: #53 of 282

Flora
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Re: Deducting State Taxes - trying to identify tax savings if I move?

Post by Flora » Sun Feb 05, 2017 10:22 am

Note that proposed Trump tax law changes may result in fewer people itemizing if the standard deduction is increased.

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House Blend
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Re: Deducting State Taxes - trying to identify tax savings if I move?

Post by House Blend » Sun Feb 05, 2017 12:57 pm

^And even without tax law changes, the standard deduction increases when you, and spouse if applicable, hit your 65th birthday(s).

nolesrule
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Re: Deducting State Taxes - trying to identify tax savings if I move?

Post by nolesrule » Sun Feb 05, 2017 5:10 pm

You may also want to look into the overall change in cost of living and not just make the decision purely on taxes.

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celia
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Re: Deducting State Taxes - trying to identify tax savings if I move?

Post by celia » Sun Feb 05, 2017 5:25 pm

The cost of living in your new location vs where you are now will likely have a bigger financial impact than an income tax savings.

We have had threads in the past comparing living expenses in two locations. While some costs may go down when you move, others may go up. Think: heating and air conditioning, school/fire/ /property taxes (which are included in your rent), car insurance, gas for your car, etc.

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sperry8
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Re: Deducting State Taxes - trying to identify tax savings if I move?

Post by sperry8 » Sun Feb 05, 2017 6:00 pm

nolesrule wrote:You may also want to look into the overall change in cost of living and not just make the decision purely on taxes.
celia wrote:The cost of living in your new location vs where you are now will likely have a bigger financial impact than an income tax savings.

We have had threads in the past comparing living expenses in two locations. While some costs may go down when you move, others may go up. Think: heating and air conditioning, school/fire/ /property taxes (which are included in your rent), car insurance, gas for your car, etc.
I am considering many things re my move, including lifestyle, total COL, etc. This post was solely intended to help me flush out the financial tax savings part and it has done that well.
BH contest results: 2019: #233 of 645 | 18: #150 of 493 | 17: #516 of 647 | 16: #121 of 610 | 15: #18 of 552 | 14: #225 of 503 | 13: #383 of 433 | 12: #366 of 410 | 11: #113 of 369 | 10: #53 of 282

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