Tax Benefits Of South Dakota Residents Explained

Written by
Amber Hobert
Published on
April 23, 2022
Table of Contents

South Dakota Tax Benefits

If you plan to relocate or reside in South Dakota, this is a great decision. The state offers one of the best environments whether you want to work, invest, or spend your retirement years. Therefore, you do not go through a lot of trouble when you want to settle in the state.

Life in South Dakota is also made simple because of the many tax benefits. Like any other state, you must file both state and federal taxes. However, one of the things to note is that you only file federal income taxes because South Dakota residents do not pay income tax to the state. To help you gain more knowledge, this article explains tax benefits in South Dakota.

Retirement Tax

As mentioned above, South Dakota residents do not pay income tax. Therefore, pensions, social security, and all other forms of retirement income are not taxed in this state. It is also good to note that sales taxes are also low. Although property taxes are slightly high, seniors with low income can offset those costs.

Thus, if you plan to relocate to South Dakota and are worried about your retirement, there is no need for you to worry. It is one of the most friendly states for retirees to live in. As previously mentioned, this is because there is no state income tax, no inheritance or estate taxes, and the sales taxes are low.

In most parts of the state, you can afford to live with your social security income. To ensure that you live a good life with an average social security income, you can hire a financial advisor to guide you.

They can help you plan your retirement and set your financial goals. You can get help on investing and planning your finances, including homeownership, taxes, estate planning, and insurance.

Why is South Dakota Tax-Friendly for Retirees?

South Dakota is tax-friendly for retirees for several reasons. As previously mentioned, state income is not taxed. This means that pensions, social security, and all other retirement incomes are not taxed. You also note that sales taxes in the state are low.  You do not get taxed for wages, investment, and social security. All retirement income from a 401(k), pension, IRA (Individual Retirement Account), and other sources are not taxed by the state. However, remember that you may still have to pay federal taxes to the above income sources.

Property Tax Benefits

It is good to note that South Dakota has higher property taxes than average. However, the living cost in this state is a bit low. If you have a home in South Dakota, you can pay less than 1.5 percent of your property value in yearly taxes. On the plus side, several programs help senior citizens with high property tax bills.

Homestead Exemption Program

The state allows people above seventy years earning an income below a particular level not to pay property taxes until they sell their home. However, even when you can delay the payment, you will still pay the property taxes. The taxes you pay may accrue an interest going up to 4 percent per year.

You can pay them off with the amount you receive when you sell the home. In some cities in the state, seniors can make applications to have municipal taxes from the past year reduced. This is referred to as property tax reduction from municipal tax. To make this application, you should be above sixty years.

Personal Income Tax

Residents in South Dakota are exempted from paying personal income tax. States that levy personal income tax usually allows their residents to claim personal exemptions on income tax yearly. The exemption entails payment of the income tax on an amount beyond a certain level.

The exemption works by minimizing taxable income among the residents. Both federal and state taxes give exemptions. So, if you plan to live in South Dakota, you will benefit by not paying the state income tax.

Capital Gains Tax

Capital gains tax typically refers to the tax that is levied from profits earned when you sell a capital asset. Some capital assets include land parcels, stocks, personal items, homes, and many others. Capital gains are usually taxed at both the state and federal levels. Federal governments typically have lower rates of tax on capital gains.

On the other hand, states usually tax the capital gains at similar rates with your regular income. South Dakota does not levy taxes on capital gains and personal income.

Sales Tax

Most states usually levy a statewide sales tax. In addition, most states also charge local sales taxes that are then added to the state's tax. South Dakota has the lowest sales tax among all the neighboring states. It is also good to note that the state does not levy taxes on selling items such as prescription drugs, food, and nonprescription drugs. Thus, if you happen to sell any of those products, you will enjoy the tax benefit provided.

Excise Tax

Excise taxes, also referred to as differential commodities or selective sales taxes, are levied on the sale of certain services and goods. They are referred to as indirect taxes since they are not levied directly to individual residents. In most instances, excise taxes are paid by the seller or producer of the items.

The tax cost is then included in the selling price of the items and then passed on to the customers. South Dakota generally has one of the lowest rates of excise taxes in the United States.

Corporate Income Tax

States usually levy corporate income taxes on the profits made by companies. If you are planning to set up a company in South Dakota, you will enjoy a benefit in that the state does not levy a broad-based corporate income tax. However, the state levies taxes on specific financial institutions. But, note that the levy tax on these financial institutions is still low compared to what other states charge.

Property Tax

Property taxes in the United States usually apply to real estate. However, some states levy property taxes on other kinds of personal properties like vehicles. The tax base and tax rate generally determine your property tax liability. The property's assessed value usually determines the tax rates and tax base at hand. They also depend on the value that is being subjected to tax.

In most states, property taxes form a large percent of the revenues earned by local governments. Property taxes usually vary from one local government to the other. When it comes to property taxes, South Dakota has the lowest amount levied compared to most of the other states in the United States.

Inheritance and Estate Taxes

South Dakota residents do not pay any inheritance and estate taxes. However, residents are supposed to pay the estate taxes to the federal government.

Which Products or Services Have Tax Benefits?

Before you set up shop, you need to know what will be taxed and what will be exempted from tax in your business. Note that you can enjoy tax benefits for various items, so you need to be sure which ones fall under that list.

Expert Services

These include services offered by architects, lawyers, mail forwarders, landscapers, and others. The definition can be broad, and there are a lot of exemptions that apply. Therefore, ensure that you check with the Department of Revenue to determine whether the services you are providing are taxable.

Tangible Products

These are physical items you may provide in your business. Most of the tangible products are taxable in South Dakota, but there are also several exceptions. Some of the taxable products include home appliances, motor vehicles, and furniture. Some of the items with tax benefits include prescription medications, food, and non-prescriptive drugs.

Digital Products

These are goods that are accessed or delivered electronically, in most cases through the web. EBooks, online driver licenses, and media streaming services are all categories. Most of these products are taxable, but the rates vary.

SaaS (Software As A Service) Products

These are cloud-based software products that customers access online. These products may also be categorized as digital services. SaaS products are taxable in South Dakota, so you will not enjoy any tax benefits if you want to have a business dealing with them.

However, you can enjoy tax benefits by getting sales tax discounts. These discounts help you save some money as a reward for being compliant with the tax system in the state.

When Should You File Taxes in South Dakota?

After registering for tax, you get assigned a particular filing frequency. You are requested to pay the tax either annually, monthly, or quarterly. In most cases, the frequency chosen depends on the type of tax you were registered for.

When it is time to pay the taxes, you should do three things - calculate the amount you owe, file your tax return, and then pay. Ensure that you keep all the receipts and other documents showing your tax payments. This is necessary because they could come in handy if there is an issue. The documents can also act as proof if you want to enjoy some tax benefits for being tax compliant.

Need Help With Your Taxes in South Dakota?

As you can see, there are many tax benefits you can enjoy in South Dakota. The process of paying sales tax is also easy in this state. However, if you have a tax issue that you need help with, you should not hesitate to contact tax professionals for more help.

The tax professional can help you determine all the tax benefits you can enjoy depending on your specific situations or businesses. Besides, they can also help you file the taxes at the right time without making errors that can result in penalties. Moreover, you can enlist professional mail forwarders to assist you if you need any tax mail forwarded.

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