Any ideas to reduce or eliminate the state income tax on investment income? I have a number of hedgefunds and private equity investments which (some years) generate over 100k a year mostly as interest or short term capital gains. I live in New York, and am subject to the AMT, so it's like 7-8% extra that I pay out of the gains. I'm not interested in changing the underlying investments. Is there a way to set up a structure - say a trust or company incorporated in a tax-free state, (where I wouldn't have to pay 1% of the asset value per year in fees to set up and maintain the structure - that would defeat the purpose) that would serve to shelter or defer the investments from state income tax?

I would like to know as well...

May be move out to a state with out such taxes?

With that level of assets, and the massive amount of taxes (or penalties) at stake, you really need to contact a professional tax attorney.

Yes, there is a way to minimize/defer and/or eliminate certain state/city income taxes. It involves the creation of certain types of trusts and/or holding companies. This technique can be limited by the laws (typically the trust laws) of the state where the individual resides.

Also, business owners in certain states that are going to sell their respective companies can minimize/defer and/or eliminate state income taxes on the gain of the sale of the business.

The cost to implement such planning can be reasonable. There will be other fees.