Money Rehab with Nicole Lapin - Where The Rich Move to Avoid Taxes

Episode Date: September 3, 2024

Lowering your tax bill can change your life (true story!). Nicole breaks down which states have the best tax codes, and how the rich use those tax perks to keep more money in their pockets - and how you can too!

I love hosting on Airbnb. It's a great way to bring in some extra cash. But I totally get it that it might sound overwhelming to start, or even too complicated, if, say, you want to put your summer home in Maine on Airbnb, but you live full-time in San Francisco and you can't go to Maine every time you need to change sheets for your guests or something like that. If thoughts like these have been holding you back, I have great news for you. Airbnb has launched a co-host network, which is a network of high quality local co-hosts with Airbnb experience that can take care of your home and your guests. Co-hosts can do what you don't have time for, like managing your reservations, messaging your guests, giving support at the property, or even create your listing for you.

I always want to line up a reservation for my house when I'm traveling for work, but sometimes I just don't get around to it because getting ready to travel always feels like a scramble, so I don't end up making time to make my house look guest-friendly. I guess that's the best way to put it. But I'm matching with a co-host so I can still make that extra cash while also making it easy on myself. Find a co-host at airbnb.com slash host. One of the most stressful periods of my life was when I was in credit card debt. I got to a point where I just knew that I had to get it under control for my financial future and also for my mental health. We've all hit a point where we've realized it was time to make some serious money moves. So take control of your finances by using a Chime checking account with features like no

maintenance fees, fee-free overdraft up to $200, or getting paid up to two days early with direct deposit. Learn more at Chime.com slash MNN. When you check out Chime, you'll see that you can overdraft up to $200 with no fees. If you're an OG listener, you know about my infamous $35 overdraft fee that I got from buying a $7 latte and how I am still very fired up about it. If I had Chime back then, that wouldn't even be a story. Make your fall finances a little greener by working toward your financial goals with Chime. Open your account in just two minutes at Chime.com slash MNN. That's Chime.com slash MNN. Chime feels like progress. Banking services and debit card provided by the Bancorp Bank N.A. or Stride Bank N.A. Members FDIC. SpotMe eligibility requirements and overdraft limits

apply. Boosts are available to eligible Chime members enrolled in SpotMe and are subject to monthly limits. Terms and conditions apply. Go to Chime.com slash disclosures for details. I'm Nicole Lappin, the only financial expert you don't need a dictionary to understand. It's time for some money rehab. So one of my biggest pet peeves is when so-called financial experts encourage people to sweat the small stuff and tell you to go cut out your morning latte because those little expenses add up. I say in the finance world, you should actually sweat the big stuff. I mean, why skip the $5 latte when instead you could lower the APR on your credit card and potentially save thousands of dollars? Sure, $5 lattes do add up, but not like the thousands of dollars of savings

do. In relationships and in life, it's the small stuff that matters most. It's all about the little things. But in finances, it's all about the big things. And of all the big things you could sweat, one of the biggest biggies is taxes. Lowering your tax burden can change your life. I know that sounds cringey to say out loud, but the tax code where you live seriously affects how much money you hold onto throughout the year. In fact, many savvy business people uproot their lives and move to a more tax-friendly state. Jeff Bezos, for example, just recently relocated from Washington state to Florida. This move is expected to save him $430 million in taxes. Even if you're not a millionaire,

setting up roots in a more tax-friendly state can save you a whole lot of money, so I am not kidding when I say it could change your life. And you still might think that moving for taxes sounds a little crazy. Kind of like 90-day fiancé move to another country to marry someone you've never actually met kind of energy. But it really does happen. In fact, a recent study found that the pandemic accelerated moves from higher tax states to lower tax states so either there are more tax nerds out there than you think or this is a real money move that you should consider let's take a look at which are the best states to call home we financial experts don't always agree but for most of us nevada wyoming and florida pretty consistently get top

placement on our good lists for starters nev Nevada, Wyoming, and Florida do not have state income tax. You heard me correctly. There are actually nine states that do not tax income. Those states are Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. And so if you're living in one of those states, less money is coming out of your paycheck than fellow Americans in the other 41. Plus, come tax season, you only have to file one tax return, unlike the rest of us who have to file a state and a federal tax return. Less paperwork equals less stress. But here is a very important caveat. If you're living in a state without income tax, you're not guaranteed to be living large. You're not even guaranteed to save very much on taxes.

