Tax issues aren’t only a concern that looms over individuals’ heads from January through April every year. A significant number of them go far beyond the counting that you report, and they may require additional proofs that your bank statements and payroll checks can’t provide. Additionally, the IRS isn’t the main wellspring of those issues: state tax authorities are starving for revenue, and if you split your time among different states, you may find it tough to establish connections and may even have to file taxes in multiple states.
The following are probably the most widely recognized personal income tax issues people are likely to face:
Not Making Estimation of Your Tax Payments
Self-employment is the most common cause for this. If you have the habit of withholding taxes from your paychecks at work, it can be a trauma to have to pay taxes yourself. You may end up owing not just a huge amount of self-employment and income taxes but also forfeits for not making tax payments on time. Estimates must be paid quarterly, or you will face an underpayment penalty.
If your total tax due is under $1,000 when you go to file, you won’t have to worry about getting whacked with an underpayment penalty. However, it’s appropriate to set aside at least 20%-25% of your income for estimated tax payments and pledge to pay this amount every month if quarterly taxes are too complicated to figure out.
Circumstances like rental income on the side or freelancing while you’re still employed can be a reason for you to fall short at tax time, so make sure to have additional taxes withheld from your payroll check if you don’t want to make estimated payments. State tax payments also shouldn’t be ignored.
Not correctly filing state tax returns after moving to another state
Moving to another state with little or no income taxes like Florida or Nevada can be captivating if your bank account feels squashed in high-tax states like California or New York. Many people divide their time between several states for work or for personal reasons, and if it’s not just a three or four-week creative refuge or corporate assignment, it can make networking much more difficult to influence in some situations.
With the prospect of a lower tax overburden becoming even more engaging, it seems logical to just shift to the tax-haven state you’ve been closely interested in. Yet, even after you file for a change in address with the postal service, change your voter registration, and get perceived as a resident by your new state, the high-tax state that you left is probably going to likewise still regard you as one.
Basically, you have to spend at least 183 days of the year in the other state and maintain a primary address there. Merely having property in another state won’t do if your family members do not live and wait for you thereafter your work or travel. Where you spend your time outside of work also matters because ultimately, what counts is where you sleep every night.
If your move is permanent and your residency is justifiable, you may have to file a part-year resident tax return for the final few months you stayed in the previous state. You need not to worry about this for subsequent years, but keep track of days that you have spent in each state before and after moving day.
Negligence in filing state income tax returns as a nonresident
Having a business or rental income in another state requires filing state tax returns as a nonresident. If this income is significantly higher, it can end up producing a large tax bill if you’re not prepared.
If you have an out of state job, chances are that your paycheck provider may also be wrongly withholding taxes for the appropriate state. In centralized regions like the tri-state area, especially for Philadelphia and New York City residents, ensure that city taxes are being rightly withheld if you are a resident, and that withholding diminishes if that is no longer the case. There are usually mutual agreements among states and municipalities in areas where state border cross, but you should be very careful while making it sure that you don’t owe nonresident taxes in addition to what you owe to your current home state.
If you fail to make tax payments at the right time and to the right agency, then these taxation problems can easily get out of control. To avoid these issues and many more, contact us, and our tax filing experts will surely help you out with your state and local taxation, as well as rules for establishing nexus. Visit ubos.pro for more information.