How to Reduce State Taxes

How to Reduce State Taxes. Most people worry about the money they may have to owe to Uncle Sam. It's easy to forget that another principality-the state in which you live-may collect income taxes too. Here are a few tips to help you reduce your state income tax liability.

Step 1

Move to a state that does not have income taxes. These include Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming. Two other states, Tennessee and New Hampshire, only tax interest and dividend income.

Step 2

Contribute to your state's 529 account if you have college-bound children. Depending on your state's tax laws, money paid to a college savings plan may count as a credit or a deduction from your taxable income.

Step 3

Know state deductions that are available for expenses related to organ donation, such as travel, lodging and lost wages. In Georgia, acceptable donated organs include all or part of a kidney, pancreas, liver, lung, intestine or bone marrow.

Step 4

Drive an alternative-fueled, low emissions or hybrid vehicle. Many states give credits to individuals who try to save the environment. Other deductions may include those related to disaster relief (if your area experienced a hurricane or tornado), first-time homebuyer credits and conservation credits.

Step 5

Check to see if you can deduct care-giving expenses paid for a family member (children or dependent adults), adoption expenses or money paid for a dependent minor's driver education classes.

Step 6

Look for credits based on your job. Workers in some professions, such as military members and physicians based in rural areas, may be eligible for tax breaks.

Step 7

Use updated tax preparation software. Deductions and credits change from year to year. Make sure you take advantage of the latest tax savings strategies by purchasing newly updated tax software annually. Check out your state taxing authority's website for more information on deductions particular to your state.