No matter where you live, the federal taxes will be about the same. But you'd be amazed at how much your state and local tax burden may vary. And if you itemize deductions, how much you pay -- and deduct -- in local property taxes could affect the bottom line of your federal return, too.
People planning to retire "often use the presence or absence of a state income tax as a litmus test for a retirement destination," says Tom Wetzel, president of the Retirement Living Information Center. "But higher sales and property taxes can more than offset the lack of a state income tax."
Seven states -- Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming -- have no state income tax. Two states -- New Hampshire and Tennessee -- tax only dividend and interest income that exceeds certain limits. But many of the remaining 41 states (and the District of Columbia) that impose an income tax offer generous incentives for retirees. If you qualify, moving to one of these retiree-friendly areas could be cheaper than relocating to a state with no income tax.