37:["$","$L38",null,{"category":"$39","relatedArticles":[{"id":"cG9zdDoyNDAzNzU=","databaseId":240375,"postId":240375,"author":{"node":{"id":"dXNlcjo5OQ==","databaseId":99,"userId":99,"avatar":{"url":"https://secure.gravatar.com/avatar/67b8e9b4ee40c2b36d23ca662b66d02f?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"Ashley Kilroy is an experienced financial writer currently serving as an investment and insurance expert at SmartAsset. In addition to being a contributing writer at SmartAsset, she writes for solo entrepreneurs as well as for Fortune 500 companies. Ashley is a finance graduate of the University of Cincinnati. When she isn’t helping people understand their finances, you may find Ashley cage diving with great whites or on safari in South Africa.","additionalMeta":{"expertise":null,"__typename":"User_Additionalmeta"},"email":null,"firstName":"Ashley","fullName":"Ashley Kilroy","lastName":"Kilroy","name":"Ashley Kilroy","postCount":{"pageInfo":{"offsetPagination":{"total":530,"__typename":"OffsetPaginationPageInfo"},"__typename":"UserToPostConnectionPageInfo"},"__typename":"UserToPostConnection"},"slug":"achorpenning","__typename":"User"},"__typename":"NodeWithAuthorToUserConnectionEdge"},"categories":{"nodes":[{"id":"dGVybToxOTUwOQ==","children":{"nodes":[],"__typename":"CategoryToCategoryConnection"},"databaseId":19509,"categoryId":19509,"link":"https://smartasset.com/tax-policy/articles","name":"Tax Policy","postCount":{"pageInfo":{"offsetPagination":{"total":96,"__typename":"OffsetPaginationPageInfo"},"__typename":"CategoryToPostConnectionPageInfo"},"__typename":"CategoryToPostConnection"},"slug":"tax-policy","ancestors":{"nodes":[{"name":"Taxes","slug":"taxes","__typename":"Category"}],"__typename":"CategoryToAncestorsCategoryConnection"},"parent":{"node":{"name":"Taxes","id":"dGVybToxMzY=","slug":"taxes","__typename":"Category"},"__typename":"CategoryToParentCategoryConnectionEdge"},"__typename":"Category"}],"__typename":"PostToCategoryConnection"},"content":"$3a","date":"2024-03-11T07:00:00","excerpt":"

\n","featuredImage":{"id":"cG9zdDoyNDA4NDY=","databaseId":240846,"altText":"A woman researching the flat income tax in her state.","date":"2024-03-10T17:40:20","fileSize":507634,"mimeType":"image/jpeg","modified":"2024-03-10T17:46:14","sourceUrl":"https://smartasset.com/wp-content/uploads/sites/2/2024/03/iStock-1215087157_9b1bdd.jpg","__typename":"MediaItem"},"modified":{"datetime":"2024-3-10","readable":"March 10, 2024","readableExtended":"March 10, 2024, 6:22pm ET"},"multipleBylinesByRole":{"editedBy":{"id":"dXNlcjoxMTc=","databaseId":117,"userId":117,"avatar":{"url":"https://secure.gravatar.com/avatar/9fffe2eb35204e151b68731435d247c5?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"Arturo Conde is a senior editor at SmartAsset. He has a master’s from the Graduate School of Journalism at Columbia University and a bachelor’s from the College of Arts and Science at New York University. 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While the federal government applies a consistent tax system to every citizen, states have tax rates they set independently from Uncle Sam. States can apply flat taxes, graduated taxes, or no taxes to their residents. If you don’t know about your state’s current income tax system, finding out can help you compare how much you would pay by staying or moving to another part of the country. Here is every state that currently uses a flat income tax and how it could benefit you. If you’re looking for need hands-on guidance with tax planning, a financial advisor could help you lower your tax burden.

","

What Is a Flat Income Tax?

