The United States of America has 50 states, plus the District of Columbia, all of which have certain state tax rules and regulations that are specific to them.
The fact of the matter is, there are some states which are more expensive to live in than others, and the associated income tax clearly demonstrates this. On the other hand, you may be wondering exactly who is affected by these various taxes. The answer can be boiled down to everyone from individuals, corporations, the government, and society itself.
Imagine that throughout the year, you were on the market for the acquisition of business. You finally learned how to apply for a small business loan, obtained it, and soon the month of April is at your doorstep – it’s time to file your taxes. Every single expense, both individual and business related, is affected during tax season.
The following article will provide you with an overview of the different income taxes by state and who is affected as a result of them.
No income tax states
There are currently seven states that have eliminated income taxes altogether. These currently include:
- South Dakota
These are the types of states that people will often not leave from, and the respective government officials want to keep their current residents to help the economy grow. Thus, the next time you are considering moving somewhere for a job opportunity, you could consider a place where you don’t have to pay a single income tax.
Although this may sound too good to be true, it is a reality for the above seven states.
The highest versus the lowest tax rates
It should come as no surprise that individual states have higher and lower tax rates. Moreover, it is every single person’s responsibility to understand exactly what these are when it is tax season.
To provide you with some perspective, the states with some of the highest state income tax include:
- New Jersey
- New York
On the other hand, the lowest tax states include:
- North Dakota
Knowing ahead of time what this rate is will ensure that you are fully prepared for what you will have to pay, and even what you can obtain as a tax return when the time comes.
Flat versus income tax states
There are even states that offer a flat tax, or in other words, your income does not matter when it is time to pay taxes.
1. States that offer a flat tax
This insinuates that everyone pays the same, regardless of income status. These states include:
- North Carolina
2. State tax dependant on your individual income
On the flipside of the flat tax states, most stand by the idea that taxes are based on how much you earn, which means your tax return fluctuates more as well.
Getting the best out of your tax deductions and returns
It is essential for everyone to become more knowledgeable on the type of tax deductions and returns that they can receive. In particular, this is in part thanks to financial experts that can assist you with this matter.
Individual states will even offer you different rates on your tax deductions. If you are an entrepreneur who has several interest rates business loans, for example, you can account for this when it is time to file your taxes.
No one is exempt from taxes
There isn’t a single person or business that is exempt from tax season! Individuals are required to pay taxes according to the state that they are in, and this thus determines whether it is based on income or is a flat rate.
Even businesses must file their taxes, and it is not only the state that they are in that matters but the type of company structure that they are running as well. Of course, this still means that every single last expense must be accounted for, such as how an organization will always have to be mindful of the various interest rates on business loans it has accumulated, for example.
Given that everyone must pay taxes, this also means that it is people’s responsibility to keep the deadline in mind. If you find that you cannot submit your taxes on time, you will have to ask for an extension in advance, or else suffer the consequences.
The IRS clearly outlines that:
If you didn’t pay enough tax throughout the year, either through withholding or by making estimated tax payments, you may have to pay a penalty for underpayment of estimated tax (source)
One other factor that applies and benefits everyone is the assistance you receive from financial experts. To get the most amount of money possible from your taxes, you must make an active effort to find professionals that know how to maximize your tax returns.
Benefitting the state government revenue
Coming full circle, the state government revenue, and the society you are in overall, will benefit from the state income taxes. In fact, the government spends your tax dollars in countless areas that stands to improve the lives of every single individual. For instance, this can include extra:
- Health programs
Every single city wants to grow, and it only does as a result of maintaining a good economy. You must have people that are employed that, in turn, pay taxes to the government revenue, who then uses the money to improve various aspects of that city and state.
It is the responsibilty of every single individual and business to become more knowledgeable on the tax rules and regulations for where they live. Once you have done this, you can get assistance from financial and accounting experts to file your taxes.
Have you put much thought into what you can file for a tax deductible? This can be related both to your personal expenses and that of the business, especially if you are taxed as a sole proprietor or are self-employed. Any company acquisitions you have obtained, and any and all loans, all factor into the deductibles.
As a piece of parting advice: remember to be mindful of your deadlines, and always remain organized, as you will always stand to benefit from it.