{"id":7846,"date":"2023-06-02T16:12:45","date_gmt":"2023-06-02T16:12:45","guid":{"rendered":"https:\/\/imsfund.com\/?p=7846"},"modified":"2023-06-02T16:12:45","modified_gmt":"2023-06-02T16:12:45","slug":"9-states-with-no-income-tax","status":"publish","type":"post","link":"https:\/\/imsfund.com\/index.php\/2023\/06\/02\/9-states-with-no-income-tax\/","title":{"rendered":"9 States With No Income Tax"},"content":{"rendered":"<p> <br \/>\n<\/p>\n<div :class=\"{ 'hidden': $store.proContent.showFullPrompt() }\">\n<section class=\"px-4 relative border border-slate-200 mobile-toc lg:hidden\" x-data=\"{open:false}\">\n<button class=\"flex items-center gap-4 my-2 border-none w-full\"><br \/>\n<svg xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"h-6 w-6\" fill=\"none\" viewbox=\"0 0 24 24\" stroke=\"currentColor\" stroke-width=\"2\"><path stroke-linecap=\"round\" stroke-linejoin=\"round\" d=\"M4 8h16M4 16h16\"\/><\/svg><\/p>\n<h2 class=\"font-semibold text-slate-800 text-base m-0 js-toc-ignore\">In this article<\/h2>\n<p><\/button><\/p>\n<\/section>\n<p>State income taxes are often a complex topic with major implications for real estate investors. Placing your money in states without income tax may be a smart idea and allow you to keep more money in your pocket each year.\u00a0<\/p>\n<p>Which states with no income tax does it make sense to invest in? How should you consider structuring your home rental business to optimize results? Understanding your potential tax liability in the nine states without an income tax allows you to make the best decision for your next purchase.\u00a0<\/p>\n<h2>Alaska Tax Rate<\/h2>\n<p>When it comes to the states with the best income tax breaks, Alaska is among the top. In addition to receiving money from the <a href=\"https:\/\/apfc.org\/\" target=\"_blank\" rel=\"noreferrer noopener\">Alaska Permanent Fund<\/a> every calendar year they live there, residents there pay no personal income tax.\u00a0<\/p>\n<p>Instead of charging the over 730,000 state residents income tax, the state levies business taxes on their diverse industries. Much of the <a href=\"https:\/\/www.commerce.alaska.gov\/web\/dcra\/officeofthestateassessor\/alaskataxfacts.aspx\" target=\"_blank\" rel=\"noreferrer noopener\">state\u2019s annual budget<\/a> comes from taxes on oil and gas properties, raw fish, the hospitality industry, and fuel transfer taxes.\u00a0<\/p>\n<h3>Tax liability implications<\/h3>\n<p>Although Alaska is a state without an income tax, it does not mean you won\u2019t have to pay anything for a rental property. If a small business controls your rental, you could be taxed <a href=\"https:\/\/taxfoundation.org\/publications\/state-corporate-income-tax-rates-and-brackets\/\" target=\"_blank\" rel=\"noreferrer noopener\">between 2-9%<\/a> based on your earnings. Over 20 municipalities in the state\u2014including the largest cities of Anchorage, Fairbanks, and Juneau\u2014assess an average per-capita property tax of $2,276. You can also expect to pay a local sales tax for <a href=\"https:\/\/www.biggerpockets.com\/blog\/can-you-write-off-home-improvements-on-your-taxes\" target=\"_blank\" rel=\"noreferrer noopener\">rental home improvements<\/a>, typically between 2-5%.<\/p>\n<h2>Florida Tax Rate<\/h2>\n<p>Florida is transforming from the home of retirees to a haven for businesses, entrepreneurs, and those seeking a break from states with high income taxes. The southernmost state in the \u201cLower 48\u201d is possibly the most famous among states with no income tax for everything it offers tourists and residents.\u00a0<\/p>\n<p>Instead of personal income tax, Florida collects revenue on several other products and services. The Sunshine State has one of the highest state taxes on gasoline at 43.55 cents per gallon, along with an average sales tax rate of around 7%.