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Last Post 02/22/2010 4:35 AM by  rickhans
State Income Tax
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dholman
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02/05/2010 8:47 PM

    Since tax time is here, I have a question concerning individual state income taxes. For years I worked for a major IA firm who paid by W-2 and held out federal and state income taxes for the individual states where I would be working cats. So, I would end up filing state returns in several states each year and paying taxes  even though I was always a permanent resident of TX. And, as far as I know everyone else was doing the same thing. However, I am now working for a company that pays by 1099. While visiting with a seasoned tax preparer to determine how much I should be setting aside for estimated quarterly  federal taxes, I asked how the different state taxes should be handled if you were a 1099 employee. He stated that an adjuster is a temp employee while working in different states and should not have to pay state taxes outside your home state. If this is true, why was my former company withholding state taxes all those years and why did I pay thousands to other states?

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    Ray Hall
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    02/06/2010 1:01 AM

    You have to request a refund from each state.But your accountant is correct if you were a W-2 it will be held out.

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    dnjsdad
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    02/06/2010 2:14 AM

    Spoke with my CPA today, they said if you work in a state that has state income tax, then you owe that state the $$$$$.

     

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    claims_ray
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    02/06/2010 2:30 AM
    Then you spoke with the wrong CPA. You only owe taxes in your resident state if that state has state income taxes.
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    Ol' Ghost
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    02/06/2010 9:00 AM
    Gentlemen, if I may. There is a great amount of confusion caused by the different states with their different taxation laws. As I recall from several years ago, states like California and Ohio require out-of-states temporary workers like professional sports players who are there for a few hours yet make tens of thousands in game earnings to pay a state income tax. Unfortunately, we storm troopers have fallen into that same mudhole.

    I suggest you call each of the states taxation departments where you were and get the straight information from them rather than relying solely on a local accountant or a vendors payroll personnel. It's becoming very complicated to be a storm trooper anymore, and expensive.

    Ol' Ghost

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    ddreisbach
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    02/06/2010 12:39 PM
    Posted By claims_ray on 06 Feb 2010 02:30 AM
    Then you spoke with the wrong CPA. You only owe taxes in your resident state if that state has state income taxes.

    dholman stated that he is a TX resident, and TX does not have a state income tax.  In your opinion, does that trigger paying income taxes in those other states?

     

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    Leland
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    02/06/2010 7:44 PM

    I read some articles on this too and it looks to me like you owe taxes in the state where you worked. But there are sometimes credits from one state for the taxes you pay in another.

    It doesn't see to me that it matters what your home state taxes or doesn't tax. It's not like you are an ambassador from Texas with diplomatic immunity in California- California sees you simply as a non-resident with taxable income earned in California. You could be from Afghanistan and they would want you to pay Calif. income taxes.

    I remember reading about people coming home to California from foreign trips and being told they had to pay sales tax on their overseas purchases.

    Now ironically, or perhaps because of the taxation, California is due to run out of cash (again) in April. After the first few times the State issued IOUs the banks here will no longer accept them as deposits. So don't do any work for the State if you want to get paid. Schwarzenegger will be asking Washington for some bailout money.

    This is why the State is so eager to give you a driving ticket or put sales tax on your internet purchase etc. We are now at 9.75% sales tax on materials in Xactimate for LA County losses- it is a huge amount of money in my opinion.

    You folks in Texas have less services but WAY less taxes and you should be proud of how your state is run with a part time legislature. I don't blame you guys for wanting to secede.

    And speaking about Texican Ambassadors, any of you Texans know about the Texas Embassy (Legation) in Paris (Paris France, not Paris Tx). ? It is now a bar. I have see the French embassy in Austin, from when TX was a separate country. Believe it or not, most non-Texans have NO IDEA that Texas was ever a separate country.

    <!--Session data-->[script removed]
     
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    Leland
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    02/06/2010 7:47 PM
    UTAH RESIDENTS

    UC §59-10-1003

    You may receive a credit if you are a Utah resident or part-year resident who must pay income tax to Utah AND another state, the District of Columbia, or a possession of the United States.

    Part-year residents rarely qualify for this credit, as Utah and other states only tax the income earned while a resident of that state. To qualify, your income must be:

    * Taxable in Utah;
    * Taxed by another state; and
    * Included in "Column A – Utah Income" on form TC-40B.

    The credit only applies to the part of your income taxed by both states.

