No-Income-Tax States for Futures Traders: Does Moving Pay Off?

General information about tax rules, not tax or legal advice. Rules change and every situation is different: check with a qualified adviser in your country before you file.

You cannot negotiate the 60/40 split, you cannot talk the CME into moving the close, and you cannot make a bad quarter into a good one. The one lever in your tax life you can actually pull is the state line. Which is why almost every futures trader who strings together a profitable year eventually runs the same arithmetic: if I move to Texas, Florida, Tennessee or Nevada, how much do I really keep? Here is the honest version of that calculation, including the parts that make the answer smaller than the internet promises.

The federal part is already doing the work

Before you price a moving truck, price what you already have. Futures on US exchanges are section 1256 contracts, and section 1256 does two unusual things. It marks your open positions to market on the last business day of the year whether you closed them or not, and it splits every gain and loss 60% long term and 40% short term regardless of how long you held the position. A trade you were in for nine minutes gets the same treatment as one you held for nine months. You report the whole thing on Form 6781, Gains and Losses From Section 1256 Contracts and Straddles, not on the trade by trade grind that equity traders file.

Put numbers on it. Say your ordinary marginal bracket is 35% and your long term capital gains rate is 15%. The blended federal rate on your futures income is 0.60 times 15% plus 0.40 times 35%, which comes to 23%. A day trader doing the same size in single stocks pays 35% on all of it, because every position is short term. That is a 12 point spread, and it applies to your whole net trading result, every year, in any state, with no paperwork beyond the form itself.

Hold that number, because it is the benchmark. No state move in the country is worth 12 points. The highest state marginal rates on this kind of income are in the high single digits to low teens, and that is before you subtract what the move costs you. The 60/40 treatment is the biggest tax feature futures traders have, and the most common expensive mistake is giving it away.

Two more federal details that survive any relocation. Your section 1256 gains are generally not hit with self employment tax if you are speculating for your own account, which is a genuine advantage over most self employed income. But the 3.8% net investment income tax does reach trading income above the statutory modified adjusted gross income thresholds, and those thresholds are not indexed for inflation, so more traders cross them every year. Moving to Florida does not touch that 3.8%.

And losses. A net section 1256 loss can be carried back three years by election, but only against section 1256 gains in those years, which is a useful feature if last year was good and this one was not. Otherwise it carries forward as a capital loss, with the familiar annual limit on how much can offset ordinary income. This is also where the mark to market election under section 475(f) gets mis-sold. For a securities trader it can be a win, because it converts capital losses into ordinary ones and removes the wash sale problem. Applied to your commodities account it generally converts your 60/40 income into fully ordinary income. If someone pitches you "trader tax status" as a package deal, ask them in plain words what the election does to the 60% slice.

The nine states and the two asterisks

Nine states levy no broad individual income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming. For a trader, two of those come with asterisks large enough to change the decision.

State	Individual income tax	What it can charge instead
Texas	None	Franchise tax on business entities above a revenue threshold, plus annual entity reports
Florida	None, and the state constitution blocks one	Corporate income tax on entities treated as corporations
Tennessee	None since the Hall tax on interest and dividends was fully repealed	Franchise and excise tax that reaches LLCs and limited partnerships, not just corporations
Nevada	None	Commerce tax above 4 million dollars of Nevada gross revenue, plus annual business licence and list fees
Washington	None on wages	A 7% excise tax on long term capital gains above an indexed standard deduction
New Hampshire	None; the interest and dividends tax was repealed for periods beginning after 2024	Business profits and business enterprise taxes on businesses

Washington is the asterisk that matters most to this audience. The state has no tax on wages, but it does levy a capital gains excise tax on long term gains above a standard deduction that is adjusted each year. Whether and how that reaches a section 1256 position that was marked to market rather than sold is exactly the sort of question you want answered in writing before you move for a zero. The rules, the current deduction amount and the exclusions are published by the Washington Department of Revenue. Do not treat Washington as equivalent to Texas.

