Should I move to a state with no income tax to save on taxes?

[Kandinsky]

I've heard the phrase that goes something like "don't let the tax tail wag the dog" but there is something very appealing about living somewhere with no state or city taxes. There are eight states with no personal income tax: Wyoming, Washington, Texas, Tennessee, South Dakota, Nevada, Florida, and Alaska. I could see myself living in any of those places except Wyoming.

My income is $465,000 per year working 100% remote from home so it doesn't matter where I reside for my work. According to some income tax calculators I could expect to save about $25,000 per year in state and local taxes just sitting in another state. The problem is I've grown up in Ohio and my family/friends are here. So the logical/rational side of my brain tries to break it down into whether $2,000 per month in extra taxes is worth living here just to be around people I know. I've even had thoughts of driving 3 hours north up into Canada to take advantage of the foreign earned income credit which would require me to stay outside the U.S. for 330 days but in return I would also forgo being taxed on roughly the first $100K in income at the federal level.

In some ways I love the thought of how liberating it might be to move away and feel more independent. On the other hand, knowing me I'd probably just settle into doing what I always do where I reside currently.

I guess I'm just curious how others have made the decision to leave their hometown? If you're not moving for a job and the place you currently live is decent but maybe not the most exciting, moving for tax purposes probably shouldn't be the main contributor?

[trooma7]

Can I ask what you do to make $465K remotely?

The decision to move is a personal one. Do you value the relationships/proximity to friends or the tax savings more.

[London]

If you don’t want to live around friends or family to save on taxes: have at it.

[JoMoney]

... My income is $465,000 per year working 100% remote from home so it doesn't matter where I reside for my work...

If I had that option of keeping a very high paying job and working from anywhere, I would at least try moving around a bit and seeing if there's some place else I wouldn't mind calling 'home'. Sounds like there's nothing preventing you from moving back if you decide you'd rather be around the people and familiarity you left.

[MrJones]

I've heard the phrase that goes something like "don't let the tax tail wag the dog"
....
If you're not moving for a job and the place you currently live is decent but maybe not the most exciting, moving for tax purposes probably shouldn't be the main contributor?

You seem to have all the wisdom needed to answer this one already.

At that income level, money is not going to be a limiting factor for you in life. Why not figure out the next level of what you want in life, and pursue that, and allow whatever that is to determine where you live?

When you're old, an extra 10% in your accounts won't make a difference. What you did in life, where you lived, the close relationships you had and such, will. My two cents.

[PowderDay9]

Only you can decide if it's worth $2,000 a month to keep living in your hometown around your family/friends.

There's great places to live in the tax-free states and you can make some new friends too. Leaving family can be tough though. You could always move back home if you don't like it.

We moved to a tax-free state over a decade ago and have no regrets. Saved hundreds of thousands already (on all taxes combined). To us it's worth it.

[TinyHouse]

Can I ask what you do to make $465K remotely?

Looks like “overemployed” viewtopic.php?t=355213

[ramram22]

I’m remote too and plan on doing it in a few years. My primary motivation is escaping the DC winters, but no state income tax is a close second.

My solution to the family issue is trying to convince my parents to move as well. They’re retired and can live anywhere.

[er999]

I would consider it but not for taxes as the only reason, there should be another pull factor for you. For Washington the outdoors and access to the mountains you don’t have in Ohio, for Florida the beach, etc. Otherwise with $465k / year you should be able to live in a high tax state if you want to.

[Kandinsky]

When you're old, an extra 10% in your accounts won't make a difference. What you did in life, where you lived, the close relationships you had and such, will. My two cents.

This is so true it hurts. Thank you for the reminder as it is great wisdom. I know the decision is a personal one but like most things in life, I see the pros and cons to everything which leads me to a neutral position of doing nothing which is also not a good thing.

[mega317]

States with no income tax need to get revenue somehow, if those affect you the savings may not be as much as you think. Property, sales, gasoline taxes are common. If you’re renting and not commuting maybe it doesn’t impact you much.

[KlangFool]

OP,

https://www.irs.gov/individuals/interna ... -exclusion

Why aim so low? Why can't you live outside of the USA for 330 days and qualify for foreign earned income exclusion?

In summary, saving 20+K per year of taxes is nothing compared to your income and annual savings. If you really want to save a lot of taxes, live outside of the USA.

