Facebook Twitter

TAX HEAVEN? DEPENDS WHERE YOU GO

SHARE TAX HEAVEN? DEPENDS WHERE YOU GO

Retirees can slash their local and state taxes significantly when they move to a new state upon retirement - or might see them double overnight, according to a new report titled "Tax Heaven or Hell." It all depends where you go.

The top tax heaven for retirees is Alaska, with Anchorage in the top slot and Juneau a close second, according to the third edition of the tax guide for retirees published by Vacation Publications of Houston ($11.95). Of course, a lot of retirees will remember that along with taxes, temperatures in Alaska are pretty low, too.Obviously, taxes aren't the only consideration when you are contemplating a move.

However, once you have narrowed your choice of location based on such factors as climate, lifestyle, proximity to friends and family and cost of living, it is logical to gather as much information as possible about your new home - including the tax burden. And you may be surprised to find an enormous discrepancy in the way different cities and towns tax retirees' income.

"Tax Heaven or Hell" by Alan Fox and Eve Evans compares and ranks 149 major metropolitan areas and top retirement towns according to total state and local tax burdens on people of retirement age.

To make the calculations, the authors had to construct composite taxpayers - nine hypothetical married couples, 65 or older, with different incomes ($24,281, $34,275 and $68,098) and owning property ranging in value from $50,000 to $250,000.

They then calculated income taxes for each location and added an estimate of what each couple would typically pay in sales taxes, property taxes, auto fees and personal property taxes.

Veranda Smith, a government affairs specialist with the Federation of Tax Administrators in Washington, D.C., cautions against putting too much faith in charts like those in "Tax Heavens and Hells" which are based on hypothetical cases.

"You have to look at your individual situation and not go by a chart which may or may not apply to you personally," Smith said. "It's somebody's idea of an average and it is rare when a person fits the average."

Smith suggested that prospective retirees call the state taxing authorities of the places where they might want to live for information about specific state and local tax laws. Then they should sit down with a qualified tax advisor to see how those tax laws will apply to their personal situation.

Fox's and Evans' list shows the tax "heavens" are scattered primarily throughout the Sunbelt and West Coast and the majority of tax "hells" are located in the Northeast and Midwest. None of the tax hells offered any tax breaks for those 65 and older, Fox noted, while all of the tax heavens do.

The guide said the following locations would be heavenly for at least one of the hypothetical couples: Wilmington and Dover, Del.; Honolulu and Kahului, Hawaii; Portland, Eugene and Bend, Ore.; Las Vegas, Nev.; Jackson and Cheyenne, Wyo.; Santa Fe and Carlsbad, N.M.; Houston and Dallas, Texas; Baton Rouge, La.; Gulf Shores and Fairhope, Ala.; Naples, Fla.; and Nashville and Paris, Tenn.

At the other end of the spectrum, the cities with the highest taxes on retirees (again, depending on income and property value) include: Pittsburgh and Philadelphia, Pa.; Milwaukee, Eagle River, Green Bay and Madison, Wis.; Topeka, Kan.; Des Moines, Iowa; Minneapolis and St. Paul, Minn.; Chicago, Ill.; Providence, R.I.; Concord, N.H.; Montpelier, Vt.; New Haven, Conn.; Ithaca, N.Y.; and Omaha and Lincoln, Neb.

Because a city's tax climate may not be the same for people with different income levels and home values, Fox advises readers to select the model couple whose financial situation most closely resembles theirs.