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Preparing taxes is different for people living in different states.

September 14, 2023 By Israel Padilla

How to Prepare Your Taxes in Different States

If you live in the United States, you know that tax season can be stressful and confusing. But did you know that your tax situation can vary depending on which state you live in? In this blog post, we will answer the question: why might preparing taxes be different for people living in different states? We will also provide some tips and resources to help you file your taxes correctly and efficiently.

Table of Contents

State Income Tax

One of the main differences between states when it comes to taxes is the state income tax. This is the tax that you pay to your state government based on your income. Some states have no state income tax at all, while others have different types of rates and brackets. For example, some states have progressive rates, which means that the higher your income, the higher your tax rate. Other states have flat rates, which means that everyone pays the same percentage of their income. And some states have hybrid rates, which combine elements of both progressive and flat rates. You can find out the state income tax category for your state online or by consulting a tax professional.

Getting some cash back

There is a website that can help you increase your income and recover some of the money you pay on taxes.

State Sales Tax

Another difference between states is the state sales tax. This is the tax that you pay when you buy goods or services in a state. Some states have no state sales tax, while others have various rates and exemptions. For example, some states have a uniform sales tax rate, which means that the same percentage applies to all purchases. Other states have variable sales tax rates, which means that different percentages apply to different types of goods or services. And some states have exemptions, which means that certain items or transactions are not subject to sales tax at all. You can find out the state sales tax rate and exemptions for your state online or by consulting a tax professional.

State Property Tax

A third difference between states is the state property tax. This is the tax that you pay on the value of your real estate or personal property in a state. Some states have no state property tax, while others have various rates and assessments. For example, some states have a uniform property tax rate, which means that the same percentage applies to all properties. Other states have variable property tax rates, which means that different percentages apply to different types of properties or locations. And some states have assessments, which means that the value of your property is determined by an official appraisal or a market-based formula. You can find out the state property tax rate and assessment for your state online or by consulting a tax professional.

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State Tax Credits and Deductions

A fourth difference between states is the state tax credits and deductions. These are the benefits that you can claim on your state tax return to reduce your taxable income or your tax liability. Some states have no state tax credits or deductions, while others have various types and amounts. For example, some states have standard credits or deductions, which are fixed amounts that you can claim regardless of your income or expenses. Other states have itemized credits or deductions, which are based on specific categories of income or expenses that you can report on your return. And some states have refundable credits, which are benefits that you can receive even if they exceed your tax liability. You can find out the state tax credits and deductions for your state online or by consulting a tax professional.

State Tax Filing Requirements

A fifth difference between states is the state tax filing requirements. These are the rules that determine if you need to file a state tax return and how to do it. Some states have no state tax filing requirements, while others have various criteria and deadlines. For example, some states require you to file a state tax return if you meet certain income thresholds or residency statuses. Other states require you to file a state tax return if you owe any state taxes or if you want to claim any state refunds. And some states have different filing deadlines than the federal tax deadline, which is usually April 15. You can find out the state tax filing requirements for your state online or by consulting a tax professional.

Example with numbers

Alright, let’s talk about two totally different places: California and Alaska.

California:

  • Income Tax: It’s like a sliding scale here, from 1% to 13.3%. The more you make, the more you pay.
  • Sales Tax: The base rate is 6.00%, but with local taxes, it can go up to 10.25%.
  • Property Tax: On average, you’re looking at about 0.74% of your home’s value.
  • Tax Credits and Deductions: There are several ones, like the Child and Dependent Care Expenses Credit, Renters Credit, and the California Earned Income Tax Credit.
  • Filing Requirements: If you’re a resident (or even part-time), you gotta file if you’re required to file federal taxes, make over a certain amount, or have special credits.
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Alaska:

  • Income Tax: None.
  • Sales Tax: No statewide sales tax here, but some cities or towns might have their own.
  • Property Tax: The average rate is about 1.04% of your home’s value.
  • Tax Credits and Deductions: Since there’s no state income tax, there aren’t any state-level credits or deductions. But you can still get federal ones!
  • Filing Requirements: No state income tax means no state tax return. But don’t forget about your federal taxes!

Now let’s say you make $50k a year, spend $10k on stuff you pay sales tax on, and own a $300k house. In California, you’d pay income tax based on their rates, about $600 in sales tax (using the base rate), and around $2,220 in property tax. In Alaska, there’s no income tax, possible local sales taxes, and about $3,120 in property tax.

Note: These are simplified calculations. Your actual taxes could be different based on various factors like where exactly you live and what credits or deductions you qualify for. Always check with a tax professional for a calculation that matches your unique situation.

State Tax Resources

As you can see, preparing your taxes in different states can be quite different and complex. That’s why we recommend that you use some of the available resources to help you with your state taxes. Here are some of the resources that we suggest:

  • The IRS website has a list of links to the official websites of each state tax agency, where you can find more information about your state taxes, such as forms, instructions, calculators, and contact details.
  • The TaxSlayer software is a user-friendly and affordable tool that can help you prepare and file your federal and state tax returns online. You can also get access to expert advice and support from their team of tax professionals.
  • The AARP Foundation Tax-Aide program is a free service that provides tax assistance and preparation to low- and moderate-income taxpayers, especially those who are 50 and older. You can find a nearby location or make an appointment online.

We hope that this blog post has helped you understand why preparing taxes might be different for people living in different states and how to do it correctly and efficiently. Remember that taxes are an important part of your financial life and that you should always file them on time and accurately. If you have any questions or comments, feel free to leave them below or contact us directly. Happy tax season!