    Complete and attach form TC-40S, Credit for Tax Paid to Another State. If there are two or more states, calculate a separate credit for each state. Examples of how to calculate the credit are shown below. Keep a copy of the other states return(s) and all related documents with your records.
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    Leland
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    02/06/2010 7:48 PM
    VIRGINIA RESIDENTS

    Credit for Tax Paid to Another State

    General provisions -- Section 332 of the Code of Virginia makes out-of-state tax credit provisions for income that is taxed by more than one state. The credit is restricted to certain types of income. The intent of the law is to address double taxation when income is generated in more than one state; however, the credit does not eliminate double taxation in all cases. For example, taxes paid to another state on non-qualifying income would not be subject to the credit provisions. If you are a resident, compute the credit on Schedule OSC. Nonresidents and part-year residents should use Schedule NPY.

    Qualifying taxable income -- Generally, Virginia will allow taxpayers filing resident individual income tax returns to claim credit for income tax paid to another state on qualifying income derived from sources outside of Virginia, provided the income is taxed by Virginia as well as the other state. If the income is from one or more of the following states, you should claim the credit on the nonresident income tax return of the other state instead of the Virginia return: Arizona; California; District of Columbia; Oregon.
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    Leland
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    02/06/2010 7:49 PM
    OKLAHOMA RESIDENTS

    If taxes were paid to more than one state, a separate 511TX must be provided for each state
    and a complete copy of the other state’s return, including W-2s, must be enclosed.
    Who Qualifies?
    A resident taxpayer who receives income for personal services performed in another state must report the full amount
    of such income on the Oklahoma return (Form 511). If another state taxes this income, the resident may qualify for
    this credit.
    A part-year resident who receives income from personal services performed in another state while an Oklahoma resi-
    dent must report the full amount of such income in the “Oklahoma Amount” column of Form 511NR. If another state
    taxes this income, the part-year resident may qualify for this credit.
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    claims_ray
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    02/07/2010 1:54 AM
    The out here in the Utah and Oklahoma laws are in the resident and part-year resident area. When I am out of state working I am not a resident or part-year resident. I am simply working out of state. To be a resident of another state or part-year resident of another state I would imagine there at least needs to be a minimum time frame involved. Maybe at least 90-120 concurrent days.
    Unless you are a W2 employee with the taxes taken out for you then you have a problem if you go and file in these states. The 1099's that I receive do not separate what state the money was earned in while working.

    If I inspect a claim in one state and write the report in another state what state did I earn my fee in?
    What % of the fee was the inspection vs. the report?
    If I stay overnight in the inspection state and the next night in the writing state before going home do I file income taxes in all states because I am now a part-time resident of those other two states?
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    StormSupport
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    02/07/2010 8:32 AM

    If one is a resident in state "A", working for a vendor out of state "B" and is sent to do inspections in states "C", "D" or "E", the money earned is generated out of state "B", not states C, D or E.   Does doing an inspection in states C, D and E actually constitute "Working" in that state since the income generated is paid out of state "B"?

    Do the right thing, ALWAYS
    ~Meg~
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    ddreisbach
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    02/07/2010 10:33 PM
    Posted By Meg on 07 Feb 2010 08:32 AM

    If one is a resident in state "A", working for a vendor out of state "B" and is sent to do inspections in states "C", "D" or "E", the money earned is generated out of state "B", not states C, D or E.   Does doing an inspection in states C, D and E actually constitute "Working" in that state since the income generated is paid out of state "B"?

    As a resident of state "A", working as a W2 employee for a vendor in state "B", and working claims in state "C", my W2 shows the income I received from the claims I worked in state "C" separate from other income.  I then go to the state's website to determine if I have to pay taxes on that income. 

    Also, I asked a vendor for whom I've worked as a 1099 employee and received this response:

    "Each contract laborer who earns more than $600 would receive a single 1099 from his/her employer. If work were conducted in state(s) where state income taxes are imposed, then the contract laborer should consult www.irs.gov or his/her tax consultant as to how best to file taxes. Each state is different. If a ******* employee worked in multiple states for us, I would be happy to breakdown earnings by state. I would assume that other employers would be accomodating as well."

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    Leland
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    02/08/2010 8:38 PM
    My boss just handed me a report from some Sacramento insurance Industry lobbyists that the Calif legislature is considering creating a new 3% tax on all payments to 1099 recipients (cat adjusters this means you). California has a $6 billion shortfall and could even go bankrupt at some point.

