What You Need to Know About Taxes When Running a Business in Multiple States
If you’re running a business that has expanded beyond your state’s borders and now operates in multiple locations, there are some important tax considerations you need to be aware of. Let’s take a look at a few:
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Taxes for Your Business When Operating in Multiple States
State Income Taxes
If you operate in more than one state, how can you figure out how much tax you need to pay to each state? It can be pretty confusing because of the way the rules work. Basically, you only have to pay tax on the money that belongs to each state. That way, you don’t end up paying tax twice on the same money. But here’s the tricky part – each state has its own rules for how they divide up the money. They use formulas based on things like sales, employee wages, and property within the state. To make things easier, the Tax Administration has a list of these formulas for corporate income taxes in 2019.
Filing Business Tax Returns
If your business has a connection to a state (which they call a nexus), you have to file tax returns in that state. This applies even if your business doesn’t have to pay state income taxes because it’s a pass-through entity.
If you own a pass-through entity, like a partnership or an S corporation, you have to file individual income tax returns in multiple states. This makes filing your taxes more complicated and expensive if you hire a CPA or another paid preparer.
Some states allow you to file a consolidated return that includes all the owners. But if you’re a sole proprietor, you have to file in each state where you have a business presence.
Withholding Taxes for Employees
If you’re in one state but have employees working for you in another state, you need to check the withholding requirements for each state. For example, if your business is based in New Jersey and you have employees in New York, you’re not required to withhold New York income taxes from their paychecks. However, as an employer from out of state, you can choose to do this for the convenience of your employees in New York.
Sales Taxes: What You Need to Know
Hey there, let’s talk about sales taxes! If you’re a business, it’s important to understand the rules for collecting and remitting sales tax. Each state has its own set of rules, so where you’re located determines your obligations.
But here’s the thing: even if you’re not physically located in a state, you may still be required to collect and remit sales tax for transactions with buyers in that state. This is thanks to a cool legal concept called economic nexus that was approved by the U.S. Supreme Court.
Let me break it down for you. South Dakota was the first state to use this concept. They said that if a seller earns more than $100,000 in gross revenues from the state or has 200 or more transactions with buyers in the state, they have to collect and remit sales tax. This means small businesses in South Dakota and other states don’t have to worry about sales tax if they fall below these thresholds.
If you want to know which states are taxing remote sellers like you, check out the list provided by Avalara.
Understanding Unemployment Tax
Normally, when your employee works in a particular state, you have to pay the state unemployment tax to that state. But what if your employee works in multiple locations within different states? The U.S. Department of Labor has provided some guidelines to help determine which state you should pay unemployment taxes to. These guidelines ensure that you only pay one state for all the work done by your employee.
Final Thought
Expanding your business to different states can bring in more money. However, it also brings more complexity when it comes to taxes. Make sure that your CPA or tax advisor is knowledgeable about the tax laws of the states where you operate.
Expanding your business to different states can bring in more money. However, it also brings more complexity when it comes to taxes. Make sure that your CPA or tax advisor is knowledgeable about the tax laws of the states where you operate.