Due to the wide variety of taxes levied at state and local levels, having to fork over some sort of tax is a given. But that doesn’t mean you have to subject yourself — and your wallet — to some of the worst tax pitfalls out there.
If you live in a high-impact area, it’s worth learning how to reduce your tax burden and keep more of your hard-earned money where it belongs — especially since certain deductions have been eliminated from federal returns.
1. New York
New York City harbors the highest overall tax burden out of America’s 52 largest cities, according to a GOBankingRates study detailing the most and least tax-friendly major cities in America. Part of the problem is the city’s high average property tax rate of 1.925 percent.
To get a possible break on your property taxes, determine if your property was assessed fairly. First, check the assessment roll to get the assessed value. Also, request the property card to make sure that the assessor’s office has accurate details about your home on file, such as the correct square footage and number of bedrooms and bathrooms.
Then, develop an estimate of the market value of your property — or contact an appraiser — and compare the estimated value to the assessment. If the assessment is higher than the estimated market value of your property, speak with the assessor’s office to see if you can get an adjustment. If not, you can formally contest the assessment.
2. Portland, Ore.
Living in Portland, Ore., means you’ll have to dig deep into your pockets come tax time. The city has one of the highest state income tax rates across the U.S. at 9 percent.
And, with new tax reform laws taking effect this year, you might owe even more. In the past, people who itemized on their federal tax return could deduct their state and local income, sales or property taxes in full. Due to the Tax Cuts and Jobs Act, however, there is a $10,000 cap on the amount of these taxes you can deduct from your federal return. Tax filers who are married and filing separately are subject to a $5,000 cap.
On the bright side, you might be able to pick up the difference somewhere else. Federal tax brackets did change for 2018, which means that your income could be assessed at a lower tax rate than last year.
Unfortunately, Milwaukee residents are subject to one of the highest average property tax rates — 2.56 percent — in the United States’ 52 largest cities, according to GOBankingRates’ study on the most and least tax-friendly cities. So, even though median home values are low at $116,700, average Milwaukeeans will still pay close to $3,000 in property taxes.
Again, making sure your property has been assessed fairly could help you save on your property taxes. If you believe that the assessment doesn’t align with the fair market value of your home, talk with the assessor and see if it can be adjusted. If not, you have the right to file an objection.
4. New Jersey
If you’re planning a move to the Garden State, you might want to reconsider. At an average of 2.3 percent, New Jersey has the worst property taxes among states in the U.S. The state also has a high median home value — equaling an average cost of $7,601 in real estate taxes — which results in a draining combination for homeowners’ bank accounts.
Property taxes are usually set at a local, not state, level. So, it’s possible that you might be able to find a lower property tax rate if you research property tax rates within different counties in New Jersey.
Become a resident of Illinois and you’ll face an average state property tax rate of 2.25 percent — the second highest in the nation. Even though the state’s median home value is nowhere near the national median, its excessive property taxes can result in homeowners forking over an average of $4,058 in real estate taxes.
If you’re already living in Illinois, you can choose to do the legwork to find out if your property is being assessed fairly and speak to your local assessor’s office if you believe it’s not. Next, you can appeal the assessment via the state’s Property Tax Appeal Board.
If you’re planning on moving to Illinois, however, research property tax rates in advance to find out where the lowest ones are, and then consider moving to a county with lower rates.
6. New Hampshire
Although New Hampshire’s average state property tax rate isn’t as high as that of Illinois or New Jersey, it still ranks as the third highest in the U.S. at 2.1 percent. And, with a median home value of over $266,000, homeowners end up having to put an average of $5,241 toward real estate taxes.
It’s possible that the tax-assessing authority in your locality has the wrong details listed about your property. Make sure the square footage of your home, as well as the number of bathrooms and bedrooms, are all correct by requesting your assessment record card. Otherwise, your assessment might be too high.
If the information is correct, determine your equalized assessment. To do this, divide the assessment value by the applicable equalization ratio, which you can obtain from your local tax office. Then, compare the equalized assessment to the estimated market value for your property. If the equalized assessment is higher, you can file for an abatement with your local tax assessor’s office.
