Taxes

To help minimize taxes, first understand the tax rates, both Federal and State. Then, with qualified professional help, access your nest egg of wealth and pull from your accounts as advised. Taxes are complex and will change over time. You will never avoid paying taxes, but you can "play the game" of minimizing taxes based on good advice and knowledge of the IRS tax rules. And, upon your death, taxes will still come for you or your heirs.. so there are considerations too regarding passing on your wealth to your loved ones.

Still, there are things to consider.

• Keep a cash fund bucket for everyday use so withdrawals are not needed from taxable accounts (useful for down market years)
• Replenish cash fund bucket from taxable accounts (when a favorable up market year)
• Enjoy Long-term Capital gain rates of 0% for dividends and withdrawals when below the taxable income threshold
• Stay clear of Net-Investment-Tax (NIT) by staying below the taxable income threshold
• Choose your state domicile that has low or no state income or additional taxes on capital gains
• Time your stock sale losses and gains to lower your total capital gains for the year(s) you need cash

And, don't forget. The wealth you have accumulated is yours to enjoy. If you don't want to be taxed, you might not ever want to withdraw it. And, since you can't take it with you, it is up to you to make the most of it, and/or pass it on to your heirs.. you get the idea.

Reference Information

• Tim Parker (2021, Mar), 10 Ways to Reduce Your 401(k) Taxes, from investopedia.com

• Craig Hawley (2020, Aug), 5 Tips to Minimize Your Taxes in Retirement, from kiplinger.com

• Christy Bieber (2021, July), Understanding Taxation of Your Retirement Income, from kiplinger.com

Federal Tax Rates (2023)

Federal Tax Brackets and Rates

Long-Term Capital Gains Tax Rates

Additional Net Investment Income Tax

Standard Deduction and Personal Exemption

Taxpayers who are at least 65 years old or blind can claim an additional 2023 standard deduction of $1,500 per person. ($1,850 if using the single or head of household filing status)

Reference Information

• Amir El-Sibaie (2022, Oct), 2023 Tax Brackets, from taxfoundation.org

• IRS Website, 2023 Net Investment Income Tax, from irs.gov

State Income Taxes

State income taxes vary from state to state. The primary location of your permanent home, or domicile, determines the Tax State where income tax is paid. If you maintain multiple homes across different states, various state rules may apply that may trigger state taxation in those multiple states.

When you select a Tax State for the app, the Income Tax calculations are based on the most recent tax rates and brackets (see the reference "State Individual Income Tax Rates and Brackets for 2022" below. Projections for future years assume the rates remain unchanged and the income brackets increase by yearly inflation.

The precise definition of what constitutes domicile varies slightly from state to state, but states generally agree on two key concepts: that a domicile is a person’s fixed, permanent and principal home that they reside in and that they intend to return to and/or remain in; and that while a person can have multiple residences, they can only have one domicile.

A place to live

Generally, people tend to live where they have family, a profession, and prior life history. But choosing to live in another State with favorable tax laws is a popular option for FI minded individuals and for retirees. Of course relocating to a new location is much more involved than just the tax consideration. The various places one can live is as varied as the persons involved with their numerous criteria that define, for themselves, a good lifestyle.

States with no Income Tax

As of 2022, eight states—Alaska, Florida, Nevada, South Dakota, Texas, Tennessee, Washington, and Wyoming—levy no personal income tax. One other, New Hampshire don’t tax wages. New Hampshire does currently tax investment income and interest, but are set to eliminate those taxes soon. That will bring the number of states with no income tax to nine by 2025.

States with no tax on Capital Gains

As you would expect, the states with no State Income Tax do not tax Capital Gains. These include Alaska, Florida, Nevada, South Dakota, Texas, Washington, Wyoming, New Hampshire, and Tennessee.

Individuals with long term Capital Gains or dividends as part of the post-FI income stream benefit the most living in these states.

There are also a couple of states with an income tax that don't tax capital gains or offer a credit:

• Colorado Colorado treats qualified capital gains tax as an income tax deduction. Note: This mean qualified capital gains are not taxed in Colorado.

• Montana Montana taxes capital gains as an income tax, however, taxpayers receive a nonrefundable credit against their entire tax liability that is equal to 2% of the amount of capital gains reported on the taxpayer’s income tax return.

• New Mexico New Mexico doesn’t have a capital gains tax. Note: State income tax but no capital gains tax since they are subject to deduction.

States that tax Social Security

Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont and West Virginia collect state income tax on Social Security payments to at least some beneficiaries. How they tax Social Security varies by adjusted gross income or other criteria defined by each state.

10 Highest Income Tax States

These ten states rank highest for their Income Tax rates:

10 Lowest Income Tax States

Of the States that have Income Tax, these ten states rank the lowest:

Reference Information *

• At tax time, residency does not equal domicile, from financial-planning.com

• Jim Probasco (2022, July), 9 States With No Income Tax), from investopedia.com

• Katherine Loughead (2022, Feb), State Individual Income Tax Rates and Brackets for 2022), from taxfoundation.org