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Technology allows many of us to work from almost anywhere. COVID has pushed that even further with some business leaders thinking that remote work in some capacity will be here to stay. However, living that #vanlife and working remotely can land you with surprising tax consequences. If managing your federal taxes with the IRS isn't cumbersome enough, working or doing business in other states may result in you owing tax in multiple states and not just the one in which you're currently a resident. It can get even trickier if you are self employed or own a business, such as an S Corporation.
For example, let's say you and your family are residents of State A and decide to spend time traveling around State B to check out their national parks for most of the summer. You stopped at a few State B clients while passing through to say "hello." As a State A resident, you'll certainly be subject to tax here. Additionally, State B will likely want their cut as well.
Below are some items to consider when
Where are you performing the work? Entirely at your own office or do you go to a client's site out of state? This is common in consulting where you may need to be on site to provide training or solution installation.
Do you own real estate, such as a rental, in other states?
Do you own a flow through business (partner in an LLC, partnership, or S-corporation) that is located in another state?
If you are an owner-operator of a business, there's additional complexities such as where the work is performed, where the client or customer is located, if you have employees in other states (or if they're working remotely!), and/or if you have property in other states.
Each state has its own nuanced rules. In some circumstances, you can be taxed on the same income in separate states! As states continue to look for additional sources of funding, this isn't likely an issue that will just disappear.
It's important to keep good records as to where you're working and when. If you're a business owner, it's also important to keep track of where your clients are located and the sales allocated to each of those states.
Have questions? Need help setting up and maintaining good accounting systems to reduce the tax time headache? Let's chat!
Disclaimer
Please see our Disclaimer. The information contained within this website is provided for informational purposes only and is not intended to substitute for obtaining accounting, tax, or financial advice from a professional accountant.