State Tax Preparation

State Tax Preparation | State Tax Software | State Tax Rates | State Tax Deductions | 2016 - 2017


State Tax Preparation

Tips for Preparing a State Tax Return

With tax season now on the horizon again not only do you have to prepare 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:

  • Free Online Tax PreparationAlaska

  • Florida

  • Nevada

  • South Dakota

  • Texas

  • Washington

  • Wyoming

Two states charge a specific income tax on individuals that earned income tied to their state. These states tax dividend and interest income, and include:

  • Tennessee

  • New HampshireState Taxes

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.

Some 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 state level.

Some adjustments 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.

Common subtractions for state taxable income include:

  • Social Security and other retirement benefits that are taxed federally

  • State income tax refunds

  • State lottery winnings

  • Deduction for federal income taxes, if your state offers this deduction

  • Contributions to your state’s 529 college savings plan

Common additions for state taxable income include:

  • Moving expenses

  • Student loan interest

  • Common Subtractions

  • Bonus depreciation

  • Interest on municipal bonds from other states

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 completed your 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 account.

Tax 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 process.

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.


 Free Online Tax Return Filing


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