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State Income Tax, most states
require you to pay a personal income tax.
If you live these states, you don't have
to pay personal state income tax:
Alaska, Florida, Nevada, New Hampshire,
South Dakota, Tennessee, Texas,
Washington and Wyoming. However, New
Hampshire taxes interest and dividend
income, and income from an
unincorporated business, rental or farm
activity. Tennessee taxes interest and
dividend income only. And Florida taxes
intangible personal property (years
prior to 2006).
State and local property tax bills may
offer some flexibility when prepaying
Individual and Corporate
State Tax Rates
If you make
estimated income tax payments, mailing
the fourth-quarter installment by Dec.
31 earns you the deduction in the
current year — even if part of the
payment is returned to you via a state
tax refund the following spring.
However, the payment has to be based on
a reasonable estimate of your actual
state tax bill. You can't inflate your
fourth-quarter payment to increase the
write-off on your federal return.
You may have similar flexibility with
state and local property tax bills. In
some areas of the country, these bills
are mailed out in the fall, but they
don't have to be paid until January of
the following year. Beating the deadline
by paying before year-end lets you claim
the tax savings a year earlier.
If you are subject to the alternative
minimum tax (AMT), prepaying taxes may
result in no tax advantage. If you are
subject to the AMT, contact a tax
professional to help you determine the
best time to pay your taxes.
If you itemize, you have the option of
claiming your state and local sales tax
or state and local income tax for the
year. Be sure to determine which amount
will be larger, because you can't claim
If you choose to deduct income tax,
include your withholding and estimated
tax payments for the current year as
well as any balance due from a prior
year. If you credited an overpayment
from last year's return to his year's
estimated tax payment, be sure to
include that amount too.
If you choose to deduct sales tax, you
can deduct either the actual amount you
paid or the amount from the table in the
Schedule A instructions. You can add the
sales tax you pay on a car to the amount
in the table as well as other items
specified in the instructions.
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