Tax day can strike fear in the heart of even the most financially competent individuals. Filing taxes when you live and work in one state is complicated enough. But filing taxes in two states can get super tricky. What are the reasons you may need to file in two states, and how can you make this process less cumbersome?
In general, you may need to file in two states if you moved from one state to another during the course of the tax year, or if you “live in one state but work in another,” according to attorney and financial planner Dan Caplinger in Daily Finance. But investments in other states or even gambling winnings may also come into play. Yes, it looks like what happens in Vegas can follow you home and show up on your tax returns.
In general, when you’re dealing with multiple states it may be a good idea to bring in a tax professional to make sure you cross your Ts and dot your Is. Here is a rundown of the times you may need to file in two separate states, as well as some tips to make the whole process less of a headache. Take heart: at least you only have to go through this ordeal once a year.
1. You Moved Mid-Year
Moving to a new state is enough of a headache, but you probably did not consider its effect on your taxes when packing up all of your belongings."For each state, there’s generally a form you need to fill out that allows you to account for the fact that only part of your income for the year was earned while working in that state," Mike Piper, CPA and financial advisor, said in Oblivious Investor. You may need to indicate that you were just a part-year resident of that state.
2. You Work In Another State
If you work in one state and live in another, then your taxes will need a little extra attention. "You could be be a resident of California who does contract work for a company in Georgia," according to the US Tax Center at IRS.com.c"Whether you briefly traveled to a different state for work, or you work remotely from home, make sure to get your refund status for that state this tax season." Because laws governing state income can vary wildly, this might be a good time to call in a professional.
3. You Have Gambling Winnings From Another State
If you hit the jackpot in Atlantic City last summer, those winnings might catch up to you at tax time. According to the TurboTax site, "you will need to file a nonresident return for the state in which you won." Yep: those winnings still count as income.
4. Your Employer Goofed
If you employer accidentally withheld taxes for a state that you do not live in, then you may need to adjust your taxes accordingly. According to efile.com, you will probably have to file a nonresident state tax return if your "employer incorrectly withheld taxes for a state that is not your resident state." Hey, everybody makes mistakes.
5. You Own Rental Property In Another State
Yes, that rental property in Florida still counts as income. According to TurboTax, "if you collect rent from someone who lives in a property that you own – even if it's just a room in your house – you're considered a landlord and must report the rent you receive as taxable income." And if it's in another state, then you will probably need to file taxes for that state, too.
6. You're Telecommuting
Even if you perform all of your duties in a virtual office, your real-life taxes might cross state lines. As Cara Griffith said in Forbes, "an employee may telecommute from State A but report to State B. In most instances, the employer will have to withhold from State A because that is where the services are performed." Yes, the tax laws are no easier for people who work via the internet.
7. Your State's Nonresident Rules Vary
Whatever the reason you may need to file taxes in two or more states, keep in mind that the laws about nonresident taxation can vary tremendously. When in doubt, reaching out to your local tax advisor for help can save you a lot of time (and potential audits) in the long run.