    This new tax, if it becomes law will be especially hard on small employers like independent adjusting firms that are set up as sole proprietors.

    This would be another reason for an individual adjuster to set up as an LLC or S-Corp.

    I've always been curious if any cat adjusters have set themselves up as one person companies and been paid by their vendors as such.

    If you are, please send me a private msg if you don't want the world to know.
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    BobH
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    02/08/2010 11:23 PM
    Posted By Meg on 07 Feb 2010 08:32 AM

    If one is a resident in state "A", working for a vendor out of state "B" and is sent to do inspections in states "C", "D" or "E", the money earned is generated out of state "B", not states C, D or E.   Does doing an inspection in states C, D and E actually constitute "Working" in that state since the income generated is paid out of state "B"?

    in 2009 I was a resident of California, worked 4 months in Michigan for a vendor based in Alabama.

    Michigan is one of about 5 or so "taxing states" that demands income tax be withheld (from W-2 Employees) working IN THAT STATE regardless of your residence or company point of presense.  I spoke with the payroll dept of my vendor, as well as the actual State of Michigan tax dept to get a grip on it, because tax was deducted every week for 4 months from my checks.  No way around it if you are on a W-2.

    I will be exploring getting some of that money back with a tax form for Michigan, and do happen to reside in one of the other taxing states which also wants their income tax...

    Bob H
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    Leland
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    02/09/2010 3:45 AM
    Hi Bob- I think the idea is that you can't get it back from Michigan (Lord knows they need it, almost worse than California) but California (or whatever state was your residence) will give you a credit for what you paid in Michigan.

    How are you? Are you really 51? make me feel young. For an adjuster you don't look that wrinkly. Coming to Ontario NFIP class?
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    RJortberg
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    02/09/2010 9:22 PM

    I operate as an LLC, but this is a disadvantage if the pay split is based on the vendor withholding 7% for self employment (SE) tax. For example, if a vendor pays 60%, and 7% on top of the 60% is withheld for the feds for SE tax, then using the LLC would result in a net loss of 7%. The SE tax would not be paid by the vendor since the adjuster is actually a corporation and not an employee. If the vendor uses 1099s, then I will use the LLC. The LLC is important for risk and expense management purposes.

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    BobH
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    02/10/2010 2:00 PM

    How are you? Are you really 51? make me feel young. For an adjuster you don't look that wrinkly. Coming to Ontario NFIP class?
    Hi Leland, good to see you & Medulus and others at the Flood class couple years ago. I'm working out of state and not sure how to fit it in right now.

    I'm currently 53 and need to post a more depreciated photo, I think my ACV is down to about 40% of RC at this point.

    Bob H
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    rickhans
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    02/22/2010 4:35 AM

    I think I can answer a few of these questions. Since the mid 70's, all indpendent consulting, adjusting, and operating a computer systems engineering business has been through one of my sub s corporations in Texas. I now also have an LLC in Oklahoma but Texas is my residence. The LLC has an OK tax ID number and reports its income annually to OK. If it makes a profit, it pays a tax. As the owner I have two choices. 1. File a personal tax return showing the profit from the OK LLC on the tax return and pay taxes only on the profits earned from that LLC or 2: there is a fixed rate fee I can pay (I don't remember the formula as I have never done it) that can be considerably lower than the income tax I would pay through method 1.

    I have researched this question several times over the years because we were developing software, installing and supporting point of sale systems in several states including Oklahoma.  If you just call and ask, you will get a variety of answers, some of which don't fit what the law is.  I also talked with my cpa's and tax attorneys to get the straight answer.  It was always this: We were involved with interstate commerce, being based in Dallas, delivering into the other states, and not considered a resident of that state, therefore we did not have to pay or withhold any taxes for any of the states. Some of these trips were not just for a few days.  Likewise when I was in corporate management, we often were on site in other states for 1 to 6 months installing and maintaining phone systems, but never were taxes withheld in any of those states for Texas employees.

    As to the 7% fica figure, I have only run into that one time.  The IA firm paid my corporation 67% instead of 60% that he paid to those on a W-2.  You have to negotiate it, although there are a couple of well known IA firms that will not ever use an indpendent on a 1099. Using a corp or LLC eliminates many problems working as self employed including some additonal limitation of liability, but primarily is a tax advantage in many ways.

     

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