State Tax Preparation
Tips for Preparing a State Tax Return
With tax season now on the horizon again not only do you have to
your federal income taxes, depending on the state you live in, you
may have to file a state income tax
return. Some states do
not have an income tax, so if you live in one of these states there
is no need to perform state tax preparation.
The IRS isn't the only one that wants a chunk of your paycheck - 41
states have a broad-based individual state income tax. Only seven
states don't have an income tax
to calculate or pay. They are:
states charge a specific income tax on individuals that earned
income tied to their state. These states tax dividend and interest
income, and include:
The starting point for
most state tax filers is to prepare
your federal return first. You’ll want to be sure that your federal return
is completed accurately before you even attempt your
state tax preparation.
Where to Start with State Taxes
Adjusting Your Federal Income to State Income.
Enter the information from your federal return on
your state income tax return, then you can begin making adjustments
to reconcile the differences between your federal taxable income and
your state taxable income.
adjustments may be
additions, that are add-backs from any federal deductions you may
have taken that is not allowed on your state tax return. Other
state tax software and support adjustments in this area include income
items that are tax-exempt on federal tax returns, but are taxed at the
may be subtractions for
income items that are taxable under federal tax law, but are
tax-exempt under state tax law. They may even
be state-specific deductions. The amount of adjustments your state
tax preparation will require depends upon how closely your state conforms
to the federal tax code.
subtractions for state taxable income include:
Social Security and other retirement benefits that are taxed
State income tax refunds
State lottery winnings
Deduction for federal income taxes, if your state offers this
Contributions to your state’s 529 college savings plan
for state taxable income include:
Determining Your State Tax Liability
Once you have calculated your taxable income for
your state you can find your gross state tax liability. Most states
have tax brackets with tax rates that increase as income increases.
In these states you’ll have to use a table to calculate your tax.
However, some states have a flat tax rate that all taxpayers pay
regardless of their income or filing status choice.
After you have
state tax preparation and determined your liability, you can reduce that by any state
tax credits that you qualify to deduct. State tax credits can vary
quite widely from
state to state, but many states have their own values to child tax credits
and earned income credits. Most tax credits can only reduce your tax
liability to zero, whereas some refundable tax credits are treated as a payment of taxes with any leftover
credit being refunded back to you.
Filing Your State Tax Return
Electronic state tax filing is the preferred
method for tax compliance since it's quick, easy and offers an
instant response. Tax
preparation software offers a more accurate return guarantee, and you
can get your refund much faster when
you e-file your return and choose direct deposit into your bank
software programs like TurboTax and H&R Block usually offer state tax return
preparation for most states and can be used in conjunction with your
federal tax preparation software package to combine much of the
Effects of State Taxes on Retirees
If your planning to move to another state when you retire, examine
the tax burden you’ll face in the state your moving to. State taxes
are increasingly important to everyone, but retirees with fixed
income have extra cause for concern.
States raise revenue in many ways including sales taxes, excise
taxes, license taxes, income taxes, intangible taxes, property
taxes, estate taxes and inheritance taxes.