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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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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 20, 2014, at 7:07 AM, ralf914 wrote:

    Not so much people forget as their financial planners don't plan for state taxes. I recently retired and had to ask more than once, "OK that's federal tax, what about state and local taxes."

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Dan Caplinger
TMFGalagan

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

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