That's because states without income taxes may compensate with other tax streams. For example, while Texas doesn't have state income tax, Texans spend 1.8% of their income on property taxes, which is higher than the average. But Nevada, Wyoming and Florida are different. And I'm going to tell you why. But first, I'll give you an overview and then tell you what exactly your financial life would look like if you were in one of those states. Let's start with Wyoming.

So unlike the Texas example I mentioned, Wyoming has no income tax and low sales tax and low property taxes. The state sales tax is 4%, which makes it the eighth lowest in the country. It also has the 10th lowest property tax rate. More on the importance of that in just a second. But now let's travel over to the Sunshine State. And my apologies to Florida, but I would say that this is the ugly duckling of the top three picks. Florida pretty much only avoids the naughty list because it doesn't raise other taxes to compensate for a lack of income tax. The sales tax rate is around 6%, which is pretty average in the U.S. Property taxes in Florida aren't anything special either, but something is better than

nothing. Or I guess when it comes to taxes, nothing is better than something. But a low something is better than a high something. Even though Florida doesn't get an A plus on their tax codes, Florida is perhaps the biggest magnet for celebrities and athletes looking to lower their tax burden. Jeff Bezos, as I mentioned, just made this move along with billionaire Carl Icahn, football legend Tom Brady, billionaire hedge fund manager David Tepper, and on and on. These celebrities and public figures continue to choose Florida, even though there are states with better tax advantages. Alaska, for example, is widely considered to be the most tax-advantaged state. But let's be honest here, can you imagine

Jeff Bezos moving to Alaska? Like, after the finale of True Detective Night Country? It is hard to compete with the Sunshine State for sure, especially if you're a state that only gets three hours of sunlight during parts of the year. So even though there are other states with better tax advantages than Florida, I'm going to include it in the top three because it's a really common move for the ultra-rich, and because it becomes a really interesting test case for the importance of income tax. I'll explain that in just a bit, but for now, let's head west to Nevada. Similar-ish to Florida, the sales tax isn't going to knock

your socks off. It's just under 7%. But Nevada has the fourth lowest property tax rate in the country, which is a big deal. I know that so far this has been pretty abstract, so let's take a look at what it would be like to actually live in these states. And let's compare and contrast with my home state of California, because here on Money Rehab, we face our finances head on. Let's imagine you own a $400,000 home and you're making $70K a year. What are our state rankings when we're looking at property taxes? Nevada is the champion where you'd only owe $2,200 in property taxes. Wyoming is a close second. There you'd owe a little over $2,400 in property taxes. In California,

you'd be paying $3,000. And in last place, Florida, where you'd be paying just about $3,300. So far, we're not seeing that much tax love, right? Nevada is the winner. Florida is the loser. not seeing that much tax love right nevada is the winner florida is the loser and my home state of california not looking so bad but wait for it now we're gonna add that layer of income tax at 70k a year you're gonna owe around 8k in federal taxes so across all of our state examples we're gonna bump our take-home pay down to 62 grand then the state taxes. In California, state taxes on $70K could be around $3,000. So the take home pay of $62,000 gets cut down to $59,000. But in Wyoming, Nevada, and Florida, nothing, nada, zippo, zilch. No more income tax. You're just staying there at $62K. So now let's look at the take-home pay after income

