Tennessee has long stood as one of nine states that doesn’t collect income taxes from residents. This, however, only applied to wage income, allowing investment income to be taxed at a rate of 6% as a result of the Hall Tax. In 2016, that began to change.
As of 2021, the Hall Tax was completely eliminated. With this major change to the state’s tax laws, Tennessee now stands as a truly income tax-free state, with tax collection on investment income grinding to a complete halt.
But what does that mean for you? Whether you’re a family creating a fund for your children’s college education or your own retirement, or a major shareholder in a business, it means increased opportunities for further investment and greater financial rewards from the investments you already have.
In this blog post, you’ll read a Tennessee wealth management firm’s perspective on what kinds of specific benefits this tax change brings for families and companies alike.
The Hall Tax impacted interest and dividend-based income for all legal residents of Tennessee. That meant that retirement accounts relying on this kind of income for post-employment finances were taxed at a 6% rate, cutting into the spending power of retired seniors and generally disincentivizing retirement and investment in this state.
Though the impact of the tax can be clearly illustrated using retired seniors as an example, they were hardly the only ones negatively affected. Any family whose college funds or other financial assets grew based on dividends or interest felt the deep cut of the tax as well.
The elimination of the tax means that residents now have a greater ability to rely on these methods of growing savings accounts and generating additional income through investments. This offers an opportunity to sacrifice less of your main income, which can be used on other needs like purchasing groceries or reducing debts, or to contribute more of it to these assets and increase their value more quickly.
Reduced investment-based income taxes are substantially beneficial for Tennessee businesses, too. Without the need to sacrifice much of the income generated through investments, residents of the state now have a greater incentive to invest more into companies doing business within the state.
This increased capacity for investment can take a few different forms. One of these, of course, involves purchasing shares of a business; more of this means that Tennessee businesses now have more capital to fund their operations than they used to. Additionally, though, it also means residents of the state have more money to spend on the actual products and services that businesses offer.
With more money to spare, it’s easier for consumers to spend it on the offerings of a business, and for investors ranging from the retail level up to venture capital firms to offer funding to promising new companies that can bring new levels of innovation to the industries and markets they operate in.
Find opportunity in tax changes with Miser Wealth Partners
While the repeal of the Hall Tax is the most significant Tennessee tax change in recent years, it isn’t the only one, and others will appear in the future. Between both state and federal tax changes, it’s worth it to have experienced wealth management advisors on your side.
Trust Miser Wealth Partners to help when it comes to your most important financial planning decisions. We’re a Knoxville-based firm offering actionable guidance for formulating an effective investment strategy.
If you’re ready to learn more about how we can help you, schedule an appointment with us now. Your investments can change your life. Let us help you change it for the better.