want an extra income?
Daily tips and articles about how you can start earning an extra income.
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.
State 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 |
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.
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 payments are generally deductible. However, interest on “personal” loans, with the exception of home mortgages and student loans, is not deductible.
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.
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 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 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.
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.
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.
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?
One Comment
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 [...]