<\/p>\n<h3>Tax liability implications<\/h3>\n<p>Owning real estate in Florida will come with property taxes, a combination of Ad Valorem Taxes based on the property value, and Non-Ad Valorem Assessments from local government services. Property owners can anticipate an average per-capita state and local property tax of around <a href=\"https:\/\/taxfoundation.org\/state\/florida\/\" target=\"_blank\" rel=\"noreferrer noopener\">$1,541 annually<\/a>. Like individual state income tax, sole proprietors, disregarded single-member LLCs, and pass-through S Corporations that do not use Form 1120S to pay federal income tax are not required to file a business tax return. All other companies\u2014including out-of-state companies and other LLCs\u2014may be subject to a <a href=\"https:\/\/floridarevenue.com\/taxes\/taxesfees\/Pages\/corporate.aspx\" target=\"_blank\" rel=\"noreferrer noopener\">flat 5.5% tax<\/a>.\u00a0<\/p>\n<h2>Nevada Tax Rate<\/h2>\n<p>Possibly a direct result of the gaming industry, Nevada is also one of the states with no income tax. The state does not assess a state business or corporate income tax to encourage entrepreneurs to move in.\u00a0<\/p>\n<p>Instead of collecting state income taxes, Nevada charges some of the highest sales and gasoline tax rates. The combined <a href=\"https:\/\/taxfoundation.org\/state\/nevada\" target=\"_blank\" rel=\"noreferrer noopener\">state and local sales tax rate<\/a> averages around 8.23%, while the gas tax rate per gallon is 50.48 cents\u2014the fifth highest in the United States.\u00a0<\/p>\n<h3>Tax liability implications<\/h3>\n<p>Owning property in Nevada does come with local property taxes. In the 2022-2023 fiscal year, the <a href=\"https:\/\/tax.nv.gov\/uploadedFiles\/taxnvgov\/Content\/Meetings\/Certification%20of%20Ad%20Valorem%20Tax%20Rates%20-%20FY%202022-2023%20REDBOOK%20-%20REVISED%206-23-22.pdf\" target=\"_blank\" rel=\"noreferrer noopener\">average county tax rate<\/a> on property was around 3.18%. Alongside the high local taxes, the <a href=\"https:\/\/taxfoundation.org\/state\/nevada\" target=\"_blank\" rel=\"noreferrer noopener\">Tax Foundation<\/a> notes that the average per-capita property tax is around $1,153\u2014still among the nation\u2019s lowest. Combined with no business or corporate income tax, Nevada may be one of the best states to own a rental property.\u00a0<\/p>\n<h2>South Dakota Tax Rate<\/h2>\n<p>The home of Mount Rushmore and Deadwood Mountain is one of the nine states with no income tax for individual residents. South Dakota is also one of the few that does not institute a corporate income tax, allowing rental homeowners to institute a structure that works best for their needs.\u00a0<\/p>\n<p>Like other states without an income tax, <a href=\"https:\/\/taxfoundation.org\/state\/south-dakota\" target=\"_blank\" rel=\"noreferrer noopener\">South Dakota makes up the revenue in other taxes<\/a>. Alongside annual property tax, businesses can expect to pay an average sales tax of 6.4% and gas taxes of 28 cents per gallon.\u00a0<\/p>\n<h3>Tax liability implications<\/h3>\n<p>While there is no state property tax in South Dakota, local governments and special districts can assess property taxes within their jurisdictions. Property tax is based on the full market value of the land, with an average paid tax rate of around 1.17%. Rental homeowners in the state can expect to pay a per-capita average of $1,606 annually.\u00a0<\/p>\n<h2>Texas Tax Rates<\/h2>\n<p>Everything\u2019s bigger in Texas\u2014except for the individual income tax rate. While Texas has the <a href=\"https:\/\/comptroller.texas.gov\/economy\/fiscal-notes\/2016\/february\/starting.php\" target=\"_blank\" rel=\"noreferrer noopener\">ninth largest economy in the world<\/a>, the state constitution codifies it as one of the states with no income tax.\u00a0<\/p>\n<p>In addition, the tax laws are friendly towards new and small businesses growing in the Lone Star state. Texas does not assess business taxes, personal income taxes, or other fees on sole proprietors, allowing them to continue to <a href=\"https:\/\/www.biggerpockets.com\/blog\/ways-to-invest-in-real-estate\" target=\"_blank\" rel=\"noreferrer noopener\">invest in real estate<\/a> and grow their businesses over time.