Living in a state with no income tax sounds like it would be a great thing, since the cost of living always has to include the overall tax burden of where you want to live.  However, there are many factors and types of other taxes to consider in addition to if the state has no income tax. 

In this article, I want to present some things you need take a look at, so you can decide whether states with no income tax are actually better for your finances.

Currently, there are nine states that have no personal income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. Living in these states technically allows you to keep more of your hard-earned money in your pocket. Having no state personal income tax deducted from your paycheck makes these states attractive to many people.

If you want to pay less when you retire, moving to one of the states that don’t tax retirement income might be one way to do that. So, if your retirement income includes Social Security benefits, distributions from a 401(k) or IRA, or a pension, you might want to consider one of these states.

Even though these states don't tax "traditional retirement income," you might still have to pay tax on other types of income you earn in retirement, such as from wages, interest, and dividends. (Federal income tax still applies in these states.)

Alaska

Alaska doesn’t tax your Social Security benefits, your pension, your 401(k) or IRA distributions. That’s because Alaska has no state income tax. 

Did you know that there are several categories of income are not taxable in the eyes of the IRS?

Here is a list of some common types of nontaxable income. Needles to say, it's good to consult a trusted tax professional or financial adviser if you are uncertain about your tax burden and how to minimize it. 

Here are Some Examples

Note: The following are examples of nontaxable income. (This list is not all-inclusive.) In some cases, you may have to report nontaxable income on your federal income tax return even though it isn't subject to tax.

For more information on what the IRS considers taxable, see IRS Publication 525.