If you’ve recently moved to a new state, you’ve likely been busy settling in and adjusting to your new community. However, with tax season upon us, it’s time to add one more task to your to-do list: filing taxes in multiple states.
Depending on where you moved from and to, you may now need to file tax returns in three different states. But don’t worry, with the right approach and understanding of the process, filing taxes in multiple states can be manageable.
Go through this article to know the steps you need to take to file taxes in multiple states accurately and efficiently.
How to File Taxes In Multiple States:
- Gather Necessary Documents
- Determine Residency Status
- Research State Tax Laws
- Allocate Income and Deductions
- Prepare State Tax Returns
- File State Tax Returns
- Review and Double Check
- Pay Any Taxes Owed
Ready? Here we go!
1. Gather Necessary Documents
Start by gathering your W-2 forms from every employer you worked for during the tax year. These forms, provided by your employer, outline your earnings and tax withholdings. Ensure you have a W-2 for each job held to accurately report income on your tax return.
If you received income beyond employment, such as freelance work or rental income, collect any 1099 forms you may have received. These forms detail various types of income, including interest, dividends, or self-employment earnings, crucial for reporting additional income.
Depending on your financial situation, gather other pertinent tax forms. For instance, if you paid mortgage interest, secure Form 1098 from your mortgage lender. If there were educational expenses, a Form 1098-T might have been issued, reporting qualified education expenses for potential deductions or credits.
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2. Determine Residency Status
Familiarize yourself with the concept of residency for tax purposes, which involves determining the state or states where you are considered a resident for tax filing. Each state has its own rules, and understanding them is crucial for accurate tax filing in states where you have residency obligations.
Determine your residency status in each state where you are required to file taxes by considering factors like physical presence, domicile, and state-specific rules. Physical presence involves the time spent in a state during the tax year, while domicile refers to your permanent home or primary connections. Some states, like New Jersey and California, have specific tests for residency determination.
Take into account key factors such as physical presence, domicile, and state-specific rules when establishing residency status:
- Physical presence: Assess the number of days spent in each state, as some states have specific thresholds for residency based on days present.
- Domicile: Evaluate your permanent home and significant connections, considering factors like property ownership, family residence, and voter registration.
- State-specific rules: Research and understand the rules and guidelines unique to each state. Some states may utilize additional criteria or tests, such as the IRS’s substantial presence test or exceptions like the closer connection exception.
Carefully review residency rules for each state, gather necessary documentation, and consult a tax professional if you are uncertain or face complex circumstances. Their expertise can provide tailored guidance based on your specific situation.
3. Research State Tax Laws
Get acquainted with the tax laws of each state where you must file taxes. Understanding the unique regulations and requirements of each state is essential for accurate tax filing, considering that state laws can differ significantly from federal tax laws.
Delve into state-specific details such as tax rates, deductions, credits, and filing requirements. States may have varying tax rates based on income brackets, as well as specific deductions or credits that can optimize your tax benefits. Being well-versed in these state-specific provisions ensures accurate calculation of tax liability and maximizes potential tax breaks.
Explore any reciprocity agreements between states that could influence your tax situation. These agreements exempt residents from one state from paying income tax in another state, impacting how you report and allocate your income. Research the existence and implications of reciprocity agreements in states where you earn income or hold residency.
Utilize reliable sources like state tax department websites, official publications, or reputable tax resources for your research. These sources provide accurate and current information on state tax laws, rates, deductions, credits, and filing requirements.
4. Allocate Income and Deductions
Precisely allocate your income and deductions when filing taxes across multiple states. Follow these steps for accurate allocation:
- Identify the source of your income: Consider where you earned your income and adhere to each state’s rules for sourcing income. For instance, if your wages were earned in one state but your employer is located in another, allocate your income based on the sourcing rules of each state.
- Allocate income in accordance with state-specific regulations: Each state may have its own guidelines for income allocation. Some states may require allocation based on days worked, while others may use alternative methods. Research and comprehend the specific rules for each state in which you are required to file and allocate your income accordingly.
Grasp the rules for sourcing income, especially in scenarios like wages earned in one state but paid by an employer in another state. Understand the guidelines for determining how much of your income should be allocated to each state, as these rules can differ across states.
Distribute deductions proportionately to the portion of income earned in each state. Ensure accuracy in claiming deductions based on the income earned in each state. For instance, if you incurred business expenses related to income earned in multiple states, allocate those expenses based on the corresponding income portions in each state.