\u00a0<\/p>\n<h3>Tax liability implications<\/h3>\n<p>Although Texas does not charge a statewide property tax, over 4,000 local entities collect taxes on real estate. All property tax is based on current market value and is the same across multiple taxation districts. According to the <a href=\"https:\/\/taxfoundation.org\/state\/texas\/\" target=\"_blank\" rel=\"noreferrer noopener\">Tax Foundation<\/a>, the average per-capita state and local tax burden on properties is around $2,216. For local maintenance items, property owners can expect to pay a sales tax of 8.2%\u00a0<\/p>\n<h2>Washington Tax Rate<\/h2>\n<p>Known as the gateway of the Pacific Northwest, where the mountains meet the coast, the State of Washington is among the states with no income tax. Both individuals and corporations are not taxed in the state, making it one of the best for business in the United States.\u00a0<\/p>\n<p>This doesn\u2019t mean everyone gets away without paying their fair share for government services. Washington also has <a href=\"https:\/\/taxfoundation.org\/state\/washington\/\" target=\"_blank\" rel=\"noreferrer noopener\">one of the country\u2019s highest combined state and local sales tax rates<\/a> at 8.86%. State gas taxes are also considerably high, with drivers paying almost 50 cents per gallon of fuel.\u00a0<\/p>\n<h3>Tax liability implications<\/h3>\n<p>The good news for landlords is that leasing or renting real estate for lodging is <a href=\"https:\/\/dor.wa.gov\/forms-publications\/publications-subject\/tax-topics\/rental-vs-license-use-real-estate\" target=\"_blank\" rel=\"noreferrer noopener\">exempt from the state\u2019s business and occupation tax<\/a>, reducing your overall tax liability. However, property taxes may still apply based on your rental home\u2019s location. Homeowners can expect to pay a per-capita average of around $1,727 in property taxes annually, making it a comparative value.\u00a0<\/p>\n<h2>Wyoming Tax Rate<\/h2>\n<p>Images of cowboys on the range often come to mind when we think of Wyoming. More importantly for landlords, Wyoming is one of the states with no income tax for individuals.\u00a0<\/p>\n<p>Instead, the state makes its income on the wealth of resources available. Mining operations for energy sources, including coal and oil, significantly contribute to the state\u2019s tax base\u2014giving residents and small businesses a break.\u00a0<\/p>\n<h3>Tax liability implications<\/h3>\n<p>Even though there are no individual or corporate income taxes in Wyoming, homeowners must pay property taxes. On top of an average sales tax of 5.36%, the <a href=\"https:\/\/taxfoundation.org\/state\/wyoming\/\" target=\"_blank\" rel=\"noreferrer noopener\">average per-capita property tax is around $2,100<\/a>.\u00a0<\/p>\n<h2>New Hampshire Tax Rate<\/h2>\n<p>New Hampshire has a unique approach to taxes. While it is a state with no income tax on W-2 wages, it doesn\u2019t mean that taxpayers owe nothing at the end of the year.\u00a0<\/p>\n<p>Instead, individuals pay a <a href=\"https:\/\/www.revenue.nh.gov\/assistance\/tax-overview.htm\" target=\"_blank\" rel=\"noreferrer noopener\">5% tax on dividends and interest income<\/a>. The good news is that it doesn\u2019t apply to rental income\u2014allowing you to reinvest more into your business.\u00a0<\/p>\n<h3>Tax liability implications<\/h3>\n<p>One of the downsides of <a href=\"https:\/\/www.biggerpockets.com\/blog\/rental-properties-are-good-investments-interest-rates-rise\" target=\"_blank\" rel=\"noreferrer noopener\">rental property investments<\/a> in New Hampshire is the property taxes. The New England state has one of the country\u2019s highest per-capita state and local property taxes, with an <a href=\"https:\/\/taxfoundation.org\/state\/new-hampshire\/\" target=\"_blank\" rel=\"noreferrer noopener\">average collection of around $3,300<\/a>. In addition, depending on how you structure your rental company, you could pay an additional corporate tax on your earnings.