Tax & Residency Guide in Tennessee

Tax Guide for Residents of Tennessee

Tennessee is known for its natural beauty, vibrant music scene, and no state income tax. However, residents still need to be aware of other taxes, such as sales tax and property tax. In this tax guide, we will discuss the residency triggers, tax system type, treaties, entity options, filing requirements, rates, deductions, when to hire an advisor, and country-specific strategies for residents of Tennessee.

Residency Triggers

In Tennessee, there are specific residency triggers that determine whether you are considered a resident for tax purposes. To be classified as a Tennessee resident, you must be physically present in the state for more than 183 days in a calendar year. Additionally, if you maintain a principal residence in Tennessee, you will also be considered a resident for tax purposes.

Tax System Type

Tennessee does not have a state income tax on wages and salaries. However, it does have a Hall income tax of 1% on interest and dividends, which is being phased out and will be fully eliminated by 2021.

Tax Treaties

Tennessee does not have any tax treaties with foreign countries. If you are a non-resident alien living in Tennessee, it's essential to consult with a tax advisor to understand your tax obligations.

Entity Options

Residents of Tennessee have various entity options when it comes to taxes. You can choose to operate as a sole proprietorship, partnership, limited liability company (LLC), S corporation, or C corporation. Each entity type has different tax implications, so it's crucial to consult with a tax professional to determine which option is best for your situation.

Filing Requirements

Residents of Tennessee are required to file a state income tax return if they have income from interest and dividends subject to the Hall income tax. However, if you only have wage or salary income, you are not required to file a state income tax return.

Tax Rates

As mentioned earlier, Tennessee does not have a state income tax on wages and salaries. The Hall income tax rate is 1% for interest and dividends, but this tax is being phased out and will be eliminated by 2021.

Deductions

Tennessee residents can deduct certain expenses on their state income tax return, such as mortgage interest, property taxes, charitable contributions, and certain medical expenses. It's essential to keep receipts and documentation to support your deductions.

When to Hire an Advisor

If you have a complex tax situation, own a business, have investments, or are unsure about your tax obligations, it's recommended to hire a tax advisor. A tax professional can help you navigate the tax laws, minimize your tax liability, and ensure compliance with state regulations.

Country-Specific Strategies

For residents of Tennessee who are non-US citizens, it's crucial to consider the tax implications of your home country. Some countries have tax treaties with the US that may affect your tax obligations. Additionally, if you have foreign income or assets, you may have reporting requirements with the IRS. Consulting with a tax advisor who has experience in international tax matters can help you navigate these complexities.

In conclusion, while Tennessee does not have a state income tax on wages and salaries, residents still need to be aware of other taxes, such as the Hall income tax, sales tax, and property tax. Understanding the residency triggers, tax system type, filing requirements, rates, deductions, and entity options can help residents of Tennessee navigate their tax obligations effectively. If you have a complex tax situation or international tax considerations, it's advisable to consult with a tax professional to ensure compliance and minimise tax liability.