Preparing for an Unconventional Tax Season
Staying Ahead of a Tax Bill Surprise
2020 might go down in history as the year of canceled and changed plans, but it is almost over and 2021 is within sight. Kicking off 2021 with a few simple money management plans is a great way to turn over a new leaf, or build on previous saving successes. This week in our newsletter we’ll be bringing you a series of easy money-management tips to help get your year off to a good start. Today we’re focusing on how to be prepared for tax season, especially if you have been working remotely from a new state during the pandemic.
Though millions have relocated while working remotely this year, according to a recent survey, 70% of Americans are unaware that telecommuting from another state can impact a worker’s state tax returns. There are a few easy steps to take now in order to avoid an unpleasant surprise when Tax Day arrives.
Tracking Remote Work Locations
An easy first step to prepare for what could be a bizarre tax season is thinking back on the year and recording how much time you have spent in various states. State taxes can be different for those who are considered residents of a state. Whether or not you qualify as a resident depends on how many days you spend in a state.
It’s important to make sure you accurately report where you have been working and that information on your W-2 from your employer matches information that you submit to the IRS. Tax returns are signed under penalty of perjury, so be sure the information you report is accurate.
Each state has slightly different criteria for designating who is a taxable resident. Some states have put special rules in place because of the pandemic. Certain states, especially those that share a border, have agreements with one another to prevent double taxation. There may also be other forms of credits to prevent double taxation. Getting a jump start on researching these rules could save you significant money come tax season.
Seeking Help from Employers and Tax Professionals
Talking to your employer about taxes sooner rather than later is also a good idea. If your employer assigns you to an existing office in a different state, it can be easier to avoid paying double taxes. For example, if an employee was based in New York before the pandemic and then relocated to Florida, her company could adjust her W-2 to say she was reassigned to a Florida office. This is not deceitful if the employee really was working in Florida, and it can be a way to avoid paying taxes in two states.
Especially if you are dealing with a complicated tax situation this year, seeking professional help with your taxes is a good way to ensure you have not overlooked anything. It could also help you save money and avoid paying taxes in multiple states unnecessarily.
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