paying 50% tax on additional income worth it?

[finalpsychyear]

A few examples below for married couples net income after federal,state and local taxes. in a midwest state

400k --> after tax 277k
500k--> after tax 335k
600k--> after tax 390k

Does the idea that even if we bust our tail and generate an extra 100k, at these income levels, your going to see roughly half of it go to uncle sam. Does this bother or kill the desire to do this for many of you unless there was some unexpected need for it? For me its an eye opener that it becomes this way as people approach these levels.

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[clozareal]

If you make that much, then it'd be worth it to find ways to decrease your AGI with tax deductions so that you wouldn't need to pay that much in taxes.

 

[dl2dp2]

It's not that straightforward. Remember you can contribute up to 54k in a solo 401k. Physicians in PPs often have cash balance defined benefit plans. There are even more ways to deduct if you are a business owner.

But yes, if you are two straight MDs each making 300k W2, you are SOL. That being said, an extra 50k a year compounding in an after-tax account or investing in real estate can accrue VERY quickly. 10 years you have an extra 800k.

 

[clozareal]

Don't forget about the backdoor Roth for each person, owning your own home or real estate investments, tax loss harvesting, charitable contributions, 529 plans, custodial accounts (UGMA/UTMA). It is most definitely worthwhile to discuss with a CPA to best develop a tax strategy for high income earners.

 

[Liquid8]

Our highest marginal tax rate (45%) kicks in at 180k, and I remember when I started out if I was getting to that point it was hard to shake the feeling that I was now getting a big pay cut for the same amount of work being done. Conversely, if patients didn't show up, I was less bothered by it - and was also more amenable to giving patients discounts around that time if they requested it.

In our situation, there aren't a lot of ways to reduce taxable income outside of overpriced investment properties or simply not working as much. So back then when it got towards the end of the financial year, I would plan to take a couple of weeks off for annual leave. I think I have convinced myself that the money I could have earned during that period due to being in the highest tax bracket is only half due to taxes, so therefore only half is being lost by taking time off. However, it's clearly a psychological as in reality I could take leave whenever and it'd work out the same.

Nowadays I would hit that that mark much quicker -say 4-5 months into the year, but I'm still only working part time so I it don't give it as much thought.

 

[jbomba]

A few examples below for married couples net income after federal,state and local taxes. in a midwest state

400k --> after tax 277k
500k--> after tax 335k
600k--> after tax 390k

Does the idea that even if we bust our tail and generate an extra 100k, at these income levels, your going to see roughly half of it go to uncle sam. Does this bother or kill the desire to do this for many of you unless there was some unexpected need for it? For me its an eye opener that it becomes this way as people approach these levels.

As others mentioned, get creative and divert funds. One such example, paying a spouse to do tasks for the business if you are 1099. Deducting office space in your house. Deducting miles. Renting your house to your business for corporate events. The list goes on. Get a good CPA and you'll be paying a lot less tax than your figures above indicate.

 

[calvnandhobbs68]

A few examples below for married couples net income after federal,state and local taxes. in a midwest state

400k --> after tax 277k
500k--> after tax 335k
600k--> after tax 390k

Does the idea that even if we bust our tail and generate an extra 100k, at these income levels, your going to see roughly half of it go to uncle sam. Does this bother or kill the desire to do this for many of you unless there was some unexpected need for it? For me its an eye opener that it becomes this way as people approach these levels.

You need to give actual breakdowns for how you get these numbers because federal marginal tax rates barely change between the incomes you're describing above. Meaning, there's actually not a large marginal difference between 400K to 600K (literally 3% difference for married filing jointly from 32 to 35% for income above $431,901). What midwest state is this that has a combined 15% local and state tax? But yeah this is why people hate California taxes (compared to my state tax rate of 4% lol). Personally, I have little incentive to let my income get too far above mid 300s because you lose the entire 20% pass through deduction if your taxable income is >$329,800 for 1099/self employed, which is a huge chunk.

I'd definitely be making sure to max out tax advantaged accounts if you're W2 at those incomes. 1099 you can get a lot more creative, have business deductions and have a lot more room to contribute to 401Ks for instance.

