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Thread: Paying taxes to 2 states

  1. #1
    Featured Member Lizette's Avatar
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    Default Paying taxes to 2 states

    I live in one state and work in two. How do I pay state taxes? The reason I ask is that in the past, when I was working a wage job, according to the EZ form, I had to pay taxes to the county where I worked and to the county where I lived. The amount ended up being DOUBLE what I would have paid had I lived and worked in the same county. It was uncool.

    Is this usually the way it goes?

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    Default Re: Paying taxes to 2 states

    It depends on how the states in question do things. When I first moved to Florida I had to pay Federal taxes for here AND NY, but Florida doesnt have state taxes so I only paid NY state taxes. You might have to get the state tax forms for both states and pay seperately? I dunno about county though.... job A sends you its W2 so you pay one state tax based on that, and job B sends you its W2 and you pay the other state tax based on that. I think....
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    Banned Melonie's Avatar
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    Default Re: Paying taxes to 2 states

    Don't feel like the lone ranger. In some years I have had to file tax returns and pay estimated taxes to 4 or 5 different states. It basically goes like this ...

    A. - if you earned more than $700 documented income in any state with a state income tax you are required to file a state tax return in that state. This basically requires that you keep a separate record of the income earned in each state. Keeping a separate record of expenses for each state is also necessary if you file as a sole proprietor business so that you can apportion your 'net business income' from each state properly and fall into the lowest possible tax bracket in each state.

    B. - if you will owe income tax to any state, you are required to file and pay estimated taxes to that state every three months.

    C. - When April 15th rolls around, you prepare all of your 'out of state' non-resident tax returns first, based on your income from those states.

    D. Finally you prepare your 'home state' resident tax return for the total amount of income from all states combined, segregating your home state income from your 'out of state' income... and then attempt to take a tax credit for the income tax money you paid to the other states. This gets a bit dicey (and you'll need to thoroughly read the home state tax return instruction form several times), but you should NOT have to pay state income tax to your home state for money that you did not earn in that state if you file the tax credits properly.

    Yes you will have to track down the appropriate estimated tax forms and sole proprietor business tax return forms for each state - but fortunately they are now all available for download from various state websites.

    Yes this also means that the amounts on your federal tax return are going to be different from those on every state income tax return.

    Yes every different state that you work in increases the chance that your taxes will be audited, not only because your tax returns are more complex, but also because each state's auditors have added your name to their own list of random audit candidates. Thus, statistically speaking, if there is a 1.5% chance of a random federal audit, plus a 1% chance of a state audit and you have worked in two states, your overall chance of random audit rises to 3.5%. When I was working in five different states, my random chance of audit was probably 6.5% !

    If you are in a multiple state filing situation, I would highly recommend using a tax program like TurboTax and getting the state tax package for every state that you worked in.
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    Last edited by Melonie; 06-11-2005 at 04:21 AM.

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    Featured Member Lizette's Avatar
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    Default Re: Paying taxes to 2 states

    Melonie. I have 2 apartments in 2 states. One of them is my "home" home. The other is just a basic place where I sleep because it's cheaper than staying at hotels. Could the amount I pay for the basic place be considered a business expense?

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    Banned Melonie's Avatar
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    Default Re: Paying taxes to 2 states

    Quote Originally Posted by Lizette
    Melonie. I have 2 apartments in 2 states. One of them is my "home" home. The other is just a basic place where I sleep because it's cheaper than staying at hotels. Could the amount I pay for the basic place be considered a business expense?
    That would depend on how your 'business' is structured and whose name the second apartment is leased under. If you have formed an LLC or corporation, and the LLC or corporation leases the second apartment, then the answer is probably yes. If you file as a sole proprietor business and the second apartment is leased in your own name then the answer is maybe. My guess is that you could get away with deducting a percentage of the second apartment's rental costs based on the percentage of nights per year that you actually worked at the nearby club and stayed in the second apartment.

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    Default Re: Paying taxes to 2 states

    I would say spend the $200 or so for a CPA on this one. My friend is in this situation as well. Yes, you could probably figure it out, but a CPA will save you time and stress. Mine is more aggressive and INVARIABLY finds little things (especially if you're an independent contractor) that save me more than the cost of hiring her.

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