\u00a0<\/p>\n<h2>Tennessee Tax Rate<\/h2>\n<p>One thing the Volunteer State doesn\u2019t require its residents to do is pay income tax. The nation\u2019s capital of music is one of the nine states with no income tax.\u00a0<\/p>\n<p>But like New Hampshire, Tennessee\u2019s taxes are more complicated than the other states on this list. State residents are charged an annual tax on income from taxable dividends and interest, which include interest trusts and mutual funds, interest on bonds, and certain shareholder distributions\u2014not to mention <a href=\"https:\/\/taxfoundation.org\/state\/tennessee\/\" target=\"_blank\" rel=\"noreferrer noopener\">one of the highest average sales taxes<\/a> in the U.S. at 9.55%.<\/p>\n<h3>Tax liability implications<\/h3>\n<p>As with other states with no income tax, Tennessee homeowners are subject to local property tax. However, it is among the lowest among all 50 states. According to the <a href=\"https:\/\/taxfoundation.org\/state\/tennessee\/\" target=\"_blank\" rel=\"noreferrer noopener\">Tax Foundation<\/a>, the average per-capita property tax collection is $845. Alongside the property tax, the top corporate income tax rate is 6.5%, which could affect you based on how you structure your rental company.\u00a0<\/p>\n<h2>FAQ<\/h2>\n<h3>Why is a sales tax charged by the states?<\/h3>\n<p>Sales taxes are levied at the point of sale to support local and state government services, as approved by voters and legislators. Four states\u2014Delaware, Montana, New Hampshire, and Oregon\u2014do not charge a sales tax, while Louisiana, Tennessee, Arkansas, and Alabama have some of the highest.\u00a0<\/p>\n<h3>Is it better to live in a state with no income tax or no sales tax?<\/h3>\n<p>It depends on several factors, including your taxable income, investment strategy, and the number of rental properties you manage. Generally, high earners can do better in a state with no income tax, as it allows them to better save and reinvest their earnings despite the higher sales tax.\u00a0<\/p>\n<h3>What are the downsides of living in a state with no income tax?<\/h3>\n<p>Living in a state with no income tax has two key downsides. First, state and local governments often make up the difference in higher sales, corporate, or property taxes. Secondly, a lower tax base often requires delicate budgets, which often means fewer funds for infrastructure, like schools.\u00a0<\/p>\n<h3>Why does sales tax vary from state to state?<\/h3>\n<p>The U.S. Constitution allows the federal government to set national taxes appropriate for public welfare, including the military, federal highways, and other infrastructure. The Constitution also allows states to set their taxes, making sales taxes a state issue. Therefore, different states, counties, and cities can set tax rates to reflect their budgets.\u00a0<\/p>\n<h3>Why don\u2019t more states have no income tax like Texas does?<\/h3>\n<p>Policies and priorities determine state and local taxes, varying from state to state. In the example of Alaska and Wyoming, higher taxes on extracting natural resources allow their governments to pass on tax savings to their residents.\u00a0<\/p>\n<h3>Why do some states have higher taxes than others?<\/h3>\n<p>Each state government prioritizes its budgets based on numerous factors, including population, natural resources, industries, and businesses. As a result, state income taxes and sales taxes reflect the diverse sources of income available to the government.\u00a0<\/p>\n<h3>What U.S. territories don\u2019t pay federal income taxes?<\/h3>\n<p>Residents of five U.S. territories are not subject to pay federal income tax to the United States Government: American Samoa, Guam, Puerto Rico, The Commonwealth of the Northern Mariana Islands, and the U.S. Virgin Islands.<\/p>\n<div id=\"hero-block_62ee867235a1c\" class=\"first:mt-0 hero-block py-4    has-background has-slate-300-background-color has-text-color has-slate-800-color\">\n<div class=\"gap-10 lg:gap-20 flex flex-wrap lg:flex-nowrap max-w-screen-xl mx-auto px-4 relative lg:items-center \">\n<div class=\"relative z-30 lg:w-2\/3 \">\n<main class=\"py-4\"><\/p>\n<p class=\"has-theme-slate-color has-text-color has-large-font-size\" style=\"font-style:normal;font-weight:800\">Dreading tax season?