 

[deleted1100659]

Also max out HSA each year, 3600 a year. Doesnt sound like a lot but it adds up, because at 65 you can use that money for anything with no tax penalty, and it knocks 3600 off your income tax. And obviously you can use for any health related expenses as well.

But yes, taxes are stupidly high for physicians. We pay a hefty amount of income tax, then we pay a hefty state tax (depending on the state), then theres property taxes (which if you have a nice house can suck), car tax depending on state, sales tax, etc. The tax system works in favor of the ultra rich, because for a while capital gain taxes were a joke, given that they were able to get away without paying an income tax quite frequently. For upper middle class, like physicians, it tends to hit us harder, and even the middle class. Oh and we have those nice loan repayments...

On that note, if Biden forgives 10k in student loan debt for only certain income brackets im going to be so mad, given that I was a resident a year ago and would easily have qualified.

 

[WisNeuro]

If you're paying full tax rates on that level of income, you need to find a new CPA and/or tax lawyer.

 

[jbomba]

sd

Also max out HSA each year, 3600 a year. Doesnt sound like a lot but it adds up, because at 65 you can use that money for anything with no tax penalty, and it knocks 3600 off your income tax. And obviously you can use for any health related expenses as well.

But yes, taxes are stupidly high for physicians. We pay a hefty amount of income tax, then we pay a hefty state tax (depending on the state), then theres property taxes (which if you have a nice house can suck), car tax depending on state, sales tax, etc. The tax system works in favor of the ultra rich, because for a while capital gain taxes were a joke, given that they were able to get away without paying an income tax quite frequently. For upper middle class, like physicians, it tends to hit us harder, and even the middle class. Oh and we have those nice loan repayments...

On that note, if Biden forgives 10k in student loan debt for only certain income brackets im going to be so mad, given that I was a resident a year ago and would easily have qualified.

Will probably look at your last years tax filing..not sure if that helps you depending how far out you are.

 

[deleted1100659]

sd

Will probably look at your last years tax filing..not sure if that helps you depending how far out you are.

good point, hm i guess itll depend on what/if the cutoff is...

 

[Sushirolls]

There is a difference of tax rate and Effective Tax Rate.
Tax rate says XYZ but your Effective Tax Rate could be lower, once all the weird credits, deductions, retirement carve outs, etc take effect on the Adjusted Gross Income. Plus, Tax rates are graduated - understanding this will go along way.
Choosing to open your own private practice - may, not guaranteed - be a better way to mitigate the gut punch of the tax man.

Personally, my household income was very similar to a W2 job I/we had in years past. The difference was, Federal Income taxes were amazingly low this past year, but the increased burden of SS and Medicare taxes were so much higher, that the total amount leaving my pocket - was the same when you looked at the Effective Tax Rate. Perhaps this calculous will change in years to come with rising numbers.

 

[Candidate2017]

SEP IRA or DBP, LLC/LLP or S corp paying you FMV $250k will open up deferred comp, dividends, cap reinvestment, REITs, whole life insurance, vacay/shareholder meetings q3 months, 501(c)(3) nonprofit that salaries you/spouse/children to manage your deductible corp donations of cash, art, property etc.

 

[TexasPhysician]

The tax rates make it a bit harder to motivate myself to put in extra hours. I’ve found the bigger issue is it makes it harder for a lower earning spouse to justify working with the opportunity costs.

My spouse is in healthcare and makes about $60 an hour. We’re straight W2s and max out 401ks, do a back door roth, one 457B and do all the FSA and other stuff offered.

Our marginal tax rate was still just over 40% in 2022 including State income tax. There’s not much left for W2 employees to do to optimize taxes other than certain trusts and similar vehicles which can slightly cut down on taxes from capitals gains/dividends. That $60 becomes $36 before expenses and commute.

Daycare for the kid costs $2200 a month full time. At 3 kids in daycare one would lose money going to work if the opportunity cost was working a $60/hr job vs not paying for daycare at that effective tax rate. A full time nanny isn’t much cheaper. I get why the tax code is what it is but this has definitely influenced the spouses decision to move to working part time.

