All You Need To Know About Multi-State Income Taxes

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Expanding into another state can improve your bottom line and boost the growth of your business. It also holds lucrative potential for employees earning outside their resident state as it holds the possibility of lower taxes and expenses for an individual.

Our expert team and comprehensive services will give you peace of mind when expanding into other states, so you can feel excited about growing your business, not worried about regulatory issues. Our CPA’s have specialist knowledge about all the in’s and out’s of multi-state expansion and are uniquely positioned to help you take advantage of the tax benefits available. 

But, what are the true tax considerations when doing business in another state, and what should be considered from a business and individual standpoint? We look into the implications of these.

Understanding Business Climate and Tax Implications of Other States

For businesses: If you’ve recently expanded into another state, or considering doing so, it is necessary to look into the business climate of that state as well as consider the various tax consequences and federal filings required by that state. Addressing these challenges early in the expansion process can help avoid penalties and fees for late filings and underpaid taxes.

For individuals: With remote work becoming the new normal in the United States, it is not uncommon for individuals to move to lower-tax states in the hopes of saving money. It is also becoming more possible for individuals to derive income from another state without ever leaving their home state. While employees may think that they are saving on taxes, this may not always be the case as each state has varying tax requirements and in some cases may experience the burden of double taxation.

Moving from one state to another can present challenges for both businesses and individuals. There are multiple tax obligations that need to be addressed in order for the transition to be successful. Working with a trusted CPA can help both businesses and individuals take this route successfully.

A good starting point for both individuals and businesses who want to understand their tax obligations in other states is to study tax apportionment rules within the state. Apportionment rules allow you to establish the percentage of your business’ profits that is subject to the tax laws of the different states within which it operates.

Cost of Performance vs. Market-Based Tax Apportionment, Explained

When your corporation does business in states other than the one where it is incorporated, it may influence state and local taxes.

Apportionment refers to the division of business income among states by the use of an apportionment formula. Allocation refers to the assignment of non-business income to a particular state.

Understanding how apportionment works so that you can accurately report earnings to the IRS and local governments is crucial for corporations that operate in multiple states. It is important to understand which additional taxes apply, or you may find yourself paying double tax on some of those earnings.

Residency Tax Rules

Running your business as a resident of a state different from your home state has tax obligations and benefits that include considerations around lower tax rates, being recognized as a resident of the new state, and being relinquished of tax obligation by your home state. Owning property in multiple states and traveling between states for business or leisure, can also impact your tax liability in those states.

Most states have a threshold for the number of days you’re allowed to stay in the state without being liable for taxes. If you frequent a state different from your home state a number of times per year, it is important to track the number of days you’ve spent in a particular state to ensure accurate tax submissions and maximize tax benefits. There is software that can help you track your residency days per state to aid an accurate and less complicated tax filing process.

Find out all you need to know about tax residency rules and requirements.

All You Need To Know About Multi-State Income Taxes
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Software that can help you track your residency days per state

Multi-State Tax Filing Requirements Guide

We have put together a guide with key US State Income Taxes and highlighting each State's Cost of Performance Matrix.

Find out more about tax business climate and tax requirements when doing business in the following states

We can help you make sense of your interstate tax obligations

Our CPAs are experts in taxes and can help you understand the financial implications unique to you.

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