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.
The No. 1 way to lose your wealth without ever even knowing it
You've fought hard to build wealth for you and your family. Yet one all-too-common pitfall could completely derail your dreams before you even know it. That's why a company The Economist hails as "an ethical oasis" has isolated five simple questions you must answer to ensure that your financial future is really secure.
Can you answer yes to all five of these eye-opening questions? Click here to find out -- before it's too late!
Fool contributor Dan Caplinger and The Motley Fool have no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.