The tax code punishes employees. Find a private practice that’ll pay you as a 1099. Depending on some factors, you could open up your own “pension”. That may be $200k tax deferred. Buy a Range Rover under section 179. That’s another $100k tax free. Travel for conferences/vacation are now tax free. Computers, phone, etc now at least partially tax free. Hire your spouse and have him/her create an individual 401k or participate in the pension. That’s $400k+ tax free.

 

[jbomba]

The tax code punishes employees. Find a private practice that’ll pay you as a 1099. Depending on some factors, you could open up your own “pension”. That may be $200k tax deferred. Buy a Range Rover under section 179. That’s another $100k tax free. Travel for conferences/vacation are now tax free. Computers, phone, etc now at least partially tax free. Hire your spouse and have him/her create an individual 401k or participate in the pension. That’s $400k+ tax free.

Let me get this straight. I plan to go into private practice . You're telling me I could gross 400k, put 200k tax free into a pension and only pay tax on 200 (minutes business expenses)? So I'm essentially covering all of my retirement and paying tax on half my income?

 

[TexasPhysician]

Let me get this straight. I plan to go into private practice . You're telling me I could gross 400k, put 200k tax free into a pension and only pay tax on 200 (minutes business expenses)? So I'm essentially covering all of my retirement and paying tax on half my income?

Look into defined benefit plans. You’ll need an actuarial calculation to determine your maximum allowed contribution. Age is a factor as are other things. The number could be between $100k-$320k or so.

I recently reviewed the numbers on a psychiatric practice. The owner MD was earning about $650k in total compensation for PT hours. $220k of that was put in a defined benefit plan (not taxed). After a bunch of other deductions, actual salary taxed was under $300k. It is very possible.

 

[finalpsychyear]

It's not that straightforward. Remember you can contribute up to 54k in a solo 401k. Physicians in PPs often have cash balance defined benefit plans. There are even more ways to deduct if you are a business owner.

But yes, if you are two straight MDs each making 300k W2, you are SOL. That being said, an extra 50k a year compounding in an after-tax account or investing in real estate can accrue VERY quickly. 10 years you have an extra 800k.

Look into defined benefit plans. You’ll need an actuarial calculation to determine your maximum allowed contribution. Age is a factor as are other things. The number could be between $100k-$320k or so.

I recently reviewed the numbers on a psychiatric practice. The owner MD was earning about $650k in total compensation for PT hours. $220k of that was put in a defined benefit plan (not taxed). After a bunch of other deductions, actual salary taxed was under $300k. It is very possible.

I am aware of defined benefit. The downside is it reduces your tax deductible 401k max by 20k ish unless you offer it to all your employees actually you have to and contribute for all of them and also that the defined benefit is limited to 4-5 percent growth . If your looking at maximizing less tax then yes DB is great but you will limit your 401k and you MUST contribute to the defined benefit yearly and it can only grow 4-5% maximum but if your ok with that then its fine. FYI the contribution if your nearing 40 is around 70-75k ish. once your in your 50s its a great idea when you can get 150k+ then in a few years have access to it at ideally a much lower tax bracket... not the best idea for someone sub 45 or sub 40 imo.

 

[finalpsychyear]

The tax code punishes employees. Find a private practice that’ll pay you as a 1099. Depending on some factors, you could open up your own “pension”. That may be $200k tax deferred. Buy a Range Rover under section 179. That’s another $100k tax free. Travel for conferences/vacation are now tax free. Computers, phone, etc now at least partially tax free. Hire your spouse and have him/her create an individual 401k or participate in the pension. That’s $400k+ tax free.

Yes you can buy a range rover or tesla model x. But i have 3 colleagues over the past 5 years going through hard audits for these types of things. If you do it never claim more than 70 percent and have mileage logs if your going to use section 179.

 

[TexasPhysician]

Yes you can buy a range rover or tesla model x. But i have 3 colleagues over the past 5 years going through hard audits for these types of things. If you do it never claim more than 70 percent and have mileage logs if your going to use section 179.

