States that are investments/tax unfriendly?

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vu8
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States that are investments/tax unfriendly?

Post by vu8 » Thu Jun 28, 2018 4:30 pm

Is there a massive difference on your investments gains and investment income if you live in some of the more expensive states like California, New York and New Jersey? How do Californian residents try to not lose a significant amount of money to taxation? I live in Ohio but want to move to California in the future but don't want to pay the extreme income and capital gain taxes.

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Raybo
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Re: States that are investments/tax unfriendly?

Post by Raybo » Thu Jun 28, 2018 4:43 pm

I live in California. Capital gains are taxed as ordinary income. Social Security is not taxed at all. My wife is getting social security while I am waiting until I am 70. So her income is state tax free and our capital gains are managed to get to 0 or very low state taxes.

Of course, the Feds are just the opposite. They tax social security but not capital gains. It is our goal to pay no income tax at all, either state or Federal. So far, so good.
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JoMoney
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Re: States that are investments/tax unfriendly?

Post by JoMoney » Thu Jun 28, 2018 5:02 pm

The one tax benefit California has, is to be a long-term home owner. Prop 13 gives long-term owners a break, in that property taxes can't be increased very quickly, often lower than actual inflation, and significantly lower than the regional price appreciation in many locals. This can make the value of the 'imputed rent' of living in a long held California home more advantageous then moving somewhere else (considering that housing is usually someones largest expense). Couple with the fact that California doesn't tax social security, if you can keep your other retirement income to a low amount it's not too bad. California's income tax in the lower brackets is actually better than many other states, it scales up pretty quickly and steeply, but if you can manage to stay on the lower end it's not that bad.
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Re: States that are investments/tax unfriendly?

Post by cadreamer2015 » Thu Jun 28, 2018 5:33 pm

While I don't like paying taxes I don't have to, we moved to California at age 63 because we like the climate, it is close to family and friends and we can afford it. I figure that the tax burden is one of the costs of living in California rather than someplace like Ohio.

But it would be wise to sell your primary residence and buy a new one if and when you have a $250,000 single/ $500,000 MFJ gain, as capital gains are taxed in California as ordinary income, as others have noted upthread.
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Re: States that are investments/tax unfriendly?

Post by senex » Fri Jun 29, 2018 10:12 am

All the states where I've lived tax dividends & cap gains as ordinary income. Maybe there are some exceptions, but I think it's pretty standard in most states.

Since most states have graduated rates, your overall rate will depend on on your specific income & deduction levels. If you want a really accurate picture, fill out a tax return as if you lived in that state, and see what you would owe.

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Re: States that are investments/tax unfriendly?

Post by jharkin » Fri Jun 29, 2018 10:41 am

Massachusetts is also typically included in the "expensive" category... but our taxes are not really that bad - with one exception: short term gains.

Mass rules:
Most income is subject to a flat 5.1% state income tax
Dividends and long term capital gains are taxed as ordinary income at the above rate
Short term gains are taxed at a high 12% rate
Social Security is state tax free
Most public pensions are state tax free

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Re: States that are investments/tax unfriendly?

Post by bsteiner » Fri Jun 29, 2018 10:50 am

Notwithstanding its income tax, about 40 million people, or about 1/8 of the population of the United States, live in California.

California can sometimes be a tax haven. For people who are bicoastal, dividing their time between NYC and California, there's a tax benefit to being domiciled in California if it's feasible. The income tax is about the same, but New York has a state estate tax whereas California doesn't.

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Re: States that are investments/tax unfriendly?

Post by pshonore » Fri Jun 29, 2018 11:13 am

Connecticut is also regarded as high tax state but I think thats incorrect. CT starts with Fed AGI and adds out of state muni interest, subtracts Federal interest, state 529 plan contributions; a max of 25% of SS is taxed; no tax on military pensions. MFJ couple with 200K of CT AGI pays $10420 (5.2%), 100K of CT AGI pays $4555 (4.5%), 50K pays $900 (1.8%), couple with 25K pays $8. Dividends, cap gains, etc taxed like wages to the extent they're included in Fed AGI

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Re: States that are investments/tax unfriendly?

Post by HueyLD » Fri Jun 29, 2018 11:32 am

vu8 wrote:
Thu Jun 28, 2018 4:30 pm
Is there a massive difference on your investments gains and investment income if you live in some of the more expensive states like California, New York and New Jersey? How do Californian residents try to not lose a significant amount of money to taxation? I live in Ohio but want to move to California in the future but don't want to pay the extreme income and capital gain taxes.
The answer depends on your overall situation. You cannot look at just investment income because your cost of living consists of many factors.