Even though Connecticut’s average state property tax rate — 1.9 percent — doesn’t fall among the top five states, that doesn’t mean homeowners will pay less. The average amount in real estate taxes paid in Connecticut — $5,443 — is higher than in both New Hampshire and Illinois because of the state’s high median home value of $240,300, which is among the loftiest in the U.S.
If you own property in Connecticut, make sure the tax assessment is correct; you have the right to appeal if it’s not.
If you don’t live in the state but plan to, research property taxes within the state to find the lowest ones. Or, consider living in a neighboring state that might have lower property taxes. For example, Rhode Island is close enough for a commute.
Out of the 10 least tax-friendly cities identified in a separate GOBankingRates study, seven charge local income taxes, including Baltimore, which levies a rate of 3.2 percent.
Local income taxes generally apply to those who live or work in a municipality and can supplement or stand in place of other local revenue efforts, such as property, business, sales or tourist taxes.
In many instances, cities will levy a lower local income tax rate on nonresidents compared to residents, so you could potentially work in Baltimore but live somewhere else within commuting distance to avoid the high local income tax rate imposed on residents.
The state of Alabama charges the highest average local sales tax rate in the nation: 5.15 percent. Combined with the state-level sales tax, that figure rings up to an average of 9.15 percent, according to the Tax Foundation.
One way you might be able to save on sales tax if you live close to Alabama’s border is to complete a monthly shopping haul in a neighboring state with lower sales taxes. Although Tennessee has a higher average combined state and local sales tax rate of 9.46 percent, Georgia, Mississippi and Florida all have lower average combined rates — 7.23 percent, 7.07 percent and 6.80 percent, respectively.
Alabama also features an annual back-to-school sales tax holiday. Exempt items include school supplies, clothing items that cost $100 or less per item and computers.
The Pelican State bears the next highest average local sales tax rate in the nation at 5 percent. And when state-level sales taxes are added, you’ll pay 9.45 percent on top of the purchase price when buying items. Louisiana’s average combined state and local sales tax rate is the second-highest in the nation, according to the Tax Foundation.
If you live near the border of Mississippi or Texas, you might want to consider crossing over to save money when you have a substantial shopping list. Mississippi’s average combined state and local taxes are 7.07 percent, and Texas has an average combined rate of 8.17 percent — both of which are considerably lower than Louisiana’s.
How Do You Compare? Here’s The Average American’s Tax Bill in Every State
The Centennial State assesses an average local sales tax rate of 4.62 percent. After adding the state-level sales tax, you’ll pay 7.52 percent when buying taxable items.
Although Colorado doesn’t offer any sales tax holidays, according to the Federation of Tax Administrators, you could pay less in sales taxes if you live close to the border of Nebraska, Utah or Wyoming, which all have lower average combined rates than Colorado, according to the Tax Foundation — 6.89 percent, 6.78 percent and 5.39 percent, respectively.
As a plus, Wyoming’s average combined state and local sales tax rate of 5.39 percent ranks in the top five for lowest sales taxes in the nation.
Oklahoma’s average local sales tax rate of 4.43 percent ranks as the fifth highest in the nation. Once state-level sales tax is added, the average combined tax rate equals 8.93 percent — the sixth highest in the U.S., according to the Tax Foundation.
Oklahoma offers a sales tax holiday weekend, beginning on the first Friday in August, according to the Oklahoma Tax Commission website. Eligible clothing and footwear purchases of less than $100 per item are exempt from taxes during this time. Another option for saving on sales taxes is visiting a neighboring state — Texas has a lower average combined rate of 8.17 percent.
Click through to learn about the most ridiculous tax loopholes.
More on Taxes
- 10 Brilliant Ways to Reduce Your Taxes in Retirement
- 11 Weirdest Taxes Other Countries Have to Pay
- How Much You Really Take Home From a $100K Salary in Every State
- Watch: Why You Shouldn’t Assume You’re Getting a Tax Refund
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All sales tax figures were sourced from the Tax Foundation and are accurate as of July 2018.
About the Author
Cynthia Measom is a Texas-based writer specializing in finance, business, parenting and education. With almost a decade of online writing experience, her work has appeared on websites such as Chron.com, The Bump and The Motley Fool. Measom received a Bachelor of Arts in English from the University of Texas at Austin.