Being afraid of a tax audit when you are following the rules is like under-coding because you are afraid an insurance audit. Follow the rules and ignore the noise.

 

[jbomba]

So my scorp would essentially purchase a new vehicle and as long as I never use it for personal things, I'm allowed to just deduct the cost of the car?

 

[Mad Jack]

A few examples below for married couples net income after federal,state and local taxes. in a midwest state

400k --> after tax 277k
500k--> after tax 335k
600k--> after tax 390k

Does the idea that even if we bust our tail and generate an extra 100k, at these income levels, your going to see roughly half of it go to uncle sam. Does this bother or kill the desire to do this for many of you unless there was some unexpected need for it? For me its an eye opener that it becomes this way as people approach these levels.

Tax-deferred savings can really reduce the tax hit, as can deductions if you can justify them. Each employer can offer you a 401k/403b, some employers offee 457s (basically a second 403b), and 1099 work lets you save in a SEP IRA. By juggling multiple tax deferral plans you can put away a lot of cash while reducing tax liability. For example, I've got a day job I'm looking at that offers 403/457 dual plans with a good match on both, plus I've got a moonlighting employer that offers a 401k. This will let me put away 63k/year of my own money while reducing my tax liability by the same. Benefits firther reduce my liability by 6k, so on an income of around 310k I'm only getting taxes on 240k, plus I get the standard and married deductions on top of that for a total taxable income of 215k, and with matches 88k ends up in my retirement fund at this hypothetical position. Someone who is better at deductions than me could do far better.

 

[mistafab]

Bro you need an accountant.

If you start making gobs of money, you need help in how to lower taxable income if you don’t already know.

Also, as a physician you can always start a business and lower your taxes that way.

 

[calvnandhobbs68]

Tax-deferred savings can really reduce the tax hit, as can deductions if you can justify them. Each employer can offer you a 401k/403b, some employers offee 457s (basically a second 403b), and 1099 work lets you save in a SEP IRA. By juggling multiple tax deferral plans you can put away a lot of cash while reducing tax liability. For example, I've got a day job I'm looking at that offers 403/457 dual plans with a good match on both, plus I've got a moonlighting employer that offers a 401k. This will let me put away 63k/year of my own money while reducing my tax liability by the same. Benefits firther reduce my liability by 6k, so on an income of around 310k I'm only getting taxes on 240k, plus I get the standard and married deductions on top of that for a total taxable income of 215k, and with matches 88k ends up in my retirement fund at this hypothetical position. Someone who is better at deductions than me could do far better.

Unless you’re 1099 at one of those positions and making your own solo 401k where you can contribute to both the employee and employer portions, you can’t contribute that much.

You cannot contribute maximal amounts to all 3 funds. You can max both 457 (20,500/year) and 401k/403b contributions (you can have multiple 401/403 plans but can only contribute max 20,500/year total) but this only allows you to get to a max of 41k/year for the employee contribution. Basically the 401k from the moonlighting gig isn’t helpful at all if you already have a 403b unless there’s certain funds in there you want to invest in, fees are lower or match is better.

See Can you maximize a 401k, 403b and a 457? | Wrenne Financial Planning | Lexington, KY

 

[Mad Jack]

Unless you’re 1099 at one of those positions and making your own solo 401k where you can contribute to both the employee and employer portions, you can’t contribute that much.

You cannot contribute maximal amounts to all 3 funds. You can max both 457 (20,500/year) and 401k/403b contributions (you can have multiple 401/403 plans but can only contribute max 20,500/year total) but this only allows you to get to a max of 41k/year for the employee contribution. Basically the 401k from the moonlighting gig isn’t helpful at all if you already have a 403b unless there’s certain funds in there you want to invest in, fees are lower or match is better.

See Can you maximize a 401k, 403b and a 457? | Wrenne Financial Planning | Lexington, KY

Oh, you're right. Hmmm, I'll have to take a 1099 as the second income then and do a SEP 🤔 I've got the option for W2 or 1099 for my extra shifts, and you just made the decision pretty clear!