","

A flat income tax means that all taxpayers, regardless of their income level, pay the same percentage of their income as taxes. The tax rate remains constant or proportional for all taxpayers regardless of their amount of taxable income.

","

For example, say your state has a flat tax rate of 15%. A taxpayer earning $30,000 would pay 15% of their income in taxes ($4,500), while a taxpayer earning $300,000 would also pay 15% of their income ($45,000). So, while the tax percentage stays the same across income levels, your specific income determines how much you owe in taxes.

","

What States Have a Flat Income Tax?

","

For 2024, thirteen states have flat income taxes. They are:

","$51","

Iowa will also join this list in a few years, according to its current legislation. In 2026, the state will shift to a flat tax rate of 3.90%.

","

Flat Tax Rate vs. Graduated-Rate Progressive Income Taxes

","

","

A flat tax rate imposes the same percentage of taxes due on all income levels. While some states have this system, most impose a graduated (or progressive) rate system. The federal government has graduated rates as well.

","

In a progressive tax system, the tax rate increases as income levels rise. Higher-income individuals pay a higher percentage of their income in taxes when compared to those with lower incomes.

","

The United States federal tax brackets for 2024 reflect this pattern. Specifically, the rates are 10%, 12%, 22%, 24%, 32%, 35%, and 37%. The more money you make, the higher taxes you incur because of the raised percentages.

","

A significant point of clarification on the progressive tax system in the United States is that the rates apply to different levels of income. For example, say you’re a single filer with $200,000 of annual income. This means the top portion of your income (all income above $191,950) gets taxed at 32% for tax year 2024. So, only $8,050 receives this tax rate. Looking at the tax table, you see that most of your income is beneath this bracket. The income between $100,525 and $191,950 is taxed at 24%, and so on. So, each tax rate applies to part of your income, with lower percentages applying to lower levels of income.

","

Advantages of Flat Income Tax States

","

As the example above demonstrates, progressive or graduated-rate tax systems can be complex. On the other hand, a flat tax rate is straightforward and takes the same proportion of income from each taxpayer.

","

The key to understanding how a flat state income tax affects you is to evaluate your income and cost of living. For example, Mississippi has a slightly higher income tax rate than Colorado. However, the tax doesn’t apply to the first $10,000 of every taxpayer’s income. Plus, the cost of living in Mississippi is nearly 14% lower than the national average. On the other hand, the cost of living in Colorado has recently skyrocketed, offsetting the advantages that a low flat tax rate might bring otherwise.

","

In the case above, a taxpayer with $50,000 of annual income would fare better in Mississippi. Only $40,000 of their income would be taxed, resulting in an annual cost of $1,880. The same income would result in $2,200 in income taxes in Colorado.

","

For a comparison, both of these figures are lower than Hawaii, where a single filer with $50,000 of income would pay over $3,100 in income taxes, according to SmartAsset’s Hawaii income tax calculator. In many cases, flat taxes can benefit higher-earning taxpayers more than graduated rates, where the percentages climb with income.

","

Downsides to Flat Income Tax State

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A flat income tax can also extract more income from earners with lower wages who need more money for basic expenses. For example, if the federal government switched to a 20% flat tax rate, families with incomes up to $94,300 would pay more taxes than they do currently. So, graduated rates can help keep taxes low for households with modest incomes.

","

Some states have graduated systems with forgiving rates that benefit lower-income earners. In the example before, the single filer with $50,000 would pay less income taxes in California – about $1,623 for 2023. The state’s graduated income taxes apply rates of 1%, 2% and 4% in ascending order, allowing taxpayers to keep higher percentages of their wages.

","

These brackets allow taxpayers with middling incomes to pay less into the tax system and put more toward housing, food and fuel. Plus, California imposes an extra 1% tax on incomes above $1,000,000 to help fund its mental health services. This way, earners with ample financial capacity help fund programs for earners who may not otherwise afford critical health services.

