State income tax rates by state

An extra income could be generated by reducing the amount you pay for your income tax. In order to see how we could low our income tax it’s better to start by understanding what is it.

US Income Tax by StateState income tax is an income tax in the United States that is charged by each individual State. There are seven states (Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming) which don’t charge it. In the case of New Hampshire and Tennessee they limit this tax to only dividends and interest income.

State income taxes have to be paid in combination with the federal income tax, which currently tops out at 35%. Yet, state income taxes are deductible for federal tax purposes. This means that you can use what you’ve paid for the state tax as part of the payment due to the federal government. In addition, some states allow cities and/or counties to oblige income taxes above and further than the federal and state income taxes. Now, this is way more complicated than it seems as the Alternative Minimum Tax comes in. “The alternative minimum tax operates in effect as a parallel tax system, with its own definition of taxable income, exemptions, and tax rates. Taxpayers compute tax owed under the “regular” and AMT systems and are liable for whichever is higher. The AMT system has in general a broader definition of taxable income, a larger exemption, and lower tax rates than the regular system.” (http://en.wikipedia.org/wiki/Alternative_Minimum_Tax)

Individual State Income Tax Rates 2009

State Tax Rate Brackets Bracket Range
Alabama 2.0 – 5.0% 3 $0 – 3,000
Alaska None
Arizona 2.59 – 4.54% 5 $0 – 150,000
Arkansas 1.0 – 7.0% 6 $0 – 31,700
California 1.25 – 10.55% 7 $0 – 1,000,000
Colorado 4.63% 1 Flat Rate
Connecticut 3.0 – 5.0% 2 $10,000 – 10,000
Delaware 2.20 – 6.95% 6 $2,000 – 60,000
Florida None
Georgia 1.0 – 6.0% 6 $0 – 7,000
Hawaii 1.4 -11.0% 12 $0 – 200,000
Idaho 1.6 – 7.8% 8 $0 – 25,441
Illinois 3.0% 1 Flat Rate
Indiana 3.4% 1 Flat Rate
Iowa 0.36 –8.98% 9 $0 – 63,311
Kansas 3.5 – 6.45% 3 $0 – 30,000
Kentucky 2.0 – 6.0% 5 $0 – 75,000
Louisiana 2.0 – 6.0% 3 $0 – 50,000
Maine 2.0 – 8.5% 4 $0 – 21,150
Maryland 2.0 – 6.25% 8 $0 – 1,000,000
Massachusetts 5.3% 1 Flat Rate
Michigan 4.35% 1 Flat Rate
Minnesota 5.35 – 7.85% 3 $0 – 74,650
Mississippi 3.0 – 5.0% 3 $0 – 10,000
Missouri 1.5 – 6.0% 10 $0 – 9,000
Montana 1.0 – 6.9% 7 $0 – 15,600
Nebraska 2.56 – 6.84% 4 $0 – 27,000
Nevada None
New Hampshire Dividend and Interest Income Only
New Jersey 1.40 – 10.75% 8 $0 – 1,000,000
New Mexico 1.70 – 5.3% 4 $0 – 16,000
New York 4.00 – 6.85% 7 $0 – 500,000
North Carolina 6.00 – 7.75% 4 $0 – 60,000
North Dakota 1.84 – 4.86% 5 $0 – 372,500
Ohio 1.174 – 5.925% 9 $0 – 200,000
Oklahoma 0.5 – 5.5% 7 $0 – 8,700
Oregon 5.0 – 9.0% 5 $0 – 250,000
Pennsylvania 3.07% 1 Flat Rate
Rhode Island 3.75 – 9.90% 5
South Carolina 0.0 – 7.0% 6 $2,670 – 13,350
South Dakota None
Tennessee 6.0% 1 Dividend and Interest Only
Texas None
Utah 5.0% 1 Flat Rate
Vermont 3.55 – 9.40% 5 $0 – 372,950
Virginia 2.00 – 5.75% 4 $0 – 17,000
Washington None
West Virginia 3.0 – 6.5% 5 $0 – 60,000
Wisconsin 4.60 – 7.75% 5 $0 – 225,000
Wyoming None
District of Columbia 4.0 – 8.5% 3 $00 – 40,000

Deductions to lower your income tax in your state:

The first set of deductions are those above the line—subtracted from gross income to reach Adjusted Gross Income (calculated by taking an individual’s gross income and subtracting the income tax code’s enumerated deductions). The other deductions for individuals are below the line—subtracted from AGI to reach taxable income. When calculating below the line deductions, the taxpayer can either use a standard deduction provided by law, or elect to take itemized deductions.

Above the line deductions

Property losses

Ordinary losses from the sale of property, as detailed in the chapter on Gains and Losses are deductible “above the line.” This makes them preferable to capital losses, as they can be applied directly against income rather than going through the complicated calculations for capital gains taxation.

Interest

Interest payments are generally deductible. However, interest on “personal” loans, with the exception of home mortgages and student loans, is not deductible.

Educational expenses

Educational expenses are deductible if they maintain or improve skills used in a present trade or business, and if they do not qualify an individual for a new trade or business.

Itemized deductions

Medical expenses

Medical expenses can be deducted to the amount of those expenses which the tax payer has not been reimbursed for and that they exceed 7.5% of the taxpayers adjusted gross income.

Casualty losses

Casualty losses include losses due to theft, accident, and other “sudden” incidents. A casualty loss may be the loss of an entire piece of property, or it may be in the form of damage to that property.

Casualty losses do not include:

Each casualty loss is only deductible to the extent it exceeds $100, and total casualty losses are only deductible to the extent they exceed 10% of AGI.

Casualty loss can never exceed adjusted basis of the property. If casualty loss is taken for damage to property, the adjusted basis of that property is reduced by the amount of the loss.

Charitable contributions

Charitable contributions are also deductible. There’s a limit on deductible contributions of 50 percent of AGI for individuals (less in the case of certain organizations) and 10 percent of taxable income for corporations.

Foreign, state and local taxes

Many non-federal taxes are deductible too. The main categories are foreign, state and local income taxes; foreign, state and local real property taxes; and state and local personal property taxes. Other types of taxes, such as sales taxes, are generally not deductible.

Other items to consider:

Wagering losses

Investment interest

Profit-seeking expenses

While you need to consider these items described above to reduce your personal income tax it’s also advisable that you chose to relocate yourself. Relocating to states such as Alaska, Florida, Nevada, South Dakota, Texas, Washington or Wyoming which don’t charge income tax would be a great idea. Or you could consider New Hampshire or Tennessee.

State Tax – Links for all 50 States

Note that the information provided above could change without notice. You should always be advised by a certified accountant in tax matters.

Have you got more ideas to lower your income tax in your state?



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One Comment

  1. States with no income tax 14 Jul, 2010

    [...] your personal taxes are a must if you want to earn an extra income. You could also check out the state income tax rates by state as we’ve also published tips for reducing your Adjusted Gross [...]

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