Moving to Illinois for taxes

It looks like I’m very likely going to need to move to Illinois really soon, and for one simple reason: taxes.

When you run businesses in multiple states, you have to file taxes in every single one, yet one of them is legally your “home state” wherever you live. And that state’s income tax will prevail if it’s higher than any other states.

You deduct the state income tax paid in other states, but you can’t deduct the exact percentage of revenue made in that state.

And that’s why Iowa is a bad place to live if you run any business. (And even worse if you’re a corporation.)

Iowa’s top income tax tier is about 9% if you make over $67,000 in income in a given year. But it’s already 6.12 percent if you make even between $13,447 and $22,410.

However, income tax in Illinois is a flat 5%.

And that’s bad because the calculations boil down to paying Illinois 5%, and then paying Iowa an additional 1.12% to 4% more.

This is because of the way state taxes are filed. You fill out your entire tax form for your home state, claiming everything that you made everywhere, and then you deduct the tax paid from other states – instead of deducting the percent of income allocated to that state.

Even though I keep track of the state all income and expenses are attributed to and file for taxes in three states, I will always be paying more as long as I live in Iowa.

Maybe I should move to Florida or South Dakota where there is no income tax at all.

Some of this is an oversimplification, obviously.

There are, of course, a lot of other good reasons to move to Illinois. There’s not a whole lot happening in Iowa. It’s a boring place. And I couldn’t even imagine how bad states like Minnesota and Wisconsin might be (I don’t like the cold… who does?). Chicago’s a vibrant place and a lot closer to friends and would be an interesting choice. (Preferably some suburb that didn’t cost a fortune.)

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