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Bottom Line

","

","

A flat income tax system, as exemplified by the states that currently employ this approach, imposes a uniform tax rate on all income levels. The simplicity of this model is evident, offering clarity and ease of administration. However, its impact on individuals varies, and the choice between a flat income tax and a progressive tax system is multifaceted. Whether it is advantageous or disadvantageous for taxpayers depends on income, cost of living and specific state regulations.

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Tax Planning Tips

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Photo credit: ©iStockPhoto/AJ_Watt, ©iStockPhoto/TuiPhotoengineer, ©iStockPhoto/elenaleonova

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\n","featuredImage":{"id":"cG9zdDoyNjc4MzA=","databaseId":267830,"altText":"","date":"2024-11-08T09:11:06","fileSize":410307,"mimeType":"image/jpeg","modified":"2024-11-08T09:11:18","sourceUrl":"https://smartasset.com/wp-content/uploads/sites/2/2024/10/iStock-900778652.jpg","__typename":"MediaItem"},"modified":{"datetime":"2024-11-8","readable":"November 8, 2024","readableExtended":"November 8, 2024, 9:20am ET"},"multipleBylinesByRole":{"editedBy":{"id":"dXNlcjoxOTY=","databaseId":196,"userId":196,"avatar":{"url":"https://secure.gravatar.com/avatar/7eaae8752922e4afcde743b2103c2edf?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"Jaclyn is the Director of Economic Analysis at SmartAsset and a CERTIFIED\r\nFINANCIAL PLANNER™. With a bachelor of arts in economics from The College of New Jersey, she evaluates data for trends that affect your financial life. 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Currently, the top U.S. capital gains tax rate applied to assets held more a year is 20%. This is well below the world’s highest capital gains tax rate of 42% levied by Norway, but somewhat above the average of European countries. China’s maximum long-term capital gains tax on individuals is the same as the U.S rate, while India’s ranges from 10% to 20%. Many countries levy no tax on capital gains, while others tax them at the same rate as ordinary income. When investing abroad, you may be subject to the tax laws of not only the U.S. but also the country you are investing in.

","

Talk to a financial advisor to get answers to your questions about capital gains taxes and international investment strategies.

","

Capital Gains Tax Concepts

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If you sell an asset such as a share of stock, real estate property or other asset for more than you paid, you may owe a capital gains tax on the difference. Capital gains tax rates are generally lower than tax rates for ordinary income, which helps encourage investment. A 2023 study by British researchers suggested higher capital gains taxes reduce innovation. Looking at how state capital gains tax increases and decreases affected venture capital, the researchers found venture-funded companies filed fewer patents after capital gains were increased.

","

Capital gains taxes are part of the tax system in countries around the world. In the United States, the capital gains tax began in 1922 and has been in place since. However, while the tax has been present for over 100 years, according to an accounting of its history by consulting firm Wolters Kluwer, the maximum rate has varied widely.

","

The initial U.S. capital gains tax rate in 1922 was 12.5% for both corporations and individuals. This was gradually raised over the decades until in 1979 it reached 35% for individuals and 30% for corporations.

","

Since the 1970s, the maximum rate has changed many times but generally trended down for individuals while the corporate rate increased to 35%. In 2017, the corporate rate was cut to 21% while the individual rate held at 20%. Over the century of capital gains taxes changes in the United States, the average has been approximately 26% for both individuals and corporations.

","

Capital Gains Tax Rates

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The current U.S. top long-term capital gains tax rate is 20%. This applies to single filers earning $518,900 and joint filers earning at least $583,750 in 2024.

","

Compared to similar countries, the U.S. currently has a mid-level capital gains tax rate. Denmark has the world’s highest rate at 42%. Other European countries also have significantly high rates, including Norway at 37.8% and France at 34%. A number of European Union nations, including Belgium, Czech Republic, Switzerland and Turkey, have no capital gains tax. Overall, European countries average 17.9%, according to a 2024 Tax Foundation analysis.