I think the biggest expense is housing in Cal. In addition to very high housing prices, you will also pay very high property taxes because long term residents certainly do not pay their fair share. I guess if you are willing to live in a very tiny apartment or condo, you can probably swing it. But your standard of living will be much lower than what you may be accustomed to in OH.

Again, how badly do you want to live in Cali?

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Re: States that are investments/tax unfriendly?

Post by lukestuckenhymer » Fri Jun 29, 2018 11:56 am

Another think that irks me about living in CA is that even HSA investment cap gains are taxed. I couldn't believe that when I found out. Fortunately I'm 31 and I don't have a lot of medical expenses yet, so I'll just accumulate and hopefully never need to sell til I'm an old codger...
That high deductible is brutal too, but it's still worth it since my Employer kicks in $1,800 a year.

As far as moving here, spend a couple months with a friend/in a short-term rental. If the beautiful weather/landscape doesn't offset the cost of living/high taxes/idiots driving around, it's not for you! It's OK to be disillusioned! People have been lured here for decades on the outdated image of glamorous Hollywood and palm tree-lined streets... Try living in a stucco coffin in the heart of Hollywood surrounded on every side by homeless tents, schizos, and stoned, vapid 20-somethings with no future and then tell me about the glamour.

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Re: States that are investments/tax unfriendly?

Post by vested1 » Fri Jun 29, 2018 2:39 pm

I've never understood the criticism of California State taxes, especially for retirees. If we stay here in California our State taxes at RMD time in 4.5 years are predicted to be about $750 on about 120k of income in retirement. we paid about 2k last year on over 90k of income with no SS in 2017.

High new housing costs are certainly an issue, but houses hold their value well. Prop 13 locks in property tax rates with small allowable yearly increases which holds the tax bite down. On our 600k home we pay about 2.5k in property taxes. How much would that be in any other State? How about Texas, with an average of over 2% property tax?

That being said. we've looked at States with more favorable taxation and a climate we could possibly tolerate. South Carolina doesn't tax SS either, and is implementing a new break that will take full effect by the year 2020. That law gives a 30k deduction per person over age 65 for any retirement income. Since SS isn't taxed, and 60k (my wife and I as a couple) is State tax deductible, if we moved there we wouldn't be paying any State tax as that 60k is about what we would be getting above and beyond SS from a pension and pre-tax portfolio withdrawals.

As for the statement that it is unfair to newcomers to California having to pay about 1% of the purchase price for property taxes, other States have variations of that as well. Again, take South Carolina. They have a law that gives a property tax breaks to owner occupied homes, but slaps vacation homes and business with huge property tax rates. The difference I've seen is substantial, with vacation homes for sale on Zillow with nearly 4 times the property tax rates as owner occupied homes.

Bottom line is that our climate in California, especially on the coast, equates to greater demand. Gas is more expensive and so is housing, but the cost is worth it not to have to ever shovel snow or crank the AC. Most houses, including ours don't even have AC.

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Re: States that are investments/tax unfriendly?

Post by GoldStar » Fri Jun 29, 2018 2:44 pm

I knew someone that moved to Singapore for several years.
He said one of the reasons he went was so he could cash in a lot of money in stock grants he had gotten without getting clobbered in capital gains.
$0 Capital Gains tax in Singapore if you want to consider going there.
He said the amount of money he saved was incredible.
Of course my portfolio isn't big enough to save that much....

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Re: States that are investments/tax unfriendly?

Post by Whakamole » Fri Jun 29, 2018 2:51 pm

vested1 wrote:
Fri Jun 29, 2018 2:39 pm
Bottom line is that our climate in California, especially on the coast, equates to greater demand. Gas is more expensive and so is housing, but the cost is worth it not to have to ever shovel snow or crank the AC. Most houses, including ours don't even have AC.
I would hate to live in the San Bernardino Valley without AC. Forecast next week shows a high of 110 expected next Friday.

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Re: States that are investments/tax unfriendly?

Post by triceratop » Fri Jun 29, 2018 2:54 pm

My strategy to paying few taxes to California is to have a low income. It has worked quite well for me -- last year I paid about $1000 in California state tax. I recommend it to others.

Unfortunately, the bulk of tax on my investments is due to California taxing what the Federal government does not (qualified dividends). Oh well.
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Re: States that are investments/tax unfriendly?

Post by Northern Flicker » Fri Jun 29, 2018 6:31 pm

vu8 wrote:
Thu Jun 28, 2018 4:30 pm
Is there a massive difference on your investments gains and investment income if you live in some of the more expensive states like California, New York and New Jersey? How do Californian residents try to not lose a significant amount of money to taxation? I live in Ohio but want to move to California in the future but don't want to pay the extreme income and capital gain taxes.
Once in retirement the main impact of being in a HCOL location is needing the portfolio to generate more gains and income.

