Welcome Guest. Register Now!  



Reply
 
LinkBack Thread Tools Search this Thread Display Modes
  #1 (permalink)  
Old 11-03-2009, 01:08 PM
Junior Member
 
Join Date: Nov 2009
Posts: 1
Relocating

My husband has a new job that will require our family to relocate. Our house in Wisconsin is now for sale. We are planning on renting until our house sells. The job is in Iowa, but on the border of Wisconsin. For income tax purposes, is it better for us to rent in Wisconsin or Iowa, or does it not matter?
Thanks!



Digg this Post!Add Post to del.icio.usBookmark Post in TechnoratiFurl this Post!Reddit! stumble!bookmark in google!Share on Facebook!
Reply With Quote
  #2 (permalink)  
Old 11-11-2009, 07:42 AM
TaxGuru's Avatar
Tax Guru
 
Join Date: Jan 2007
Location: New Jersey, USA
Posts: 2,400
Blog Entries: 3
It all depends on your preference as to which State you find most desirable, however, from a tax point of view, it would be preferable to be a resident of a state that has a lower individual income tax rate.

So, it is worth examining the individual tax rates for both States and the State that has the lowest tax rates would be financially more desirable to you.

For the Tax Year 2008, Iowa State has 9 tax rate brackets, with a rate of 0.36% at the lowest end and 8.98% at the highest rate.

For the Tax Year 2008, Wisconsin State has 4 tax rate brackets, with a rate of 4.6% at the lowest end and 6.75% at the highest rate.

Assuming your effective taxable income puts in the highest tax bracket, than clearly Wisconsin appears to have the lower tax rate and so from the tax point of you, it would be more preferable to rent in Wisconsin State as its highest tax rate offers a tax rate that is at least a 2.3% (8.98% - 6.75%) lower than Iowa State.

Assuming your effective taxable income puts in the lowest tax bracket, than clearly Iowa appears to have the lowest tax rate and so from the tax point of you, it would be more preferable to rent in Iowa State as its lowest tax rate offers a tax rate that is at least a 4.24% (4.6% - .36%) lower than Iowa State.

Thus, I would recommend your Tax Adviser to help you determine what your tax bracket would be in both states given your 2009 projected taxable income based on your husbands new job. Generally speaking, the State with the lowest tax rate would be choice to rent as this would be your principal residence.

But, there are several other factors that also come into play as your husbands income would be taxed in Iowa as a Non-Resident Income, assuming you maintain a residence in Wisconsin. In this case you would get taxed at the Iowa tax rate but you would get a tax credit or deduction for taxes paid in Iowa so that you can offset the tax liability from Iowa State on your Wisconsin.

Thus, you may not gain a significant tax benefit at the end of the day or it may be a very marginal tax benefit at the best. Thus, it might be prudent to simply find a suitable rental in Iowa State to avoid the tax hassle of filing a Multi-State tax returns, which may clearly cost you more in tax fees!

__________________
Find a CPA near you!

Ask TaxGuru Please refer to the legal disclaimer.


Digg this Post!Add Post to del.icio.usBookmark Post in TechnoratiFurl this Post!Reddit! stumble!bookmark in google!Share on Facebook!
Reply With Quote
Ads
Reply


Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

vB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Relocating to the UK and need advice... schmidty20 Alternative Minimum Tax 1 10-31-2010 09:30 AM

Follow us on Facebook Follow us on Twitter Google Buzz Rss Feeds

» Categories
 
Individual
 » Income
 » IRA/Sep
 » Medical
 
Corporations
 » Payroll
 
Forum for CPAs
 
Financial Planning