","

Elsewhere, many large economies have similar rates to the U.S., according to a worldwide survey by consulting firm PwC. For instance, China taxes individual capital gains at a maximum of 20%. India’s top individual rates range from 10% to 20%. Among leading South American economies, Brazil levies a top rate of 22.5% on individuals and Argentina collects 15%.

","

A financial advisor can help you devise an effective tax strategy for your goals. Use this free tool to get matched.

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Economic Effects of Capital Gains Tax Hikes

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Many countries also impose capital gains taxes on income earned within their borders, even if the investor is not a resident. If the country where the investment is located taxes capital gains, U.S. investors may owe capital gains taxes there as well.

","

To help reduce the burden of double taxation, the U.S. offers a Foreign Tax Credit. This allows U.S. taxpayers to offset their U.S. tax liability by the amount of taxes paid to a foreign government, up to a certain limit. For capital gains, however, the rules can be complex, and not all foreign taxes are eligible for a full credit.

","

The U.S. has tax treaties with several countries to prevent or reduce double taxation, which might affect capital gains. These treaties may allow for reduced tax rates or exemptions in certain situations, but capital gains are not always covered by these treaties.

","

Because international tax issues can be complex, it’s often beneficial for U.S. investors to consult a professional financial advisor to ensure compliance with both U.S. and foreign tax obligations and to make the most of any credits or deductions.

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Bottom Line

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Capital gains tax rates around the world vary from zero to a high of 42% in Denmark. Several other European countries also have high capital gains tax rates, but the European average is less than the current U.S. top capital gains tax rate of 20%. Proposals to raise capital gains tax rates by presidential candidate Kamala Harris would put the top rate closer to its historical norm in the U.S. but above the rates charged by many other large and economically advanced countries. Higher capital gains taxes may inhibit saving, reduce overall economic activity and also discourage innovation.

","

Tips

","$65","

Photo credit: ©iStock.com/Nuthawut Somsuk

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\n","featuredImage":{"id":"cG9zdDoyODA3MjE=","databaseId":280721,"altText":"A closeup image of a piece of paper with \"Alternative Minimum Tax\" in bold lettering on a desk.","date":"2025-03-11T12:18:00","fileSize":274346,"mimeType":"image/jpeg","modified":"2025-03-11T12:19:27","sourceUrl":"https://smartasset.com/wp-content/uploads/sites/2/2025/03/iStock-886482972-modified-b74ab862-d251-4496-acf6-e9d0b1fee49b.jpg","__typename":"MediaItem"},"modified":{"datetime":"2025-3-11","readable":"March 11, 2025","readableExtended":"March 11, 2025, 1:03pm ET"},"multipleBylinesByRole":{"editedBy":{"id":"dXNlcjo3Ng==","databaseId":76,"userId":76,"avatar":{"url":"https://secure.gravatar.com/avatar/ff1d12e3cebfaa1fe2b25aef26174d63?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"Becca Stanek is an experienced writer and editor who has worked in the personal finance space since 2017. 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The alternative minimum tax (AMT) is designed to ensure that certain taxpayers who benefit from various deductions and tax preferences still pay a minimum level of tax. Several factors can trigger AMT liability, including high income, large deductions and financial activities that create differences between regular taxable income and the income calculated under the AMT system. Common triggers include bringing in substantial earnings, taking significant itemized deductions, exercising incentive stock options and using accelerated depreciation methods.

","

A financial advisor can help you manage your investments and anticipate the tax implications of different financial decisions. Find a fiduciary advisor today.

","

What Is AMT and How Does it Work?

","

The alternative minimum tax was created in 1969 to prevent high-income taxpayers from using loopholes and deductions to avoid paying taxes. Some taxpayers must compute their tax liability using two methods – one following the standard tax rules and another under the alternative AMT framework.

","

Unlike the regular tax system, which allows various deductions and exemptions, the AMT has its own set of rules and exemptions. This can lead to unexpected tax bills for those who are unaware of the implications.