<\/p>\n<p class=\"my-3 md:my-5 lg:my-8 has-theme-slate-color has-text-color\" style=\"font-size:16px\">Not sure how to maximize deductions for your real estate business? In <em>The Book on Tax Strategies for the Savvy Real Estate Investor<\/em>, CPAs Amanda Han and Matthew MacFarland share the practical information you need to not only do your taxes this year\u2014but to also prepare an ongoing strategy that will make your next tax season that much easier.<\/p>\n<p><\/main>\n<\/div>\n<div class=\"lg:w-1\/3 first:mt-0 relative h-full lg:flex lg:items-center\">\n<picture decoding=\"async\" class=\"object-cover w-full relative z-20 my-0  rounded-md hidden lg:block sp-no-webp\" title=\"9 States With No Income Tax 2\"><source srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/04\/tax-strategies-books.webp \" type=\"image\/webp\"><source srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/04\/tax-strategies-books.png\" type=\"image\/png\"><img src=\"https:\/\/bpimg.twic.pics\/https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/04\/tax-strategies-books.png?twic=v1\/cover=752:969\/max=1000\/output=preview\" decoding=\"async\" class=\"object-cover w-full relative z-20 my-0  rounded-md hidden lg:block sp-no-webp\" title=\"9 States With No Income Tax 2\" alt=\"tax strategies books\" data-twic-src=\"\/blog\/wp-content\/uploads\/2023\/04\/tax-strategies-books.png\" data-twic-src-transform=\"cover=752:969\/*\/max=1000\"\/><noscript><img decoding=\"async\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/04\/tax-strategies-books.png\" alt=\"tax strategies books\"\/><\/noscript><\/source><\/source><\/picture>\n<\/div>\n<\/div>\n<\/div>\n<p class=\"italic\"><b>Note By BiggerPockets:<\/b> These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.<\/p>\n<\/div>\n<p><br \/>\n<br \/><a href=\"https:\/\/www.biggerpockets.com\/blog\/states-with-no-income-tax\">Source link <\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>In this article State income taxes are often a complex topic with major implications for real estate investors. Placing your money in states without income tax may be a smart idea and allow you to keep more money in your pocket each year.\u00a0 Which states with no income tax does it make sense to invest [&hellip;]<\/p>\n","protected":false},"author":5,"featured_media":7847,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"fifu_image_url":"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/06\/tennessee_brandon-jean-jNu3ZlPfU5Q-unsplash-1024x517.jpg","fifu_image_alt":"","footnotes":""},"categories":[9],"tags":[],"class_list":["post-7846","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-blog"],"_links":{"self":[{"href":"https:\/\/imsfund.com\/index.php\/wp-json\/wp\/v2\/posts\/7846","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/imsfund.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/imsfund.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/imsfund.com\/index.php\/wp-json\/wp\/v2\/users\/5"}],"replies":[{"embeddable":true,"href":"https:\/\/imsfund.com\/index.php\/wp-json\/wp\/v2\/comments?post=7846"}],"version-history":[{"count":1,"href":"https:\/\/imsfund.com\/index.php\/wp-json\/wp\/v2\/posts\/7846\/revisions"}],"predecessor-version":[{"id":7848,"href":"https:\/\/imsfund.com\/index.php\/wp-json\/wp\/v2\/posts\/7846\/revisions\/7848"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/imsfund.com\/index.php\/wp-json\/wp\/v2\/media\/7847"}],"wp:attachment":[{"href":"https:\/\/imsfund.com\/index.php\/wp-json\/wp\/v2\/media?parent=7846"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/imsfund.com\/index.php\/wp-json\/wp\/v2\/categories?post=7846"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/imsfund.com\/index.php\/wp-json\/wp\/v2\/tags?post=7846"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}