New Hampshire is the friendlier asterisk: its old tax on interest and dividends never touched trading gains anyway, and it has now been repealed, which removes a footnote rather than a cost.

Running the number on your own income

The calculation itself is one line. Your annual saving equals your net trading income multiplied by the marginal state rate you currently pay on it. Everything else is arguing about the inputs.

Take a trader with 250,000 dollars of net section 1256 income. In a state with a flat 5% income tax that is 12,500 dollars a year. In a state whose bracket at that income sits above 9%, it is north of 22,000 dollars. In a city that adds its own resident income tax on top of the state's, New York City being the obvious example, it is more again. Move to a state with no income tax and the whole of that line goes to zero.

Now scale it, because scaling is the entire decision. At 60,000 dollars of net trading income, a 5% state rate costs you 3,000 dollars a year, which does not pay for a cross country move, a new lease and a tax attorney. At 500,000 dollars, the same rate costs 25,000 a year and the move pays for itself inside the first twelve months. The saving scales linearly with income while the cost of moving is close to fixed, so there is a crossing point, and finding yours is a five minute exercise rather than a philosophy.

Two inputs people get wrong. First, use your marginal rate on trading income, not the headline top rate in a ranking article, and check how your current state treats capital gains, because some tax them at ordinary rates and a few give them preferential treatment. Second, remember that a high tax state is also sharing your losses. In a bad year, state loss carryforwards soften the blow. Move to a zero tax state and you keep all of the upside and all of the downside. That is usually the right trade for a consistently profitable trader and a bad one for somebody still finding out.

The entity trap that eats the savings

Here is where a lot of relocations quietly give the money back. In states with no individual income tax, the revenue often reappears at the entity level, and traders love forming entities.

Tennessee is the sharpest example. There is no individual income tax, but the state's franchise and excise tax applies, in the Department of Revenue's own words, to any "corporation, limited partnership, limited liability company, or business trust chartered, qualified, or registered in Tennessee or doing business in this state". The excise tax is charged on net earnings and the franchise tax on net worth, with a minimum franchise tax of 100 dollars. In other words, a trader who moves to Nashville and forms a single member LLC because it sounds professional has just converted a zero tax state into a taxed one. The scope and the current rates are on the Tennessee Department of Revenue's franchise and excise tax pages.

Texas charges a franchise tax on business entities, with a total revenue threshold below which no tax is due. That threshold was raised substantially for recent report years and most individual traders sit well under it, but entities still have annual filing obligations, and the threshold moves. Take the current number from the Texas Comptroller rather than from a forum post written three legislative sessions ago.

Nevada has neither an individual nor a corporate income tax, but it does levy a commerce tax on Nevada gross revenue above 4 million dollars, as the Nevada Department of Taxation sets out. That threshold is irrelevant to almost every individual trader. The annual state business licence fee and annual list filing with the Secretary of State are not irrelevant, they are just small and recurring.

Florida has no individual income tax and the state constitution stands in the way of one, but Florida does tax entities treated as corporations. An LLC that is disregarded or taxed as a partnership is generally outside it; an LLC that elects corporate treatment because an adviser mentioned payroll can walk straight into a state tax the trader did not previously owe.

The rule that falls out of all this is unglamorous: trade in your own name unless someone can tell you in one sentence what the entity is for, and can name the state tax it triggers. Liability protection for a trader with no employees and no customers is a thin argument. Estate planning and genuine partnership are real ones.

Leaving a state is harder than arriving

No state objects to you moving in. Several object strenuously to you moving out, and they have entire audit programmes for it.

Two concepts do the work. Domicile is your one true, fixed, permanent home; you change it by physically moving and intending to stay, and you have exactly one at a time. Statutory residency is mechanical: several states treat you as a resident if you keep a place to live there and spend more than 183 days in the state, whatever your domicile says. New York is the famous one, and the trap is the apartment you kept, not the calendar.

California uses a closest connections test and publishes its residency guidelines for exactly this purpose. The factors auditors weigh are mundane and personal: where your driver's licence and vehicle registration are, where you are registered to vote, where your doctor and dentist are, where your children are in school, where your pets live, where you spend holidays, which address your brokerage statements go to.