","

Certain deductions and exemptions that are allowed under the regular tax system are added back to the taxpayer’s income, resulting in the alternative minimum taxable income (AMTI). This AMTI is then taxed at flat rates. If the AMT liability is greater than the regular tax liability, the taxpayer must pay the higher amount.

","

What Triggers AMT Tax?

","

AMT applies when certain income levels, deductions or financial activities create a lower tax liability under the regular tax system. Here’s a look at common triggers of AMT:

","$78","

Calculating Your AMT Tax Bill

","$79","

Calculating your AMT tax bill involves several steps. First, you need to determine your AMTI by adding back certain deductions and preferences to your regular taxable income. Common adjustments include state and local taxes (SALT), mortgage interest on home equity loans and medical expenses.

","

Once you have your AMTI, subtract the AMT exemption amount, which varies based on your filing status and is adjusted annually for inflation. For example, in 2025, the exemption amount is $88,100 for single filers and $137,000 for married couples filing jointly. The remaining amount is your taxable income for AMT purposes.

","

Here are the exemption amounts and phaseout thresholds for 2025:

","

Filing Status	Exemption Amount	Phaseout Threshold	Complete Phaseout
Married Filing Jointly or Surviving Spouse	$137,000	$1,252,700	$1,800,700
Unmarried Individuals	$88,100	$626,350	$978,750
Married Filing Separately	$68,500	$626,350	$900,350
Estates and Trusts	$30,700	$102,500	$225,300

","

In 2025, the exemption starts to decline when a taxpayer’s AMTI exceeds $1,252,700 for joint filers and $626,350 for single filers. For every dollar of AMTI beyond these thresholds, the exemption is reduced by 25% of the excess income.

","

Next, you apply the AMT tax rates to your AMTI. The AMT has two tax rates: 26% and 28%. For 2025, the 26% rate applies to income up to $239,100 ($119,550 if married filing separately), while the 28% rate applies to income above this threshold.

","

Finally, compare your AMT tax liability to your regular tax liability and pay whichever is higher.

","

How Do I Avoid AMT?

","

While it may not be possible to completely avoid the AMT, there are strategies to minimize its impact. Here are some common approaches:

","$7a","

Bottom Line

","$7b","

The alternative minimum tax, or AMT, is a distinct tax system designed to ensure that high-income individuals pay a minimum level of taxes, even if they qualify for numerous deductions under the regular tax system. The AMT operates by adding back certain tax preferences and deductions to a taxpayer’s income, resulting in an alternative minimum taxable income. If the AMT liability exceeds the regular tax liability, the taxpayer must pay the higher amount.

","

Tax Strategy Tips

","$7c","

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Itemized deductions and the standard deduction are two options that taxpayers can choose when filing their tax returns. The choice affects how much taxable income is reduced, potentially influencing the amount of taxes owed. The standard deduction is a fixed dollar amount that varies based on factors like filing status, while itemized deductions allow for a more customized approach by adding up specific eligible expenses, such as medical costs, mortgage interest or charitable donations. A financial advisor who specializes in tax planning could also help optimize your finances to lower your tax liability.

","

What Is the Standard Deduction?

","

The standard deduction is a set amount that reduces a taxpayer’s taxable income, available to most individuals when they file their federal income tax returns. This deduction requires no supporting documentation, making it a straightforward option for those who do not have significant itemizable expenses.

","

The standard deduction amount is adjusted annually for inflation and is determined by one’s filing status—single, married filing jointly, head of household or married filing separately. The simplicity of the standard deduction often makes it an attractive choice for taxpayers who either do not qualify for numerous itemized deductions or find that their qualifying expenses fall below the set threshold.

