The Key Tax Too Many Americans Forget

The Key Tax Too Many Americans Forget

Doing what you can to lower your federal income tax bill is important. But at the same time, you can't forget other taxes, or else you could end up making mistakes that increase the total amount you pay.

In the following video, Dan Caplinger, The Motley Fool's director of investment planning, talks about how many Americans forget about the state taxes they have to pay. With most states imposing income tax, Dan notes that actions like withdrawing money from retirement accounts or converting an IRA to a Roth can have state-level implications that you can avoid if you plan to move to a tax-free state later in life. Moreover, many taxpayers see state taxes as a deductible expense, neglecting the fact that you have to itemize to take advantage of the deduction, and that state taxes aren't deductible for alternative-minimum-tax purposes. Finally, Dan notes that state-level estate taxes often get imposed on much lower amounts than federal taxes, with estates as small as less than $1 million being subject to tax in some states.

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