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According to the websites visual with nothing entered, Georgia is more tax friendly than Alabama on taxes in retirement. But when I entered my information for two different zip codes, (B'ham and Atlanta area) that was not the case. The "state taxes" in Georgia were double Alabama.
So can anyone comment on how Georgia is more tax friendly than Alabama, if you have knowledge?
No actual experience with either of these states, however I have a comment on your comparisons.
It seems you are focusing solely on income tax. This is misleading and not really useful as it distorts the actual picture.
Both states tax consumption (i.e. impose sales tax) and this is crucial for a retiree. And both states allow local sales tax to be added to the state-mandated sale tax.
If you want a true apples to apples comparison, you would have to target specific locales in either state to understand how much living (shopping) there would cost you in taxes.
In case you are not renting, the property taxes are another matter entirely...
No actual experience with either of these states, however I have a comment on your comparisons.
It seems you are focusing solely on income tax. This is misleading and not really useful as it distorts the actual picture.
Both states tax consumption (i.e. impose sales tax) and this is crucial for a retiree. And both states allow local sales tax to be added to the state-mandated sale tax.
If you want a true apples to apples comparison, you would have to target specific locales in either state to understand how much living (shopping) there would cost you in taxes.
In case you are not renting, the property taxes are another matter entirely...
Agree. People tend to get hyper focused on income tax because it rears up and hits them in the face once a year (unless you estimate quarterly). Same with property tax unless it's incorporated into mortgage payments. Taxes for goods and services seem less visible because they nickel and dime along throughout the year and you have some power to lower them by consuming less.
A small amount of research reveals that neither state taxes social security income. Alabama has a flat rate of 5%. For 2024 Georgia has a flat rate of 5.49% with a plan in place to reduce that to 4.99% by 2029. I don’t know how the two compare when it comes to exemptions, deductions, credits, etc.
According to the websites visual with nothing entered, Georgia is more tax friendly than Alabama on taxes in retirement. But when I entered my information for two different zip codes, (B'ham and Atlanta area) that was not the case. The "state taxes" in Georgia were double Alabama.
So can anyone comment on how Georgia is more tax friendly than Alabama, if you have knowledge?
If you are going to compare Alabama with Georgia probably should consider Tennessee. Only pay Federal income tax with zero social security or retirement income tax.
But to compare properly you need to include local sales tax. In TN this varies by county by 0.25%.
Agree. People tend to get hyper focused on income tax because it rears up and hits them in the face once a year (unless you estimate quarterly). Same with property tax unless it's incorporated into mortgage payments. Taxes for goods and services seem less visible because they nickel and dime along throughout the year and you have some power to lower them by consuming less.
What percentage of your income are you going to spend on taxable goods or services? On the other hand, what if your RMDs are much larger than your actual spending? Add to that dividend distributions from taxable accounts, or other investment-income that keeps flowing, whether your spend it, or not.
One might find that state income tax is higher than housing expenses. That happens to be my own current situation. Sales tax doesn't even register.
What percentage of your income are you going to spend on taxable goods or services? On the other hand, what if your RMDs are much larger than your actual spending? Add to that dividend distributions from taxable accounts, or other investment-income that keeps flowing, whether your spend it, or not.
One might find that state income tax is higher than housing expenses. That happens to be my own current situation. Sales tax doesn't even register.
And one might find that their state income tax is zero. For example, an age 65+ retiree in Georgia can have an income of $100k ($65k pension/401k/dividends/etc) & $35k Social Security) and not pay a dime in Georgia state income tax. With the same sources and distribution of retirement income, a married couple could have an income of over $200k and not pay any state income taxes.
Quote:
Originally Posted by Blazin65
So can anyone comment on how Georgia is more tax friendly than Alabama, if you have knowledge?
It is impossible to answer that question without knowing your age at retirement as well as the specific amounts and sources of retirement income. As others have pointed out, neither state taxes Social Security, but Georgia provides an additional deduction of $35k of retirement income for retirees aged 62-64, and $65k for those 65 and above. As I noted above, it is possible to have a six-figure income in retirement and not pay any Georgia state income tax at all.
Agree. People tend to get hyper focused on income tax because it rears up and hits them in the face once a year (unless you estimate quarterly). Same with property tax unless it's incorporated into mortgage payments. Taxes for goods and services seem less visible because they nickel and dime along throughout the year and you have some power to lower them by consuming less.
I focus on income tax because it applies to my entire income, while sales tax only applies to a portion of my income.
I am in Tennessee, a no income tax state. We have nose-bleed sales tax rates. So we get hit hard on sales tax but completely skate on income tax.
Here is the thing. The annual $25,000 rent bill on my apartment is untaxed. So I am massively better off with no income tax on that $25,000 and a high sales tax rate that does not apply to my rent.
Food carries a low sales tax rate.
Gasoline carries fuel taxes that you cannot avoid, but not a sales tax on top of that.
My point is simple.
Income taxes incumber my entire income. Sales taxes incumber only a fraction of my income. A 5% sales tax will never cost me nearly as much money as a 5% income tax will.
According to the websites visual with nothing entered, Georgia is more tax friendly than Alabama on taxes in retirement. But when I entered my information for two different zip codes, (B'ham and Atlanta area) that was not the case. The "state taxes" in Georgia were double Alabama.
So can anyone comment on how Georgia is more tax friendly than Alabama, if you have knowledge?
SmartAsset is the tool I use as well.
I am in Tennessee. I looked at living in South Carolina. SmartAsset shows them equal in tiers for tax friendliness, but I pay no income tax in TN but would pay several thousand in SC. TN sales tax is much higher and property taxes are about equal. So I know that in my case at least, I pay way lower overall tax burden in Tennessee than in South Carolina.
I don't know the typical overall financial situation that makes Tennessee and South Carolina equivalent in overall taxation. It depends what you make, what you spend, how you live.
For example people over 65 have a $15,000 income tax exemption in South Carolina. If you make $30,000 per year, you pay no state income tax. If you make $100,000 per year, it is not that helpful. So your personal situation is really what matters here.
Smart Asset is a good tool to check state income tax burden because the calculator accounts for several typical sources of income, but then you have to do your own homework after that regarding other tax burdens. That calculator is not a be all and end all.
I briefly looked at SmartAsset. It didn't seem to calculate property taxes, a pernicious form of a wealth tax.
Property taxes can certainly be substantial. Local governments give themselves raises by deeming your home is worth more this year than last year, mostly by use of their crystal ball, and charging you more money just because.
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