Traders carry one specific vulnerability here. Your work is portable and it leaves a timestamped trail. Broker login IP addresses, platform session logs, market data entitlement records and phone location data can place you in a particular state on a particular Tuesday. If you claim Florida and spend five months a year at the old house, the evidence is already written down in someone else's database.

Then there is the year of the move itself. You will file part year returns in both states, and income is allocated to where you were when you earned it. Closing a large winning position the week before the truck arrives is the classic own goal; a trader who waits two weeks pays a different state on the same trade.

One myth is worth killing directly. Your futures income is not Illinois income because the CME sits in Chicago, and it is not Wyoming income because you formed an LLC there. Trading gains follow the residence of the person doing the trading. A Wyoming LLC owned by somebody living in New Jersey produces New Jersey taxable income. The entity does not relocate you, and no filing fee will do the job that a moving van does.

What a no-income-tax state charges you instead

Every state funds itself. Where there is no income tax, the money comes from property taxes, sales taxes, transaction taxes and fees, and a household that spends most of its money locally can hand back a surprising share of the saving.

For a trader specifically, three line items usually matter more than the state rate on the brochure:

• Housing, including property tax and insurance. Texas leans heavily on locally set property taxes to fund schools and counties. Florida's property insurance market has repriced hard after successive hurricane seasons, and for a coastal home the annual premium can be the largest single number on the page. Compare the total annual cost of the house you would actually buy, not the state's average rate.
• Health insurance. A self employed trading household buys its own coverage, and the premium depends on the state marketplace you are in. The difference between two states can run into thousands of dollars a year for the same family, in either direction.
• Sales tax. Nevada, Washington, Tennessee and Texas all carry meaningful combined state and local sales tax, which is a quiet levy on the part of your income you spend rather than invest.

None of this cancels the saving. It just means the honest comparison is total cost of living plus total tax, not one number against zero.

The Puerto Rico question

Somebody in every trading chat will raise Puerto Rico, so deal with it briefly. Puerto Rico is not a state and does not work like one. Its incentive decrees for individual resident investors can reduce the tax on certain investment income dramatically, but the entry conditions are real: you have to become a bona fide resident under the federal tests, which cover physical presence, where your tax home is and where your closer connections are, you have to genuinely live there, and gains that accrued before you moved generally remain taxable to the United States. Whether section 1256 trading income qualifies under a particular decree is a specific legal question, and the IRS has run enforcement activity aimed at this exact population. Ask a Puerto Rico licensed adviser, in writing, before you sell a house over it.

So does moving pay off?

Yes, when three things are true at the same time. Your net trading income is large enough and durable enough that your current state's marginal rate on it is a five figure number every year. Nothing genuinely anchors you where you are, no house you refuse to sell, no school year you will not interrupt, no spouse with a job that does not travel. And you are willing to actually move, meaning licence, registration, voter roll, doctors and days, rather than buying a mail forwarding address and hoping.

If any one of those is missing, the ranking is straightforward. Get consistently profitable first, because a tax strategy applied to a losing account is an expensive hobby. Make sure you are taking the 60/40 treatment you already qualify for and not signing it away with an election you did not need. Get the entity question right, or better, avoid it. Then, and only then, price the move.

And keep one thing in proportion. A Florida address does not improve a system that loses money in Ohio. Relocation is the last optimisation in the chain, not the first, and futures are leveraged instruments where a single badly sized position can cost you more than an entire year of state tax savings, or more than the account itself.

This article is general information about how these rules work, not tax or legal advice. State residency and entity rules change, they vary with your specific facts, and the amounts here are illustrations rather than quotes. Confirm the current figures with the relevant state revenue department and the IRS, and take your own situation to a qualified tax professional before you move anything.

best states for day traders taxes

Educational content, not investment advice. Trading futures involves substantial risk of loss and is not suitable for every investor. Any reference to Algomyth results is hypothetical, simulated over historical data, and shown in full on the performance page; past performance does not guarantee future results.