We are more than halfway through the year and yet many major economic indicators are still showing the economy is not recovering as many would have hoped. Consumer confidence numbers showed that only 3% of people want to buy a car. These numbers are interesting considering previous tax credits targeted both these sectors. So what relief do we have coming from the government? Well, arguably just more stimulus spending since tax changes are mostly going to affect the country adversely if Congress fails to do anything. Congress may still act as raising taxes in a bad economy is never a good idea.
So What Can You Do?
1) Relocate to a More Economic State In Terms of Personal Taxes and Business Taxes
It is not a shocker that the population of the nine states with no income taxes have strong growth when compared to the states with the highest income taxes. In case you’re in the mood to move to lower your personal taxes, these states have no state income tax:
- South Dakota
- New Hampshire and Tennessee (tax their residents on income earned through interest and dividends only)
If you want to cushion yourself from the blow of increased personal taxes moving to Alaska or Texas may be in the cards. One can argue that for Lebron James taxes played a factor in his decision to go to Miami over New York. However, tax savings are not only realized by millionaires. Some moves for the average job can be very easy as well. For example, a border state move from Georgia to Florida could save you up to 6% per year in state income taxes. Moreover, it is a good idea to consider those states that are also business friendly as over time more and more companies will see greener pastures. NY, NJ, VM, CA, MN, RI, IA, WI, OH, and MD tend to be the least business friendly according to the Tax Foundation’s State Business Tax Climate Index for 2010.
2) Relocate to a City With Low Property and City Tax Rates
Sometimes this is more realistic to move to a city that has lower property taxes then to move to another state with low income tax rates. Maybe you have a good job, maybe you like being close to your family and friends. In either case, many cities often attract new residents by the simple fact that they have low property taxes. For example, a person who owns a home in Stamford, CT can move to Greenwich, CT and save thousands in property taxes without compromising on other factors.
3) Vote for Politicians Pushing for Lower Taxes and Lower Spending
If taxes are very important to you, then consider those senators, congressman, or local politicians that want to lower your tax burden. It can be argued that increases in government revenues up to a certain point have a limited effect on government services. For example, since the mid 1980s, the Department of Education’s budget has increased 138 percent (adjusted for inflation) while reading scores and graduation rates have stayed relatively flat according to the Heritage Foundation. You be the judge.
4) Consider Not Getting Married
This sounds horrible, but from a tax standpoint it makes sense if Congress fails to act this year. One thing the Bush tax cuts sought to eliminate was the “marriage penalty.” The “marriage penalty” alluded to the fact that married couples are in a higher tax bracket than if they stayed unmarried living together. Even in Obama’s budget (if approved) married couples would pay more because of narrower tax brackets. This is because the standard deduction is not doubled for married couples and married couples would be in a higher tax bracket combined than if filing individually.
5) Consider Stocking Up On Over the Counter Medical Prescriptions If Applicable
The ability of families to purchase over the counter drugs will be greatly reduced or should we say greatly taxed. Money available through the health savings account (HAS), flexible spending account (FSA) and the health reimbursement account (HRA) will no longer be available to purchase over the counter medications (except for insulin) without a prescription. Over the counter medications such as simple Advil, Tylenol, Excedrin or even things like Pedialyte and prenatal vitamins if purchased through one of these accounts, could be subject to an additional 40% tax as these accounts will only be eligible to be used with prescribed medications. Be sure to check the shelf life of your medications if you stocking up.