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With the coronavirus (COVID-19) pandemic going on for the past couple of years, businesses have seen workers leaving the office to work from home or other remote places. For those who have made this a permanent situation, this might involve potential state income tax issues resulting from this exodus.
Residency-Domicile: Residency refers to where you normally reside, while domicile refers to where you keep your permanent home and primary connections. Should you live in one area but keep your domicile somewhere else, this can become an issue. For instance, many states use the “leave and land” rule for changing one’s permanent home or domicile when it comes to residency.
This means that as a taxpayer, you must leave your old residence to “land” in your new place. So if you leave only temporarily, that won’t qualify, and it makes no difference how long you leave. So if you move, your “landing” has to be permanent or even indefinite. If you move back to your original home, your tax practitioner will use “20/20 hindsight”, which means that to begin with, your leaving was only temporary. All this to say that your domiciliary of a state can then be taxed on worldwide income, no matter where you were actually spending your time. So auditors will check when you packed up and moved and the date when you got your new place. Remember, the burden of proof is on you the taxpayer if you are audited.
Statutory Residence: A statutory residence is where you spend most of your time during the year. Many states don’t just tax your domicile; they often can tax nonresidents on their worldwide income if they physically live in the state for over 183 days. If you are a New York resident, this actually takes precedence over domicile. So, for example, many New York residents who are property owners in Connecticut and haven’t filed Connecticut resident returns are hearing from the IRS about the 183-day rule.
New York Desk Audit Initiative: Because many New Yorkers left the state during the pandemic, the New York State Department of Taxation and Finance is focusing on taxpayers who changed their residency status when the pandemic began or those taxpayers who reported receiving less income in 2020 than in 2019 and are now having to supply information regarding their residency status and income for 2020.
New York’s Convenience Rule: The IRS will look at how much income nonresident taxpayers earned and is taxable by New York State. The state’s “convenience of the employer rule” arose prior to the pandemic so it affects non-residents moving forward. It looks at how much a New York-based employee earned based on why they worked out of state. For remote employees working in the state out of convenience, their income defaults to their New York employer’s location. If the worker was working remotely out of necessity, then their income will be based on where they are physically located. From June 2020 to July 2021, New York state lost over 319,000 residents (per the U.S. Census Bureau) and exceeded the loss of any other state in the country.
Corporate Capital
In the ever-changing realm of state taxes, tax preparers need to know what to expect to best assist their clients. Even though many business owners elect to incorporate their businesses in the states where they reside and conduct their businesses, you can actually incorporate your business in whichever state you choose, no matter where you live and work.
Nevada offers businesses a “corporate haven” that protects assets and taxes. It includes no corporate or personal income tax, no taxes on corporate shares and no franchise tax. At Corporate Capital, we make incorporating your business easy and beneficial for you. We are happy to answer any questions you may have regarding Nevada Corporation, achieving corporation in Nevada, or incorporating your business in another state. We welcome you to reach out to us at 855-371-0070 today!
Read Article Complete With Case Studies:
https://www.cpajournal.com/2022/08/24/icymi-working-from-home/