Worst states for taxes, 2016 tax brackets and exemptions

If you’re thinking of relocating to another state to save on taxes then be sure to avoid New York, New Jersey and Connecticut. A new report suggests that these three states are the worst when it comes to tax rates.

Forbes published a report last month entitled “Worst States for Taxes,” and it found that the states of California, Wisconsin, Minnesota, Maryland, Rhode Island, Vermont and Pennsylvania rounded out the top 10.

NYC Time Square

NYC Time Square

The publication came to this conclusion by comparing local taxes and the effective tax rate for single individuals with $50,000 in official income. This was based on the U.S. household income of $53,046 from 2009 to 2013.

According to the methodology, the report does not identify what local taxes are included since some states adopt a local sales tax while others maintain a local income tax. It does admit that the formula is a little bit complicated because of the variety of states:

“Comparing states income tax rates is a bit tricky, since taxation approaches vary widely. Many states have a graduated system — the most complicated one is Hawaii with 12 different rates for income in different brackets. Eight states charge residents the same flat percentage of their incomes regardless of how large their salaries are, including Colorado (4.63% of federal taxable income), Indiana (3.75%), and Illinois (3.3%). And there are seven states that don’t levy an income tax: Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming.”

But in a state like New Jersey, its property tax rate probably had some sort of an effect on its ranking. The average property tax bill in the Garden State was $8,161, but only 0.2 percent of homeowners nationwide doled out more than $8,000.

The No. 1 ranking – New York – maintains a state and local tax burden of 12.6 percent, while the effective state tax rate for $50,000 taxable income is 5.46 percent. New Jersey’s state and local tax burden if 12.3 percent with an effective state tax rate for $50,000 taxable income of 2.54 percent. The state and local tax burden for the state of Connecticut is 11.9 percent and an effective state tax rate for $50,000 taxable income of 4.6 percent.

Considering how high some of these taxes can be, you may need to find loans just to pay your taxes during the much dreaded tax season between February and April!

2016 Tax Brackets – a Look at Tax Brackets, Exemptions and Deductions

Every year, the Internal Revenue Service (IRS) releases an adjusted list of tax brackets, exemptions, deductions and other tax-related thresholds. The purpose of these modifications is to ensure taxes keep up with the effects of inflation.
Just what can you expect start paying your 2016 taxes in early 2017? Here is a comprehensive list of just what your taxes will look over the coming year:

The threshold for the top tax rate (39.6 percent) has increased by 0.45 percent for both single and joint filers. The thresholds for other individual tax rates (10 to 35 percent) have gone up only slightly.

For next year, the personal exemption amount goes up from $4,000 (2015) to 4,050. The standard deduction amount remains the same, except for taxpayers who file as their taxes as head of the households.

How will this affect the average American? Since the median U.S. household income was $53,657 in 2014, the amount of taxes you owe shouldn’t go up by much because of low inflation levels year-over-year. In fact, if you’re a married couple with one child earning the median income then the extra amount of taxes you’ll owe will be $9.

Here are a few other adjustments made to various tax policies:

  • The maximum Earned Income Credit rises from $6,242 to $6,269.
  • The AGI threshold for the Lifetime Learning Credit goes up from $110,000 to $111,000 for joint filers.
  • The estate tax exclusion amount for Americans who pass away in 2016 increases from $5.43 million to $5.45 million.
  • The foreign income exclusion jumps from $100,800 to $101,300.
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    The facts about state income taxes in the USA

    The United States government earned $3 trillion in revenue in the year 2014 and this amount is expected to increase this year. Federal tax revenue increased from $2.7 trillion in 2013 and is expected to increase another 9% in 2015 to approximately $3.2 trillion as per an announcement made by the Congressional budget office. It is interesting to note that individual income tax forms the largest component of the revenue of the US government, followed by social insurance tax and then sales tax. There is also an income tax levied on companies big and small. There are two types of income taxes – federal income tax and state income taxes. Federal income tax can amount to anywhere between 10% and 40% of a person’s income depending on the income. Currently, 43 states in the US levy a tax on individual income, 47 states that impose a tax on corporations and 45 states that impose sales tax.