 

[HemeOncHopeful19]

A few examples below for married couples net income after federal,state and local taxes. in a midwest state

400k --> after tax 277k
500k--> after tax 335k
600k--> after tax 390k

Does the idea that even if we bust our tail and generate an extra 100k, at these income levels, your going to see roughly half of it go to uncle sam. Does this bother or kill the desire to do this for many of you unless there was some unexpected need for it? For me its an eye opener that it becomes this way as people approach these levels.

It’s even worse when you start to deduct child care costs from that income because if one spouse was home you might not need a nanny, housekeeper etc.

I agree you’ll come out ahead financially but it’s a very frustrating situation especially when you realize 1/2 of the country barely pays anything.

 

[calvnandhobbs68]

Oh, you're right. Hmmm, I'll have to take a 1099 as the second income then and do a SEP 🤔 I've got the option for W2 or 1099 for my extra shifts, and you just made the decision pretty clear!

Yep totally forgot about SEP IRA cause I have a solo 401k. Way better way to do that, plus if you’re 1099 you can qualify for business deductions and the 20% pass through deduction. So yeah I’d take a second job as 1099 if you can.

 

[Stagg737]

You need to give actual breakdowns for how you get these numbers because federal marginal tax rates barely change between the incomes you're describing above. Meaning, there's actually not a large marginal difference between 400K to 600K (literally 3% difference for married filing jointly from 32 to 35% for income above $431,901). What midwest state is this that has a combined 15% local and state tax? But yeah this is why people hate California taxes (compared to my state tax rate of 4% lol).

There are actually quite a few cities where it hits over 15% if you're including local tax rates. The average burden in IL and MN are both over 12% and can be higher in the right localities. Throw in property and sales tax in some cities and rates can actually be worse than some areas in CA.

State and Local Tax Burdens, Calendar Year 2022

Tax burdens rose across the country as pandemic-era economic changes caused taxable income, activities, and property values to rise faster than net national product. Tax burdens in 2020, 2021, and 2022 are all higher than in any other year since 1978.

taxfoundation.org

2024 State Individual Income Tax Rates and Brackets

How do income taxes compare in your state?

taxfoundation.org

 

[whopper]

If you own your own business lots of stuff that's used for the business, write it off as a business expense and it can benefit you. E.g. you buy furniture for the office. So long as it sits there for a minimum time (I believe a year) you can then take it home. Same with other stuff like a desk, computer, painting. This stuff could add to thousands of dollars a year.

A friend of mine recommended I meet with a tax attorney to max out what what I can.

 

[calvnandhobbs68]

There are actually quite a few cities where it hits over 15% if you're including local tax rates. The average burden in IL and MN are both over 12% and can be higher in the right localities. Throw in property and sales tax in some cities and rates can actually be worse than some areas in CA.

State and Local Tax Burdens, Calendar Year 2022

Tax burdens rose across the country as pandemic-era economic changes caused taxable income, activities, and property values to rise faster than net national product. Tax burdens in 2020, 2021, and 2022 are all higher than in any other year since 1978.

taxfoundation.org

2024 State Individual Income Tax Rates and Brackets

How do income taxes compare in your state?

taxfoundation.org

Keep in mind those are top marginal rates for the second link. But yes, I you will be hitting those top marginal rates when your income goes from 400->500K for instance.

The taxfoundation first link is a little excessive. I can tell you that what they quote my state "effective tax rate" at I definitely don't pay in state/local taxes. Also throwing things in like sales tax and excise taxes is a little disingenious when we're talking about income taxes overall...you're choosing to spend your income on things, so these are taxes on consumption, not income.

This is what the taxfoundation website used for their calculation:

• Property taxes;
• General sales taxes;
• Excise taxes on alcoholic beverages, amusements, insurance premiums, motor fuels, pari-mutuels, public utilities, tobacco products, and other miscellaneous transactions;
• License taxes on alcoholic beverages, amusements, general corporations, hunting and fishing, motor vehicles, motor vehicle operators, public utilities, occupations and businesses not classified elsewhere, and other miscellaneous licenses;
• Individual income taxes;
• Corporate income taxes;
• Estate, inheritance, and gift taxes;
• Documentary and transfer taxes;
• Severance taxes;
• Special assessments for property improvements; and
• Miscellaneous taxes not classified in one of the above categories.

