Author Topic: Any Tennessee Investors here? How are you affected by the Hall Tax?  (Read 2448 times)

MickeyMoustache

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I just read about the Hall tax in Tennessee (https://en.wikipedia.org/wiki/Hall_income_tax) as I consider possible options in that state.  How badly does this mess with your investment strategy?  I would assume overall, it's less or equal to what you would pay in terms of income tax until your dividends reach a sizable amount annually.  What's your experience been?

life is short

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Re: Any Tennessee Investors here? How are you affected by the Hall Tax?
« Reply #1 on: March 10, 2016, 09:22:59 AM »
This will be the first year we've had to pay it, but we'll only end up paying about $250. Ultimately I think the benefits from living in Tennessee with no income tax far outweigh the minor inconvenience of being taxed 6% on your dividends. Even if all of your income came from dividends it would be a pretty minor expense to account for. You would just need to save a few percent more before FIRE. If I understand it correctly the Hall Tax doesn't apply to capital gains, so theoretically you could try and find funds/investments that don't produce much in the way of dividends, but I don't think it's worth the hassle.

MickeyMoustache

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Re: Any Tennessee Investors here? How are you affected by the Hall Tax?
« Reply #2 on: March 10, 2016, 09:50:28 AM »
This will be the first year we've had to pay it, but we'll only end up paying about $250. Ultimately I think the benefits from living in Tennessee with no income tax far outweigh the minor inconvenience of being taxed 6% on your dividends. Even if all of your income came from dividends it would be a pretty minor expense to account for. You would just need to save a few percent more before FIRE. If I understand it correctly the Hall Tax doesn't apply to capital gains, so theoretically you could try and find funds/investments that don't produce much in the way of dividends, but I don't think it's worth the hassle.

Thanks for the response.  Is the tax applied equally to pretax, ROTH, and post tax investments?

life is short

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Re: Any Tennessee Investors here? How are you affected by the Hall Tax?
« Reply #3 on: March 10, 2016, 10:09:24 AM »
I'm fairly certain that the tax does not apply to any IRA or 401k distributions. I may be wrong on that however as it hasn't applied to me yet.

MickeyMoustache

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Re: Any Tennessee Investors here? How are you affected by the Hall Tax?
« Reply #4 on: March 10, 2016, 11:29:07 AM »
I'm fairly certain that the tax does not apply to any IRA or 401k distributions. I may be wrong on that however as it hasn't applied to me yet.

Cool, thanks for the info!!

life is short

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Re: Any Tennessee Investors here? How are you affected by the Hall Tax?
« Reply #5 on: March 10, 2016, 01:15:49 PM »
I'm fairly certain that the tax does not apply to any IRA or 401k distributions. I may be wrong on that however as it hasn't applied to me yet.

Cool, thanks for the info!!

The way I read it, the only things subject to the Hall tax dividend-wise are what would show up on your 1099-DIV. So that would be basically just be investments held in a regular taxable brokerage account. 401k and IRA distributions are not considered dividends even if a portion of the income technically came from dividends.

Retire in CO

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Re: Any Tennessee Investors here? How are you affected by the Hall Tax?
« Reply #6 on: March 10, 2016, 10:54:32 PM »
I do consider the Hall Tax when looking at a stock for purchase. I try to keep high dividend stocks in tax sheltered accounts and limit taxable to growth. There's an exemption of $2500 for joint returns/$1250 for single filers. So basically, 6% on dividends in taxable accounts in excess of $2500. Doesn't hurt us too badly at this point. I just keep in mind that when we retire and move to Colorado...we'll miss that Hall Tax. ;-)

It's been an ongoing battle to repeal it. Might be some light at the end of the tunnel this year, but it will take years to wind down.

http://www.bizjournals.com/nashville/blog/2016/02/hall-tax-repeal-moves-to-tennessee-senate-floor.html




MickeyMoustache

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Re: Any Tennessee Investors here? How are you affected by the Hall Tax?
« Reply #7 on: March 11, 2016, 06:27:13 AM »
I do consider the Hall Tax when looking at a stock for purchase. I try to keep high dividend stocks in tax sheltered accounts and limit taxable to growth. There's an exemption of $2500 for joint returns/$1250 for single filers. So basically, 6% on dividends in taxable accounts in excess of $2500. Doesn't hurt us too badly at this point. I just keep in mind that when we retire and move to Colorado...we'll miss that Hall Tax. ;-)

It's been an ongoing battle to repeal it. Might be some light at the end of the tunnel this year, but it will take years to wind down.

http://www.bizjournals.com/nashville/blog/2016/02/hall-tax-repeal-moves-to-tennessee-senate-floor.html

Thanks for the insight, this is basically what I'm planning should I end up there in the future.  But if I'm honest with myself, it would be a stretch for me to get the role that would put me there :)