    State Income Taxes

    Highest and lowest state income taxes

    The state of California imposes the highest amount of tax on individuals levying a hefty 12.3% on the wealthy people earning over $1 million. On the other hand South Carolina is the lowest where the tax is 0% for the first $2,850 of a person’s income. At the same time, nine US states do not impose any income tax. These are Alaska, Nevada, Florida, Texas, South Dakota, Wyoming and Washington. In New Hampshire and Tennessee tax is levied only on interest earned and dividends from stocks and bonds. Eight states which are Colorado, Indiana, Illinois, Michigan, Massachusetts, Pennsylvania, North Carolina and Utah have a flat State Income Taxes rate.

    Out of the state taxing salaries, 8 of them have a tax structure of single rate where one rate applies to all assessable earnings while other states charge graduated rate income tax where the amount of brackets varies by state. Kansas as well as Maine inflicts two rate revenue taxes whereas 3 states have 10 brackets or above. A few states gather a huge amount of brackets within narrow revenue band. The approach of the states to income tax varies in other factors as well. A few states charge double tax on married filers and index tax brackets, exceptions, and deflation or increase in price, whereas many do not. Some states combine their typical deductions along with individual exceptions to the federal tax system but others do not. They prefer to fix their own rules or opt for nothing at all.

    The same applies to state income taxes levied on organizations. The different states have different rules and regulations for the same. However, most states offer tax deductions on fixed assets and contributions made to the public good. At the same time, some types of investments made by both organisations and individuals are also given some relief in taxes. If you are an individual or an organization who wishes to understand the taxation laws of the federal government as well as the state government it is best to approach a taxation specialist. Of course you can also get some pertinent information regarding the same on the internet, but for detailed information you have to rely on a professional.

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    How to File Personal Income Tax?

    Personal income tax is the tax which is paid on the personal income of an individual and it is completely different from the tax paid on the earnings of a company or a firm. In a company, the owners or the shareholders pay the taxes on the company’s income and even on their income. Here, the income of a company’s owner is called dividend or salary from the company and the company’s income is called the profits. In sole-proprietorships and partnerships, tax is generally paid only once depending on the profits of the company. The income tax submissions of every individual remain due every 15th April during the year.

    Personal Income Tax

    Beware of Deductions and Other Records

    When it comes to paying personal income taxes, there are many questions that come to mind in regards to deductions and various other records. Most people are generally stressed out with keeping proper income tax records throughout the year. However, there are others who usually ignore the fundamentals of proper bookkeeping. Personal tax issues are likely to range from simple ones to the ones that can turn out to be very complicated. People have queries on the deductions made for their health premiums and long-term health care insurance. This is something that varies from a filer of a person tax return and a business individual.

    Things that need to be Understood

    It is also important for individuals to check their tax returns of the previous years in order to refresh the entire procedure and the steps that were taken for filing the returns. Personal Income Tax filers should have a basic understanding of things such as reporting unemployment insurance benefits. In additions to this, there are many people who make this common blunder of reporting the benefits of worker’s compensation insurance as income. These are certain things that can result in personal tax issues. Therefore, it is highly recommended to get the professional services of an expert personal tax preparer. The tax preparer is a professional who possesses the capability of guiding the tax filer through the entire procedure of filing personal tax returns in an easy manner.

    Why Take the Services of a Tax Preparer?

    Not every individual is an income tax expert. Mistakes or blunders committed in filing personal income taxes can prove to be very costly. Therefore, it is always a good idea to take the services of a professional tax preparer who has complete knowledge about the correct procedure of filing tax returns. A tax preparer will be able to conduct the entire procedure in the right way without causing a lot of trouble. However, if you want the tax filing procedure to be conducted in a smooth manner, ensure that you have all the tax records properly organized and maintained. This is a must even if you are taking the services of a tax preparer because the tax preparer will also ask you for the records on vehicle driving log, revenues earned from business, business expenses and asset additions.

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