 

[Merovinge]

There are actually quite a few cities where it hits over 15% if you're including local tax rates. The average burden in IL and MN are both over 12% and can be higher in the right localities. Throw in property and sales tax in some cities and rates can actually be worse than some areas in CA.

State and Local Tax Burdens, Calendar Year 2022

Tax burdens rose across the country as pandemic-era economic changes caused taxable income, activities, and property values to rise faster than net national product. Tax burdens in 2020, 2021, and 2022 are all higher than in any other year since 1978.

taxfoundation.org

2024 State Individual Income Tax Rates and Brackets

How do income taxes compare in your state?

taxfoundation.org

Comparing property taxes for what I get in my state on the slightly higher than average end compared to other state's and what they get is very disingenuous. It would be like becoming frustrated over spending $70,000 on a Lambo instead of $40,000 on a Kia, paying a bit more for a much superior product. I am gladly paying $15k/year in property taxes for the schools associated with my taxes that are nationally in the top 1%. Most (literally well over 1/2) of property tax goes to schools.

Those are completely different than actual state income taxes which are impossible to avoid for W2 workers and may or may not actually give you as a citizen any benefit. Further, making additional income does not increase your property taxes.

 

[WisNeuro]

Comparing property taxes for what I get in my state on the slightly higher than average end compared to other state's and what they get is very disingenuous. It would be like becoming frustrated over spending $70,000 on a Lambo instead of $40,000 on a Kia, paying a bit more for a much superior product. I am gladly paying $15k/year in property taxes for the schools associated with my taxes that are nationally in the top 1%. Most (literally well over 1/2) of property tax goes to schools.

Those are completely different than actual state income taxes which are impossible to avoid for W2 workers and may or may not actually give you as a citizen any benefit. Further, making additional income does not increase your property taxes.

Likewise, I live in my current area 1) because I actually like the area, and 2) best school district in the state. I could easily live in a cheaper place, but I have 2 young children.

 

[WisNeuro]

There's also the notion of living where you actually want to live. Could I have zero state income tax if I move to TN or FL? Sure. But I would then hate my life.

 

[Merovinge]

There's also the notion of living where you actually want to live. Could I have zero state income tax if I move to TN or FL? Sure. But I would then hate my life.

Shockingly, people just keep moving to California despite the "horrors" of it's taxation. Every friend and family member I know that lives there enjoys it and finds it worth the cost. Hilarious to see people dump on the state like it's not the place that every famous person from every continent on Earth moves to.

 

[WisNeuro]

Shockingly, people just keep moving to California despite the "horrors" of it's taxation. Every friend and family member I know that lives there enjoys it and finds it worth the cost. Hilarious to see people dump on the state like it's not the place that every famous person from every continent on Earth moves to.

Yeah, I never got the appeal of trying to avoid taxes as the number one consideration for where to live. Especially for high earners. I live in one of the taxfoundation's higher taxed states now, but in the past have lived in 3 of their lowest taxed states. I can't fathom how much someone would have to pay me to go back to one of those three states. And, the thing is, as high income people, I can pay my "high" taxes, max out all of my retirement accounts, fund alternative retirement options, and still have plenty of disposable income.

 

[TexasPhysician]

Shockingly, people just keep moving to California despite the "horrors" of it's taxation. Every friend and family member I know that lives there enjoys it and finds it worth the cost. Hilarious to see people dump on the state like it's not the place that every famous person from every continent on Earth moves to.

If I were quite wealthy and could work whenever I pleased (or not), I could see the appeal. For people actually working and raising kids, pass. The traffic and cost of living is insane for what it is. That said, I actually prefer Florida. Given the 2 options, I’d choose Florida.