If you expect to work in a state with no or low income tax and retire in a state with high income tax, it may be beneficial to make significant use of Roth accounts.
Index fund investor since 1987.

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Re: States that are investments/tax unfriendly?

Post by statman » Sat Jun 30, 2018 11:30 am

Ah, Florida!

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Re: States that are investments/tax unfriendly?

Post by JaneyLH » Sat Jun 30, 2018 11:59 am

Consider Nevada. Beautiful eastern Sierra... No state income tax and home prices about half of California (except for Tahoe lakeview homes!}

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Re: States that are investments/tax unfriendly?

Post by Hayden » Sat Jun 30, 2018 2:03 pm

If you are thinking about retirement, don't forget estate tax. Washington is a great place to work (no income tax), but they have a high estate tax if you are over the exclusion amount.

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Re: States that are investments/tax unfriendly?

Post by whodidntante » Sat Jun 30, 2018 2:10 pm

On the flip side, some states are retiree friendly. Illinois does not tax retirement plan distributions, for example. So if you defer the tax then you can completely avoid the state tax in some instances.

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Re: States that are investments/tax unfriendly?

Post by abner kravitz » Sat Jun 30, 2018 2:17 pm

vested1 wrote:
Fri Jun 29, 2018 2:39 pm

That being said. we've looked at States with more favorable taxation and a climate we could possibly tolerate. South Carolina doesn't tax SS either, and is implementing a new break that will take full effect by the year 2020. That law gives a 30k deduction per person over age 65 for any retirement income. Since SS isn't taxed, and 60k (my wife and I as a couple) is State tax deductible, if we moved there we wouldn't be paying any State tax as that 60k is about what we would be getting above and beyond SS from a pension and pre-tax portfolio withdrawals.
The tax break for South Carolina that you mention is only for military retirees, I believe. Otherwise, it is $15K per person at age 65.

As far as climate, it is HOT for 5 months or so. And HUMID.

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Re: States that are investments/tax unfriendly?

Post by Sandtrap » Sat Jun 30, 2018 2:22 pm

Taxes are one part of the retirement expense equation.
It may be far offset by reduced cost of living, and other expenses, in some states more than others.
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Re: States that are investments/tax unfriendly?

Post by JMacDonald » Sat Jun 30, 2018 2:35 pm

lukestuckenhymer wrote:
Fri Jun 29, 2018 11:56 am
Another think that irks me about living in CA is that even HSA investment cap gains are taxed. I couldn't believe that when I found out. Fortunately I'm 31 and I don't have a lot of medical expenses yet, so I'll just accumulate and hopefully never need to sell til I'm an old codger...
That high deductible is brutal too, but it's still worth it since my Employer kicks in $1,800 a year.

As far as moving here, spend a couple months with a friend/in a short-term rental. If the beautiful weather/landscape doesn't offset the cost of living/high taxes/idiots driving around, it's not for you! It's OK to be disillusioned! People have been lured here for decades on the outdated image of glamorous Hollywood and palm tree-lined streets... Try living in a stucco coffin in the heart of Hollywood surrounded on every side by homeless tents, schizos, and stoned, vapid 20-somethings with no future and then tell me about the glamour.
A bit over the top, don't you think. I guess you think all of California is Hollywood. I have live in California my whole life, and I don't give the taxes I pay here much thought. However, if our high taxes keep lot of people from moving here, I am all for it,
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Re: States that are investments/tax unfriendly?

Post by mhadden1 » Sat Jun 30, 2018 3:30 pm

whodidntante wrote:
Sat Jun 30, 2018 2:10 pm
On the flip side, some states are retiree friendly. Illinois does not tax retirement plan distributions, for example. So if you defer the tax then you can completely avoid the state tax in some instances.
Similarly, my native state, Georgia, has very generous state tax exemptions for most retirement type income, like pensions, SS, and 401k/IRA distributions. As I recall the exemptions start at age 62 and then max at 65. And of course some states don't have state income tax at all, but may have estate taxes and such. A web search should turn up a bunch of articles on this subject from personal finance magazines. But, as the states change their laws over time it can be a little tricky to know about the exact current state of affairs.
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Re: States that are investments/tax unfriendly?

Post by mhadden1 » Sat Jun 30, 2018 3:47 pm

mhadden1 wrote:
Sat Jun 30, 2018 3:30 pm
my native state, Georgia, has very generous state tax exemptions for most retirement type income, like pensions, SS, and 401k/IRA distributions.
Ok, so I looked, and per the Ga. Revenue Dept. web page, other exemptions:
  • Interest income
  • Dividend income
  • Net income from rental property
  • Capital gains income
  • Income from royalties
  • Up to $4,000 of earned income
For 2017, exemptions at age 62-64, $35000 per taxpayer.
Age 65, $65000 per taxpayer.
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Re: States that are investments/tax unfriendly?

