There are quite a few articles about federal taxes, including our recent post on 2012 Tax Brackets, but not as many on state taxes. Did you know that there are some states that have no income tax? While you can’t (legally) avoid the federal income tax, you can erase the phrase ‘state income tax’ from your financial vocabulary if you live in one of these nine states that do not have state income tax.
States With No Income Tax
- New Hampshire *
- South Dakota
- Tennessee *
* It should be noted that Tennessee and New Hampshire residents are taxed on income earned through dividends and interest.
No State Income Tax, But You Will Pay Something
If you thought that moving to one of these states meant that you’d be free of all forms of state taxes, think again. States still need to make money, so depending on where you live, you can expect to pay in the form of property tax, license tax, estate and inheritance tax, fuel tax, and sales tax.
Filing State Tax Return
If you’re not one of the lucky ones who live in an income tax free state, you’ll need to file your state income tax return. Completing your state tax return is very similar to completing your federal tax return. Make sure you have all tax documents together and the proper tax forms if you’re going to file the paper 1040 forms.
If you’re looking to simplify your state tax returns and want to file your state taxes online this year, you can use online tax services like Turbo Tax and Tax Act. While these online services provide the ability to file your federal taxes online for free, you’ll still need to pay to e-file your state taxes. Filing your state return online is convenient and many people can even get a Turbo Tax discount.
Do you live in a state with no income tax? If so, do you feel that the other taxes you pay make up for the lack of state income tax?