As we pointed out in a recent article, your overall cost of living can vary tremendously with the state you choose to live in. And a large part of the discrepancy is due to differences in the amount of taxes you'll pay in different states. With that in mind, here are the five most tax-friendly states in the U.S., according to recent data from WalletHub.
5. Nevada ($4,107 average overall tax burden)
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Despite a relatively high vehicle tax rate, Nevada is one of the most overall tax-friendly states in the nation. The state takes in a substantial amount of its revenue from gambling-related taxes and fees, so it doesn't need to burden its residents with income taxes or high property taxes. In fact, the average Nevada resident pays 27% less of his or her income in taxes than the national average. In addition to being fifth overall, WalletHub also found that Nevada is the third most tax-friendly state for low- to middle-income households.
4. Wyoming ($3,926)
Source: Flickr user Micha de Vries.
Although Wyoming has relatively high vehicle and sales taxes, residents pay the ninth-lowest real estate taxes in the United States. And Wyoming is one of seven states that don't have a state income tax. In total, Wyoming residents have an overall tax burden that's 30% lower than the national average.
3. Montana ($3,639)
Source: Flickr user Jaix Chaix.
Montana's income and real estate tax rates are right around the national average, ranked 29th and 21st, respectively. However, the tax revenue the state brings in from natural resources allows it to have no state sales tax and one of the lowest vehicle taxes among states that have one.
2. Delaware ($3,117)
Source: Wikipedia user TimK MSI.
Instead of placing heavy taxes on its residents, Delaware derives a large portion of its revenue from corporate taxes on out-of-state companies incorporated in the state. Delaware has an above-average income tax rate, but its lack of a sales or vehicle tax helps to make up for it. Plus, Delaware's real estate taxes are among the lowest in the United States. All of this combines for an overall tax burden that's 44% below the national average. It's also worth mentioning that when accounting for overall cost of living, Delaware jumps to the No. 1 spot.
1. Alaska ($2,993)
Photo: Flickr user Frank Kovalchek
Alaska almost sounds too good to be true, with no income tax, no sales tax, and no property tax on vehicles. Since Alaska brings in so much revenue from oil, not only does it not need to rely on taxes for government operations, but each resident also gets a share of the state's oil royalties, which was $1,884 in 2014. In all, Alaska residents have a tax burden that's just over half of the national average. However, keep in mind that Alaska's overall cost of living is relatively high compared with some of the other states on this list.
Things to keep in mindSince overall cost of living can vary tremendously among states; the data was normalized to even the playing field. For example, a certain state with high home prices can have a low property tax rate, but it can still appear high if we just look at the dollar amount residents paid. For example, since the median home price in Wyoming is 26% less than in Delaware, you could find yourself paying lower property taxes in Wyoming on a similar house, even though Delaware has a more favorable tax rate.
So real estate taxes were compared using the national median home value instead of the amounts actually paid by residents. For similar reasons, income and sales taxes were based on the mean U.S. household income.
My point here is that these numbers are relative to the amount of money you make and how much housing costs, in addition to the tax rates themselves. The bottom line is that low taxes are nice, but they should only be one piece of the puzzle when determining the most financially beneficial place for you and your family to live.
The article Want Lower Taxes? Move to 1 of These 5 States originally appeared on Fool.com.
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