Today’s world is on the move. That’s especially true if you make your living online. You can live and work anywhere. Or maybe you have a business and investments that mean you don’t need to show up every day to work.
Which state do you pay taxes in? You need to be able to demonstrate that you have more ties to one state than any other. Some of the ways you can demonstrate that include:
The state in which you have your driver’s license,
The state in which your cars are registered,
The state where your kids go to school,
Where your church and/or social organizations are located,
Where you are registered to vote,
The state in which your medical professionals are located,
Where your medical insurance is located,
Where you spend 183 or more days each year,
Where your mail goes, and/or
Where your banking is done.
If you have more than one home, chances are you’re going to have to consider this question.
The one thing that doesn’t work, though, is setting up a company in another state that has a lower tax rate than your own. I see this sometimes with people who live in California (high tax state) who want to escape the high state tax. They hope they can open up a company in Nevada and avoid CA tax. It pretty much doesn’t work, or at least it doesn’t work in the way they hope.
If you do business in your home state, you have tax there. If you have a pass-through entity like an S Corp or partnership, you have tax in your home state. If you don’t have a compelling reason for business in the other state (and just the desire to pay less tax is NOT a compelling reason), then you have tax in your home state. And if you live in CA, just by simply owning shares in another company no matter what the state, it’s enough to have to pay tax in California AND pay the franchise tax for your business structure in CA.
If you want to reduce or eliminate your state taxes, make sure you have a legitimate tax expert on your team. This is NOT the time for getting free advice from someone who has all the buzz words. You need someone who is licensed and has a proven track record of providing legal advice
For a consultation with me about this or other tax matters, Contact Us.