No one likes to pay taxes, and having to pay state income taxes as well as writing a check to the IRS for your federal tax bill adds insult to injury. However, some states don't require you to pay state income taxes at all. Florida is a popular location both for retirees seeking warmer climes after a long career as well as for anyone seeking to avoid double taxation on their money, because the Sunshine State doesn't have a state income tax. In fact, unlike some other states that don't impose tax on earned income, Florida doesn't require investors to pay taxes on their investment income either.

Tax-free states and how they differ

There are currently nine states that don't impose a state income tax on earned income. If you get money in the form of wages, salaries, tips, or income from a business that you run as a sole proprietor or in another form that creates self-employment income, then you won't have to pay personal income taxes in any of these states. Florida is one of them, and the others are Alaska, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming.

However, a couple of those states require people who get income from certain investment-related sources, including both dividends and interest, to make income-tax payments on that type of income. Specifically, New Hampshire imposes a 5% tax on dividends and interest, while Tennessee charges a 6% tax on investment income in excess of $1,250 per person.

Florida doesn't have that distinction between different types of income. There, regardless of whether your income comes from wages, salaries, interest, dividends, or just about any other source, Florida won't collect a state income tax.

A different answer for businesses

Individuals don't have to pay tax on investment income in Florida, but for businesses, the answer isn't as favorable. Any corporation that isn't treated as a pass-through entity in Florida will have to pay corporate level income tax on its income, whether it comes from business activity or from investment income on company-owned assets. However, for the bulk of individuals deciding where they want to move, business taxes won't be an issue.

Sunny weather, long beaches, and a festive atmosphere are just part of the appeal that Florida has. For those who watch their money closely, the lack of an income tax on investment income or any other type of personal income is also a big draw.

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