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The Migration Of High Net Worth Individuals – Moving To Low-Tax States

For quite some time, there has been an argument on whether people with a high net worth move to states with lower taxes, specifically for the lower taxes. According to a new report that was recently published by the Tax Foundation, evidence supports that they do!

Data Breakdown

While creating this recent report, the Tax Foundation studied data from the IRS that evaluated the addresses from tax returns that were filed in tax years 2018 and 2019. Due to taxpayers being granted a three-month extension for their 2019 returns due to the pandemic, the tax returns that were analyzed were sent to the IRS between 2019 and June of 2020. The report is remarkable, as it covers a total of 150 million filers, and mentions their adjusted gross incomes.

Three categories were honed in on by The Tax Foundation, these categories include top marginal individual income tax rates, tax code structure, as well as state and local tax collections per capita; which includes a state’s income tax, property tax, sales tax collected, and more.

Inflow to the Low Tax States

According to the data, utilizing each of the three categories mentioned above, the states that have experienced the largest number of taxpayer inflows were low-tax states. These states had among the lowest top marginal rates, below average state and local taxes, and according to The Tax Foundation, these states also had “the best-structured tax codes.”

Additionally, seven out of these ten states that experienced the largest taxpayer income either had no income tax or tax rates well below the national median. Nine out of these ten states either have no income tax or currently have the motion to move to low-income tax legislation.

Mass Exodus in the High Tax States

Aligning with the data, states that suffered the biggest loss of taxpayers were states that all have tax burdens considered to be high. These states included Illinois, Massachusetts, New York, New Jersey, and California.

Popular Low Tax States

When taking a closer look at taxpayers with high earnings, or taxpayers that have taxable incomes of at least $200,000, a trio of popular low-tax states began to emerge. These states were Texas, Arizona, and Florida. Out of these three states, Florida and Texas, both don’t have an income tax, and Arizona is planning on moving to a flat-rate individual income tax in the next twelve months.

Data Doesn’t Explain it All

Critics are saying these reports aren’t capturing the full picture. When property taxes and other taxes are taken into account such as sales and excise tax, Texas and Arizona fall near the national median. Additionally, New York, Massachusetts, California, and New Jersey tend to have taxpayers who make much higher salaries than taxpayers of lower-tax states.

Other factors also come into play. For example, a taxpayer may sacrifice paying higher income taxes to be in a state with good public schools.

Wrap Up

It is fair to say that the consensus is no one likes paying a lot of taxes. Although we have recently been seeing a flock of people to lower tax states, there are other ways to lower your tax bill besides moving. One of these ways is hiring a reputable and trusted accounting firm that will work diligently to ensure you get the most out of your tax return.

 
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