To Avoid Additional Taxes In Retirement, Relocate To Alaska Or Florida

You can do anything you want to do as soon as you're retired. However, it also means you will be living on a fixed income, so cutting corners where possible is a necessity. This includes the taxes you pay to the IRS. You can either claim every possible deduction that you can claim legally, or relocate to any of the nine income tax-free states. If that is not sufficient, you can even move to one of the five states that do not charge sales tax.

Both categories include Alaska. Moving to Alaska is the ideal option if you can hurdle the change in climate. However, it is not as tax-free as it may look at first glance, which could lead to IRS issues.

Particular municipalities collect local sales tax, even if the state doesn't charge it. There are some boroughs, which are essentially counties and cities, that charge property taxes. However, your first $150,000 will be exempt if you're 65 or older. Also, there is an estate tax in Alaska. This can be a severe issue if you're concerned about not only what you will be able to leave your children, but also what they'll actually receive after the government takes its cut.

Obviously, because retirement is about more than taxes and money, choosing a place to live simply because of their local tax law may lead you to make a considerable mistake that could have easily been prevented. But income and real estate taxes are what many people are concerned about. The problem with these two types of taxes is that when you retire, they essentially function in an opposite fashion. While your income decreases, your real estate taxes usually increase. So while you will be getting less money, you'll be required to pay more taxes on your home and property. If you are doing home renovations, you'll need to determine how that will increase your property taxes. This could cause IRS problems for retirees existing on a fixed income.

You can steer clear of the burden of property taxes by opting to live in an apartment instead. However, you might end up needing to pay higher income tax rates if you receive a substantial income from pensions and other sources. This is because of where your money comes from, not where you opt to live.

Wyoming, South Dakota, Tennessee, Nevada, Texas, Washington, New Hampshire, Florida, and Alaska are states that do not collect income taxes. Keep in mind, though, that states such as Tennessee and New Hampshire collect taxes if you're deriving income from bonds or stocks.

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Originally posted 2008-11-11 22:17:48. Republished by Blog Post Promoter

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