Post by vested1 » Sat Jun 30, 2018 6:10 pm

abner kravitz wrote:
Sat Jun 30, 2018 2:17 pm
vested1 wrote:
Fri Jun 29, 2018 2:39 pm

That being said. we've looked at States with more favorable taxation and a climate we could possibly tolerate. South Carolina doesn't tax SS either, and is implementing a new break that will take full effect by the year 2020. That law gives a 30k deduction per person over age 65 for any retirement income. Since SS isn't taxed, and 60k (my wife and I as a couple) is State tax deductible, if we moved there we wouldn't be paying any State tax as that 60k is about what we would be getting above and beyond SS from a pension and pre-tax portfolio withdrawals.
The tax break for South Carolina that you mention is only for military retirees, I believe. Otherwise, it is $15K per person at age 65.

As far as climate, it is HOT for 5 months or so. And HUMID.
Thanks for clarifying that. I was passing on information I read at Kiplinger's
For taxpayers 65 and older, the deduction for 2016 is $18,000, but it will increase by $3,000 each year until it is fully phased in at $30,000 in 2020.
There are certain State legislators who are working to repeal military and senior deductions in SC, but I won't speculate on the chances of that being successful.

The above quote from Kiplinger's was referring to military retirees who receive a military pension, although that was unclear in the Kiplinger article. I then pursued another source after reading your response, and as stated in this alternate quote from a better source, it appears that non-military seniors over age 65 "only" have a 30k per couple deduction on non-SS retirement income, still pretty good. I was in the military but didn't retire from it.

http://www.jbcharleston.jb.mil/News/Art ... exemption/

Is the humidity and heat as much of a problem further inland, say three hours from the coast on one of many lakes, like Keowee lake?

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Re: States that are investments/tax unfriendly?

Post by michaeljc70 » Sat Jun 30, 2018 6:39 pm

In Illinois, retirement income is not taxed. That includes social security, pensions, Roth ira conversions, Tira withdrawals, etc. Other income is taxed at 4.95%, so probably middle of the pack on that. It was 3% from 1990-2010. The property taxes, at least where I live, are out of control though in their rate of increase. 40% for me in 4 years. The place certainly hasn't gone up 40% or anywhere close to it.

AS to the original question, if you want to live in CA you pay the taxes. There are no tricks to get out of paying taxes or no one would pay them.

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Re: States that are investments/tax unfriendly?

Post by LadyGeek » Sat Jun 30, 2018 9:06 pm

This thread is now in the Personal Finance (Not Investing) forum (unfriendly state taxes).

See the wiki: State income taxes and download the paper referenced at the top of the article.

The direct link: Individual Income Tax Provisions in the States

In PA, retirement income is not taxed.
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Re: States that are investments/tax unfriendly?

Post by abner kravitz » Sun Jul 01, 2018 6:28 am

vested1 wrote:
Sat Jun 30, 2018 6:10 pm
abner kravitz wrote:
Sat Jun 30, 2018 2:17 pm
vested1 wrote:
Fri Jun 29, 2018 2:39 pm

That being said. we've looked at States with more favorable taxation and a climate we could possibly tolerate. South Carolina doesn't tax SS either, and is implementing a new break that will take full effect by the year 2020. That law gives a 30k deduction per person over age 65 for any retirement income. Since SS isn't taxed, and 60k (my wife and I as a couple) is State tax deductible, if we moved there we wouldn't be paying any State tax as that 60k is about what we would be getting above and beyond SS from a pension and pre-tax portfolio withdrawals.
The tax break for South Carolina that you mention is only for military retirees, I believe. Otherwise, it is $15K per person at age 65.

As far as climate, it is HOT for 5 months or so. And HUMID.
Thanks for clarifying that. I was passing on information I read at Kiplinger's
For taxpayers 65 and older, the deduction for 2016 is $18,000, but it will increase by $3,000 each year until it is fully phased in at $30,000 in 2020.
There are certain State legislators who are working to repeal military and senior deductions in SC, but I won't speculate on the chances of that being successful.

The above quote from Kiplinger's was referring to military retirees who receive a military pension, although that was unclear in the Kiplinger article. I then pursued another source after reading your response, and as stated in this alternate quote from a better source, it appears that non-military seniors over age 65 "only" have a 30k per couple deduction on non-SS retirement income, still pretty good. I was in the military but didn't retire from it.

http://www.jbcharleston.jb.mil/News/Art ... exemption/

Is the humidity and heat as much of a problem further inland, say three hours from the coast on one of many lakes, like Keowee lake?
I doubt that the heat and humidity is as bad (compared to the lowcountry), but I've never spent time there. I've heard that it is a very nice area.

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