 

[WisNeuro]

If I were quite wealthy and could work whenever I pleased (or not), I could see the appeal. For people actually working and raising kids, pass. The traffic and cost of living is insane for what it is. That said, I actually prefer Florida. Given the 2 options, I’d choose Florida.

If the only options were SoCal or San Fran, may be a discussion, but Northern Cal is pretty awesome. I haven't been anywhere in FL that I could see myself living long-term.

 

[finalpsychyear]

If the only options were SoCal or San Fran, may be a discussion, but Northern Cal is pretty awesome. I haven't been anywhere in FL that I could see myself living long-term.

If one has a telemed job and has a house in a tax free state and vacations/rents several weeks in a high tax state but works during vaca/rental time do they have to pay tax ? Just curious but i think its a no.

 

[WisNeuro]

If one has a telemed job and has a house in a tax free state and vacations/rents several weeks in a high tax state but works during vaca/rental time do they have to pay tax ? Just curious but i think its a no.

That sounds like a question for a tax attorney. Seems like where primary residence in would be the key factor.

 

[Jules A]

Oh, you're right. Hmmm, I'll have to take a 1099 as the second income then and do a SEP 🤔 I've got the option for W2 or 1099 for my extra shifts, and you just made the decision pretty clear!

Consider asking your advisor about an individual 401k rather than SEP so you can do back door roth.

 

[Merovinge]

If one has a telemed job and has a house in a tax free state and vacations/rents several weeks in a high tax state but works during vaca/rental time do they have to pay tax ? Just curious but i think its a no.

Usually not but some states are weird. Typically if you spend over 180 days in a state and it's the only state you own a home in, it would be inarguable for that to be your home state. I think Cali and NY are the states most notorious for going after income earned while in them (due to desirability of the areas and high state taxes) so I would make sure you run it past a reputable accountant or attorney.

 

[Stagg737]

Yeah, I never got the appeal of trying to avoid taxes as the number one consideration for where to live. Especially for high earners. I live in one of the taxfoundation's higher taxed states now, but in the past have lived in 3 of their lowest taxed states. I can't fathom how much someone would have to pay me to go back to one of those three states. And, the thing is, as high income people, I can pay my "high" taxes, max out all of my retirement accounts, fund alternative retirement options, and still have plenty of disposable income.

That's really just a matter of opinion though. There's many places and areas that people consider "desireable" that you would have to pay me 7 figures annually to move to. The question isn't really about what our preferences are, it's just in regards to what the tax rates and fiscal aspects are.

The idea of avoiding taxes goes under the the larger umbrella of spending power in certain geographic locales, and we can add in product value of living in those locales if you want to take Merovinge's statement into account. I was just addressing the statement of tax rates in the midwest and the fact that there are some places with local and state tax rates that are comparable with the more expensive "desirable" locations in other areas. I guess I may have brought sales and property tax into part of my statements, but that was an afterthought in regards to some places having comparably higher tax rates.

 

[NITRAS]

If one has a telemed job and has a house in a tax free state and vacations/rents several weeks in a high tax state but works during vaca/rental time do they have to pay tax ? Just curious but i think its a no.

You pay taxes in the state where the income was earned. You would have to file a state return in each state you worked in/owned houses in.

For example, professional basketball players have very complicated taxes that require filing in each state they play games in.

 

[jbomba]

You pay taxes in the state where the income was earned. You would have to file a state return in each state you worked in/owned houses in.

For example, professional basketball players have very complicated taxes that require filing in each state they play games in.

Thats not totally true. I could own a beach house in Laguna Beach that I spend 2 weeks at a year and not have to file California income tax IF I'm not also earning income in California AND my primary residence is in another state.

 

[NITRAS]

Thats not totally true. I could own a beach house in Laguna Beach that I spend 2 weeks at a year and not have to file California income tax IF I'm not also earning income in California AND my primary residence is in another state.

You aren’t earning an income in CA in your example. But you are filing a CA tax return and paying your property taxes In CA. If you rented out your beach home, you get to pay CA income tax on that rental income.

Online business can get kinda fuzzy sometimes.