In this portion of our 2023 Tax Planning series, we outline some of the core issues impacting State and Local Taxes, namely the impact of remote work, credits for taxes paid to other states, and deduction caps for state and local property taxes.
A Note From Us: At Akif CPA, we specialize in tax return preparation for individuals, families, and businesses. We are currently accepting new clients. Please contact us today if you require tax help.
Know the Impact of Remote Work
As the trend toward remote work continues, many individuals will face state tax consequences and additional filing requirements. Below are a few instances in which your remote work situation might cause tax implications:
- You work remotely from various locations throughout the year
- You work remotely for a company located in another state
- You split time between two or more state
- You work in two or more states
- You relocated to a new state as a remote employee but remained at the same employer
- You are an employer with employees working in multiple states
- and other scenarios
Because states generally tax on income within two distinct parameters—residency and source—it can depend on the circumstances of you work and/or your living situation that determine how you should approach your taxes. Employees in general are required to withhold taxes for the state within they reside, but some states also require employers to withhold for employees who live out of states.
*Note: It’s important to speak with a CPA if this is your first time filing as a remote worker to ensure you are abiding by the tax laws of the state in which you reside and the state in which your company is based, and that your employer is also withholding correctly.
Credits for Taxes Paid in Other States
Why would you be paying tax in more than one state? There are a few common circumstances in which you may be required to pay taxes in multiple states, such as:
- You live in one state and work in a neighboring state
- You hold investment property in a state of which you are not a resident
- You live in a state for part of the year
- You live or work in multiple states
- You relocated from one state to another
- and other scenarios
Regardless of why you may be required to pay taxes in multiple states, it’s important to remember that each state has different rules, and you will be required to follow a different process depending on the circumstance. For example, if you have rental property in another state, but do not live in that state, you may need to put together an apportionment schedule to calculate what percent of your income is technically made within that state. As another example, if you’re a partner in an out-of-state partnership, or if you have received funds from a trust or estate in another state, you will often take a credit for the taxes due that state.
*Note: Two big things to remember—#1. Each state is different, so visit the state’s tax website for more information on if credits are offered and what the filing requirements are, and #2. CPAs see these circumstances all the time, and are your best bet for a timely and accurate filing.
Deduction for State Income and Local Property Tax Limits
For 2023, the deduction for state income and local property taxes is $10,000 for individuals, and $5,000 for married taxpayers filing separately.
This is part of the 2017 Tax Cuts and Jobs Act (TCJA), and is known as the SALT (State and Local Tax) deduction.
*Note: Many states have a workarounds for state and local tax caps at the entity-level. Please speak with your CPA before making any decisions about SALT deduction claims.
Looking for 2023 Tax Bracket Info?
For information on 2023 Tax Brackets, and to see how 2024 Tax Brackets will compare, read: 2024 Tax Brackets vs. 2023 Tax Brackets.
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