taxes and property taxes. And that gives us the final rankings of first place, Nevada, where your take-home pay would be $59,800. Just barely behind Nevada, second place, Wyoming, where your take-home pay would be $59,560. Florida, which last time we checked was in last place, gets bumped up to third place with a take-home pay of about $58,700. And yep, in very last place, my home state of California, where I would get a take-home pay of $56,000. Almost $4,000 less than what I would have gotten if I lived in Wyoming. Let's circle back to that moment I said that Florida was a good case study for the importance of income tax. Remember when I said that Florida didn't have a lot of tax perks beyond just nixing state income tax? And when we did the math for property tax, California actually had better rates than Florida? Well, even though both of those

things are true, the absence of state income tax is so significant that it ultimately outweighs the benefit of lower property tax in California and makes Florida the more tax-savvy place to live. So yeah, I do love living in California and it makes all the sense in the world for my career because there are more television studios in Los Angeles than there are in Nevada. But there is a parallel universe where Mama Money Rehab is living large in Las Vegas, and she's keeping four grand more in that scenario than Mama Money Rehab is in this universe. The sigh. For today's tip, you can take straight to the bank.

If you're at a crossroads, as we so often are in life, and you're choosing between two states, choose the one that gets more tax love. I promise it's going to pay off big time. I love hosting on Airbnb. It's a great way to bring in some extra cash, but I totally get it that it might sound overwhelming to start or even too complicated if, say, you want to put your summer home in Maine on Airbnb, but you live full time in San Francisco and you can't go to Maine every time you need to change sheets for your guests or something like that. If thoughts like these have been holding you back, I have great news for you. Airbnb has launched a co-host network, which is a network of high-quality local co-hosts with Airbnb experience that can take care of your home

and your guests. Co-hosts can do what you don't have time for, like managing your reservations, messaging your guests, giving support at the property, or even create your listing for you. I always want to line up a reservation for my house when I'm traveling for work. But sometimes I just don't get around to it because getting ready to travel always feels like a scramble, so I don't end up making time to make my house look guest-friendly. I guess that's the best way to put it. But I'm matching with a co-host so I can still make that extra cash while also making it easy on myself. Find a co-host at Airbnb.com slash host. One of the most stressful periods of my life was when I was in credit card debt. I got to a point where I just knew that I had to get it under

control for my financial future and also for my mental health. We've all hit a point where we've realized it was time to make some serious money moves. So take control of your finances by using a Chime checking account with features like no maintenance fees, fee-free overdraft up to $200, or getting paid up to two days early with direct deposit. Learn more at Chime.com slash MNN. When you check out Chime, you'll see that you can overdraft up to $200 with no fees. If you're an OG listener, you know about my infamous thirty five dollar overdraft fee that I got from buying a seven dollar latte and how I am still very fired up about it. If I had Chime back then, that wouldn't even be a story. Make your fall finances a little greener by working toward your financial goals with Chime. Open your account in just two minutes at Chime dot com slash MNN. That's Chime dot com slash MNN.

Chime feels like progress. Banking services and debit card provided by the Bancorp Bankime.com. Chime. Feels like progress. Banking services and debit card provided by the Bancorp Bank N.A. or Stride Bank N.A. Members FDIC. SpotMe eligibility requirements and overdraft limits apply. Boosts are available to eligible Chime members enrolled in SpotMe and are subject to monthly limits. Terms and conditions apply. Go to Chime.com slash disclosures for details. Money Rehab is a production of Money News Network. I'm your host, Nicole Lappin. Money Rehab's executive producer is Morgan Levoy. Our researcher is Emily Holmes. Do you need some

money rehab? And let's be honest, we all do. So email us your money questions, moneyrehab at moneynewsnetwork.com to potentially have your questions answered on the show or even have a one-on-one intervention with me. And follow us on Instagram at moneynews and TikTok at moneynewsnetwork for exclusive video content. And lastly, thank you. No, seriously, thank you. Thank you for listening and for investing in yourself, which is the most important investment you can make.