KlangFool

[dukeblue219]

Honest opinion?

You make so much money that quality of life is not a concern. You've won the money game. Don't sacrifice time with family and friends just to make another 5.3% every year.

If you *want* to live in Nevada or Texas go for it, but I'd let the tax savings be icing on the cake because it won't change your life meaningfully. Leaving behind your family will.

[billfromct]

Don’t forget New Hampshire. They don’t have an income tax on earned income, sales tax or estate tax, but they do have a 5% state income tax on dividends & interest.

The State of NH is phasing out the state income tax on dividends & interest over the next 4 years & effective in 2027, NH will no longer tax dividends & interest.

Washington State has a 10%-20% estate tax on estates over $2.2M.

bill

[Jack FFR1846]

More research is in order. Somehow, you forgot New Hampshire that not only has no income tax, it also has no sales tax.

What you should probably do in your research is find out how the state funds things. I'm next door to New Hampshire, in Massachusetts. Now, Mass tends to have higher house prices but some New Hampshire towns can have property tax rates much higher. I live in Hopkinton, MA ($15.81 per $1000) and like to look at Hopkinton, NH, which is $32.25, so about double. Or go west to Claremont and pay $41.68 per thousand. Looking up Austin, TX because people always talk about Texas property taxes being high and see it's only $31.80. So in line with NH. But Texas has sales tax of 6.25% (same as my state of Mass).

What other taxes will you pay? For similar services, in a state with no income tax, how are those services being paid for? Unless you look at all taxes and fees, you won't really know if you're saving money.

[hachiko]

Why would you be fine living in South Dakota or Alaska but not Wyoming?

[KlangFool]

OP,

FYI. I telecommuted my USA job from Asia for many years. I did not save taxes because I was not out of the USA for more than 330 days. But, the cost of living and quality of life was great!

If Ohio is heaven on earth for you, then, don't bother with my post. Or else, why won't you live in some sunny beaches elsewhere in the world for some part of the year?

KlangFool

[er999]

OP,

https://www.irs.gov/individuals/interna ... -exclusion

Why aim so low? Why can't you live outside of the USA for 330 days and qualify for foreign earned income exclusion?

In summary, saving 20+K per year of taxes is nothing compared to your income and annual savings. If you really want to save a lot of taxes, live outside of the USA.

KlangFool

He consider also look at Puerto Rico, still in the us but super favorable tax treatment.

[Normchad]

I’ve known a few people that officially moved to Florida and establishing residency before selling a business, for just this reason. In one case, the state income tax savings was enough to pay for their new Florida mansion.

[Kandinsky]

Honest opinion?

You make so much money that quality of life is not a concern. You've won the money game. Don't sacrifice time with family and friends just to make another 5.3% every year.

If you *want* to live in Nevada or Texas go for it, but I'd let the tax savings be icing on the cake because it won't change your life meaningfully. Leaving behind your family will.

Thank you for your opinion. I think this sort of response is what I was looking for to get my head right. I've just been trying to approach this in the most logical mindset but I guess it's one of those "how you feel" decisions that ends up being the most logical.

I think another option I've toyed with is building out a van to camp in and traveling across the country to get a feel for different areas and experiences while keeping my current home base. It's either that or I try to stay in budget hotels and just travel around in my car and see different areas while working on the road. I think I just have this angst that I'm still somewhat young at 35 and I need to be creating some memories before the years get ahead of me and I look back with regret.

[Kandinsky]

Why would you be fine living in South Dakota or Alaska but not Wyoming?

I know I'm stereotyping but Wyoming just sounds boring. Alaska would be preferable out of the three you mentioned just from the views I've seen on the History channel.

[fireman]

Looking at Ohio's tax tables, I think Ohio income tax on $465K would be $16,820 for 2022. Seems around 1/3 (or more) of the $25k you list must be due to municipal taxes. One option is just to move to a tax free municipality in Ohio to lessen the tax burden. Usually these are in more rural areas so that may not be appealing but property taxes are often way better in rural Ohio.

Also, see if there is any way to claim Ohio's Business Income Deduction (for small business owners), or any other significant state deductions. This allows you deduct $250K from your taxable income in Ohio, which saves a huge amount on Ohio income tax.

