Welcome to Texas!
Lesson #1 is your realization that zero income tax is not the same as ZERO TAX. Texas is one of the few states in the union that does not have an income tax on your individual income. However, every state government needs revenue to operate. So Texas employs other means of garnering tax revenue to run the state government. Depending on your personal situation, you may be pleasantly surprised when you move here or perhaps you will suffer from sticker shock!
Will You Be Better Off in Texas?
States with no income tax become a beacon for business growth. They tend to be more effective at creating jobs and maintaining a core of young, educated workers. The ultimate benefit to the individual really depends on the size of your paycheck. The larger the wage translates to a larger benefit from zero state income tax liability. As always, there are trade-offs. No income tax states typically have higher real estate, sales and gasoline taxes.
Moving to Texas?
Those who move into Texas from a state that has a high rate of income tax (California, New York, New Jersey, Hawaii, etc.) will find immediate relief since your employer will no longer be taking large chunks out of your paycheck as tribute to your state government. The higher your wages translates into larger potential tax savings.
Texas does have a very significant tax levy on your real estate. (Average of 1.90% ranking 6th highest in the USA). Texas does NOT have a real estate tax levy. But if you own a Texas home or other real property, the local county and school districts assess relatively large tax bills.
Critical facts you need to know:
Texas sales and use tax rates are 6.25% plus up to 2% in a local sales and use tax add on. Texas exempts certain services from sales taxes (medical, prescriptions, legal & accounting) while others are taxes (data, cable TV, nonresidential real property repair).
Texas does have a Franchise Tax on legal entities including corporations; limited liability companies (LLCs) and most partnerships. Any entity whether formed in Texas or operating in Texas must file an annual Franchise Tax Return with the state comptroller. The initial filing deadline is May 15th. The rate of tax is less than 1 percent.
If you are moving or have recently moved to Texas and have your own business, it is important to review the numerous requirements for collecting and paying in taxes and filing all the necessary reports. Texas is a pretty friendly state for business owners. But avoiding problems is much less expensive than asking for forgiveness.
Cost of Living:
There are many other factors to consider as well. The cost of living in San Francisco (or LA or San Diego) is significantly higher than Dallas, Houston or San Antonio. Home prices variances are often shocking to the Californian researching Texas home prices. Free parking in Dallas versus $600 a month to park your car in San Francisco translates into much more savings than just what an income tax differential creates.
With a move to Texas, adjusting into the local scene and culture may take some time. Whether it is an expatriate assignment overseas or moving to another city, a typical adjustment phase runs about 6 months. It takes time to find a new dentist, doctors, dry cleaners and the like. Having local resources that provide guidance can be invaluable.
Have you experienced tornados, hail storms or fierce thunderstorms? Texas weather may take some adjustment. Texas soil does not allow for basements and underground storm shelters.
The firm of Steven Miller CPA PC offers resources far beyond the typical scope of an advisory and accounting firm. We have trusted referral resources from storm shelters, roofing companies, medical professionals, and real estate advisors to many other service areas. We are here to help the transition be smoother and more enjoyable.