","

Filing Status	2024 Standard Deduction	2025 Standard Deduction
Single	$14,600	$15,000
Married Filing Jointly	$29,200	$30,000
Head of Household	$21,900	$22,500
Married Filing Separately	$14,600	$15,000

","

In addition to the standard deduction, taxpayers who are age 65 or older or blind can be eligible for an extra deduction amount. This additional deduction varies based on filing status and the specific condition(s) of the taxpayer. For the 2024 and 2025 tax years, the extra standard deduction amounts are as follows:

","

Filing Status	2024 Standard Deduction	2025 Standard Deduction
Single or Head of Household	$1,950	$2,000
Married Filing Jointly	$1,550 per spouse	$1,600 per spouse
Married Filing Separately	$1,550	$1,600

","

If a taxpayer is both 65 or older and blind, they can claim both additional amounts, effectively doubling the extra deduction. These additional deductions help further reduce taxable income, providing tax relief to eligible individuals.

","

What Are Itemized Deductions?

","

Itemized deductions allow taxpayers to deduct specific expenses from their taxable income instead of taking the standard deduction. This approach can be advantageous if total eligible expenses exceed the standard deduction amount.

","

Common expenses that qualify as itemized deductions include:

","

Medical and dental expenses that exceed a certain percentage of adjusted gross income (AGI)
State and local taxes (SALT) up to the federal cap
Mortgage interest
Charitable contributions
Casualty losses (in federally declared disaster areas)

","

Unlike the standard deduction, itemizing requires that you provide detailed records and receipts to substantiate the deductions claimed. However, itemized deductions offer more flexibility for those with significant qualifying expenses, providing an opportunity to potentially lower taxable income beyond what the standard deduction offers.

","

When Should You Itemize Instead of a Standard Deduction?

","

","

Taxpayers often choose to itemize when their qualifying expenses exceed the standard deduction for their filing status. Itemizing often makes sense for those who have high medical expenses, substantial mortgage interest or large charitable contributions.

","

For example, in 2025, a married couple filing jointly might find that their itemizable expenses, including $15,000 in mortgage interest, $10,000 in state and local taxes and $7,000 in charitable donations, total $32,000. Since this amount is greater than the $30,000 standard deduction for their filing status, itemizing would reduce their taxable income by an additional $2,000, leading to potential tax savings.

","

Evaluating these expenses each year can help determine whether itemizing or taking the standard deduction is more beneficial.

","

How to Itemize Your Deductions

","

By following these steps, you can determine whether itemizing will offer a greater tax benefit when compared with claiming the standard deduction:

","

Gather receipts and records: Collect documentation for all deductible expenses, such as medical bills, mortgage interest statements, charitable contribution receipts and state/local tax records.
Fill out schedule A: Use IRS Form Schedule A to list your itemized deductions. This form is used to calculate the total amount of deductible expenses.
Compare against the standard deduction: Calculate your total itemized deductions and compare them with the standard deduction for your filing status. Choose the option that offers you the higher amount to reduce your taxable income as much as possible.
File your tax return: If you’re itemizing deductions, attach Schedule A to your Form 1040 when filing your tax return. Ensure all supporting documentation is organized in case of an IRS audit.

","

How Will the Standard Deduction Change in 2026?

","

The 2026 standard deduction could change dramatically. The Tax Cuts and Jobs Act (TCJA) significantly increased the standard deduction, but these changes are set to expire after tax year 2025 (filed in 2026). For 2026, unless Congress extends the provisions, the standard deduction will revert to lower pre-TCJA levels, which means that taxpayers may see a reduction in the amount they can deduct automatically.

","

It is likely the deduction amounts will return to approximately half of what they are in 2026, reducing the overall benefit for many filers. This change will make it more advantageous for some taxpayers to consider itemizing again, especially if their qualifying expenses are substantial. Planning ahead and understanding how these shifts will impact your tax situation can help in making informed decisions about deductions.

","

Bottom Line

","

","

Whether you’re opting for the simplicity of the standard deduction or the potential savings from itemizing, making an informed decision can lead to reduced taxable income and a better tax outcome. Keeping track of expenses and staying updated with tax law changes will help maximize deductions and minimize taxes owed.

","

Tax Planning Tips

","$94","

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