Lastly, as relates to family and friends in Ohio, you might consider establishing "domicile" elsewhere (for example, Florida) and living part time in Ohio. If you can do this, you are allowed to spend 182 nights in Ohio per calendar year (just under half the year).

I will follow this with interest. I am in Ohio and also anchored here. Mainly due to kids and not wanting to uproot them but this will change in a few years when the last one is out of the nest.

[JoMoney]

Why would you be fine living in South Dakota or Alaska but not Wyoming?

I know I'm stereotyping but Wyoming just sounds boring. Alaska would be preferable out of the three you mentioned just from the views I've seen on the History channel.

Even better than no income tax, Alaska pays you to live there.

[Kandinsky]

I’ve known a few people that officially moved to Florida and establishing residency before selling a business, for just this reason. In one case, the state income tax savings was enough to pay for their new Florida mansion.

This one is a compelling reason because I am working on building some SaaS products and if one ever got bought for big bucks it would be nice to save the extra tax. I mean even a $5 million sale is about $250K in state taxes. Hypotheticals that may never happen but a very very good point.

[PowderDay9]

Why would you be fine living in South Dakota or Alaska but not Wyoming?

I know I'm stereotyping but Wyoming just sounds boring. Alaska would be preferable out of the three you mentioned just from the views I've seen on the History channel.

Wyoming is beautiful too. Check out Yellowstone National Park, the Grand Tetons and Jackson. There's some very expensive properties around Jackson. They also have one of the best ski resorts in the country.

[enad]

Whatever you decided to do, if you you want move, fly/drive to the location and spend some time. You may decide the lifestyle is not for you. For me it's all about family and how close I can be to family

[cchrissyy]

I've never understood moving to save income taxes by the exact people who make so much the taxes can't impact their lifestyle.
Live wherever you like! You can afford it.

[quantAndHold]

Why would you be fine living in South Dakota or Alaska but not Wyoming?

I know I'm stereotyping but Wyoming just sounds boring. Alaska would be preferable out of the three you mentioned just from the views I've seen on the History channel.

Western Wyoming is one of the most beautiful places on earth. South Dakota, meh.

Regardless, you make $465k. If I were in your shoes, I’d be looking at quality of life, not a puddly $25k in taxes.

[Kandinsky]

Looking at Ohio's tax tables, I think Ohio income tax on $465K would be $16,820 for 2022. Seems around 1/3 (or more) of the $25k you list must be due to municipal taxes.

Yeah I live in a nice area and it has some neighborhood charm since homes were built in the 70's. Here is a tax calculator breaking it down. Just kind of depressing especially since my parents live one city over and they have no local tax. I would consider moving but feel sort of locked in if I stayed in the local area due to available options on the market for what I am looking for at least at the moment. Overall the home I am in now I don't have really any complaints about if I did stay local other than the higher cost to live here.

Also, see if there is any way to claim Ohio's Business Income Deduction (for small business owners), or any other significant state deductions. This allows you deduct $250K from your taxable income in Ohio, which saves a huge amount on Ohio income tax.

This was actually a pleasant surprise in my tax software when I saw this deduction come out and I got a generous refund from the state due to $106,000 of my income being from my Schedule C. So that makes me feel a tad bit better.

Lastly, as relates to family and friends in Ohio, you might consider establishing "domicile" elsewhere (for example, Florida) and living part time in Ohio. If you can do this, you are allowed to spend 182 nights in Ohio per calendar year (just under half the year).

Thanks for the tip. I just started reading online about this and it sounds interesting.

[cchrissyy]

I guess I'm just curious how others have made the decision to leave their hometown? If you're not moving for a job and the place you currently live is decent but maybe not the most exciting, moving for tax purposes probably shouldn't be the main contributor?

oh! well if you haven't left your hometown then i think trying new places is smart and likely to be enjoyable or at least educational. this has nothing to do with setting up residency for taxes it's just because you might find somewhere you really like and it would be a shame to not use your freedom to explore that a little.

you reminded me of a blog post i read ages ago
https://www.raptitude.com/2012/07/most- ... y-default/

[mrspock]

My income is $465,000 per year working 100% remote from home so it doesn't matter where I reside for my work. According to some income tax calculators I could expect to save about $25,000 per year in state and local taxes just sitting in another state. The problem is I've grown up in Ohio and my family/friends are here. So the logical/rational side of my brain tries to break it down into whether $2,000 per month in extra taxes is worth living here just to be around people I know. I've even had thoughts of driving 3 hours north up into Canada to take advantage of the foreign earned income credit which would require me to stay outside the U.S. for 330 days but in return I would also forgo being taxed on roughly the first $100K in income at the federal level.