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5. Prepare State Tax Returns
Employ the correct tax forms for each state where you have a filing obligation to accurately prepare your state tax returns. These forms are typically available on the respective state’s tax department website. Ensure you download or acquire the appropriate forms for the specific tax year you are filing.
Accurately complete the state tax forms by carefully following the provided instructions. The instructions will guide you through each section, detailing how to report income, deductions, and credits. Pay close attention to any state-specific requirements or additional schedules that may need inclusion with your tax return.
Report income, deductions, and credits on your state tax returns in adherence to each state’s specific requirements. This may involve allocating income based on state-specific sourcing rules, as discussed earlier. Include any state-specific deductions or credits you may qualify for, such as credits for taxes paid to another state or deductions for specific expenses allowed by the state.
Prior to submission, perform a thorough check of calculations and ensure all necessary information is included in your state tax returns. Review the forms for accuracy, validate correct data entry, and confirm the inclusion of any required supporting documentation or schedules. Diligent review minimizes errors and ensures compliance with all filing requirements for each state.
6. File State Tax Returns
After preparing your state tax returns, determine the suitable filing method for each state, whether electronic filing or paper filing. Most states offer both options, but specific criteria or return types may mandate electronic filing. Refer to each state’s instructions to identify the applicable filing method for your circumstances.
Follow the provided instructions for each state on how to submit your tax return. Whether filing electronically or by mail, adhere to the instructions that guide you through the submission process. Take note of any additional forms, schedules, or documentation requirements specified by each state, ensuring compliance with their unique criteria.
If opting for electronic filing, consider the advantages such as faster processing and the option for direct deposit of refunds. Electronic filing typically expedites processing times compared to paper filing. It also offers the convenience of direct deposit for any entitled tax refunds and may include built-in checks for accuracy.
If choosing to file by mail, confirm the inclusion of all required forms and documentation. Thoroughly review each state’s instructions to identify the necessary forms accompanying your tax return. Double-check that all sections are completed accurately and include any essential supporting documentation, such as W-2 forms, 1099 forms, or schedules, as specified by each state.
Before submission, it’s advisable to make copies of all documents for your records, ensuring a comprehensive set of records in case of future inquiries or issues.
7. Review and Double Check
Thoroughly review each state tax return to ensure accuracy and completeness. Check all forms, schedules, and attachments to verify that the provided information aligns correctly with your records. Confirm the accuracy of personal details like your name, address, and Social Security number, and scrutinize the entered numbers for income, deductions, and credits.
Double-check all calculations to guarantee accuracy in your state tax returns. Use a calculator or tax software to verify additions, subtractions, multiplications, and divisions. Additionally, confirm the inclusion of all necessary schedules and attachments specified by each state. This may involve attaching forms like W-2s, 1099s, or additional schedules relevant to specific income or deductions.
Generate copies of all tax returns and supporting documents for your personal records. Retain these copies in a secure location for future reference or in response to potential inquiries from tax authorities. Keep them organized alongside other pertinent tax documents, including your federal tax return and supporting materials, facilitating ease in future tax filings.
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8. Pay Any Taxes Owed
Calculate the taxes owed to each state after finalizing your state tax returns. Review the calculations to determine the tax liability for each state based on reported income, deductions, and credits. Pay close attention to any state-specific tax rates or rules that may be applicable.
Ensure timely payment of any taxes owed to each state by adhering to the respective payment deadlines. Each state sets its own deadline for tax payments, which varies depending on the tax year and type of tax. Refer to the instructions provided by each state to ascertain the specific deadline for payment to avoid penalties and interest charges.
Explore electronic payment options for added convenience and efficient tracking. Many states provide online payment systems that enable secure electronic submission of tax payments. Opting for electronic payments can offer faster processing compared to traditional paper checks and provides a streamlined method for monitoring payment status. Visit the tax department website of each state for details on available electronic payment options.
Remember to maintain detailed records of your tax payments, including confirmation numbers or receipts, for personal reference and future verification of payment.
Conclusion
When navigating tax filings across multiple states, it’s essential to gather all necessary documents, from W-2 forms to state-specific tax papers. Determining residency status in each state and understanding their unique tax laws, deductions, and credits becomes crucial for accurate filing.
Allocating income and deductions correctly between states and paying owed taxes on time, along with exploring electronic payment options, streamlines the process and ensures compliance with varied state tax regulations. Remember, meticulous attention to detail and timely actions across states are key to a smooth and accurate multi-state tax filing experience.
This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. . For comprehensive tax, legal or financial advice, always contact a qualified professional in your area. S’witty Kiwi assumes no liability for actions taken in reliance upon the information contained herein.
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