Uhhh… it doesn’t work like that. After 180 days in Canada you will be deemed a resident for tax purposes, and have to file taxes. Taxes in Canada are easily higher than in the USA in nearly any state. Should you fail to do so, interest and penalties will accrue anyways… for years until you are caught.

You might wonder how they will find out? Well one fine day as you cross over to Canada, they will pull you into secondary inspection, ask you if you work for a living, ask if you have the right visa, only this time…. they will then seize your laptop, search your car, wallet, backpack in an attempt to confirm your story, they will phone any suspected employer they might find. Next the fun part: the CRA will trigger the various bilateral agreements they have with the IRS where they share data to catch undeclared income. From here it gets very very ugly, lawyers, bank account freezes, garnishment of wages, you will be banned from entry for a very (very) long time etc.

It may take them decades to get their money, but they will get it. CRA is about the last tax agency in the planet I’d want to tango with. Try Italy or something instead… they sort of expect you to not pay them.

[KyleAAA]

Just make sure the cost of living change doesn't swamp your tax savings. Tennessee has some nice areas and depending on where in Ohio your family lives, maybe not that far away. If you don't mind rain in the winter, living on the Washington side of thr Washington/Oregon if the border let's you avoid income tax while crossing into Oregon let's you avoid sales tax. But the COL ain't exactly low.

[MoonOrb]

Why would you be fine living in South Dakota or Alaska but not Wyoming?

I know I'm stereotyping but Wyoming just sounds boring. Alaska would be preferable out of the three you mentioned just from the views I've seen on the History channel.

Give yourself a few weeks away from this question and when you come back and look at things like this particular response I think it will really crystallize for you that this is not even close to being a good decision for you.

[Kandinsky]

Thank you all for the thoughtful replies. It has definitely given me some things to think about.

After spending time on this thread, it reminds me of that kid crying about taxes playing Monopoly...
https://www.youtube.com/watch?v=VMwqYLSPg_c

[ScubaHogg]

I dislike taxes as much as anyone and It’s probably worth 5% of your annual income to be near your friends and family

[ScubaHogg]

Western Wyoming is one of the most beautiful places on earth. South Dakota, meh.

Regardless, you make $465k. If I were in your shoes, I’d be looking at quality of life, not a puddly $25k in taxes.

I love Wyoming, but the black hills/rapid city area is gorgeous as well

[whiterabbit66]

I was in a very similar position to you living in GA. I took residency in TN with my family and as I am also a remote worker I just travel now when I want to see friends (only an hour). I got sick of paying tens of thousands in state income taxes for nothing and high property taxes. In my case at least I am very happy I did this.

[aristotelian]

Ohio is not even a high tax state. Zero tax states you might live in probably have high property tax or sales tax. You have plenty of income so I would live wherever you will be happiest.

[Darth Xanadu]

I dislike taxes as much as anyone and It’s probably worth 5% of your annual income to be near your friends and family

As someone who has moved away from family and friends, I couldn't agree more.

[tibbitts]

I've never understood moving to save income taxes by the exact people who make so much the taxes can't impact their lifestyle.
Live wherever you like! You can afford it.

I agree, and I was someone who, when I was younger, thought about moving to save on state taxes. Now I think it deserves almost no consideration, and none for someone in the OP's position.

[celia]

States with no income tax need to get revenue somehow, if those affect you the savings may not be as much as you think. Property, sales, gasoline taxes are common. If you’re renting and not commuting maybe it doesn’t impact you much.

+1. This is worth thinking about. How do the states without state income tax pay for the things the other states spend their income tax on?

Without a state income tax, they probably have higher property tax, sales tax, gas tax, taxes on utilities and phone service, toll roads, library patron fees to check out books….

Everything has to be paid for somehow or it won’t exist. No money to re-pave the road? OK, you get dirt paths. Not much spent on schools? OK, you’ll have mediocre schools with no enrichment and large class sizes. No fire department? Hopefully there is a volunteer fire department!

[Cruise]

When you're old, an extra 10% in your accounts won't make a difference. What you did in life, where you lived, the close relationships you had and such, will. My two cents.

This is so true it hurts. Thank you for the reminder as it is great wisdom. I know the decision is a personal one but like most things in life, I see the pros and cons to everything which leads me to a neutral position of doing nothing which is also not a good thing.

It is not possible to "do nothing." Doing nothing = staying.

But, OP, I feel your pain. All of our family has moved out of our no-tax state. Continuing to not pay tax is but one consideration for us with respect to where to domicile.

[ramram22]

I've never understood moving to save income taxes by the exact people who make so much the taxes can't impact their lifestyle.
Live wherever you like! You can afford it.

People don’t just end up making a lot of money without being the type of person who cares a lot about money in the first place.

[EnjoyIt]

There are a few people upthread who said saving an extra $25k/yr on that income is nothing or not worth the bother.

I just want to point out that $25k/yr invested over 30 years is about $1.6 million at 5% returns. It definitely isn’t chump change.

Not that moving just for taxes is the right decision and that the state may get those $25k elsewhere via property tax, sales tax, etc.

[Cat Herder]

Out of the 3 states that I was interested in moving to I selected the one without an income tax (and by far the lowest overall tax burden). I'm still here in Washington for up to another 18 months or so, but already purchased a property in Wyoming for my eventual move. The thought of potentially paying a state income tax for the first time was very unappealing.

If you have the ability to travel regularly it might not be too big of a problem to move away from friends/family, particularly if it's a reasonable road trip. Folks who are retired or work remotely have a lot of freedom to divide their time between a tax home, and a second home. Consider how often you see your friends/family in person and how that might change if you relocate. How would that affect relationships that you value?

I looked for the place with the lowest overall expenses (including taxes) while also offering the activities I prefer. Whether or not making the move is right for you, I can't say.

[meowcat]

Although some states are more tax friendly than others, choosing a tax free state may not always cost you less. In tax free states, keep in mind, you'll end up paying either way. Tax frees states have higher property taxes, higher car registrations, higher sales taxes etc. This is just generally, of course, but try not to assume that you'll spend less in a tax free state, the state makes up for the loss in taxes in other ways.

[Kandinsky]

Although some states are more tax friendly than others, choosing a tax free state may not always cost you less. In tax free states, keep in mind, you'll end up paying either way. Tax frees states have higher property taxes, higher car registrations, higher sales taxes etc. This is just generally, of course, but try not to assume that you'll spend less in a tax free state, the state makes up for the loss in taxes in other ways.

I forgot to address this point in my original post since I knew it would come up. I know the tax-friendly states will charge more in other areas but given my high income level I thought it was more justified to consider income tax over sales tax or property tax since whenever I look at properties in other states I see the property tax is pretty much the same as what I pay now and even if it was a couple grand difference it wouldn't outweigh the $25K tax break. Plus I don't buy a lot of stuff so sales tax should be minimal because I spend way less than what would be required to generate $25K of sales tax.

[Chuck]

Although some states are more tax friendly than others, choosing a tax free state may not always cost you less. In tax free states, keep in mind, you'll end up paying either way. Tax frees states have higher property taxes, higher car registrations, higher sales taxes etc. This is just generally, of course, but try not to assume that you'll spend less in a tax free state, the state makes up for the loss in taxes in other ways.

Several organizations (CATO and KFF for example) maintain "per capita tax burden" data by state, to compensate for this. It includes the average tax paid per citizen including income, property, sales, and other taxes. It doesn't cover cost of living, however, so it's never a full picture. Knowing that every other person and business in the state are subject to the same taxes, you can picture the effect that taxes have on cost of living as well. The best thing would be knowing someone with a similar income in the place that you're considering and ask them.

[piper]

I've never understood moving to save income taxes by the exact people who make so much the taxes can't impact their lifestyle.
Live wherever you like! You can afford it.

For many people getting taxed at around 50 percent of income, How does that NOT impact their lifestyle?

[TomatoTomahto]

I've never understood moving to save income taxes by the exact people who make so much the taxes can't impact their lifestyle.
Live wherever you like! You can afford it.

For many people getting taxed at around 50 percent of income, How does that NOT impact their lifestyle?

We are taxed at 50% (or more, depending on how you're counting), but the net is still much more than we need. So, we choose to stay in Massachusetts in spite of the complicated tax and estate considerations.