Frequently Asked Questions about Handling Income Earned Outside of Florida
Reporting your income and paying taxes properly can quickly become complicated when a portion of that income is earned in a separate state. Whether you work across state lines on a daily basis, travel frequently for work, or sell products online from multiple fulfillment centers, your income may be subject to tax in each state where you earn that income. The complexities of handling income across state borders stack up very quickly, and we strongly encourage you to work with one of our CPAs if you earn income outside of Florida to ensure you’re reporting it properly. In the meantime, here are a few basics that may be helpful to you in beginning to navigate your income taxes.
Do I Pay Taxes to the State Where Income Was Earned?
The basic principle behind handling out-of-state taxes is that any income you earn in that state will be subjected to that state’s income taxes. So, if you cross the state border to Georgia for a specific contract job, any work you perform and are paid for there is taxed to the State of Georgia. Likewise, contracts that you fulfill in Florida are taxed by the State of Florida. This means that, when you file your tax return at the beginning of next year, you will actually need to file two state tax returns in addition to your federal return.
Does My State of Residence Tax Income Earned in Other States?
Here’s the real catch about earning out-of-state income: It will actually be taxed twice. As we already mentioned in the example above, Georgia will collect income taxes on the contract you performed in their state. However, as your state of residence, Florida will tax the entirety of your income, regardless of where it was earned.
Don’t panic just yet, however. Even though Florida does technically tax all your income, they offer a tax credit for the amount you paid in out-of-state taxes. This effectively cancels out what you paid in income taxes for other states, but it does add another layer of complexity when it comes to filing your tax return.
What about Income Earned Online from Customers in Other States?
In today’s technology-based world, most people conduct a lot of their business online. While you may be based in Ormond Beach, you could be providing goods and services to customers all over the country. Do you have to track each customer’s state of residence and pay taxes to those states? The answer to this actually depends on how you fulfill customer orders.
For example, let’s say you make and sell home décor items online using the popular seller platform Etsy. You make all of the items in your own home and ship from them from your local post office. Because all of the orders are fulfilled and shipped from Florida, the income earned from those orders would only be subjected to Florida’s state income tax.
Now, perhaps you decide to start selling on Amazon, and you now have products in an Amazon fulfillment center in California for faster shipping to your West Coast customers. Because products are now being fulfilled in a different state, your income for all orders shipped by that fulfillment center will now be considered out-of-state income, and subject to California’s income tax.
Can I Claim Residence in a Different State Where I Earn Income?
If you spend part of the year in another state for work-related purposes, and that state has a lower income tax rate, it can be tempting to try to claim that state as your legal residence. For example, let’s say you travel to Texas each summer and earn income there throughout the summer months, but spend the rest of the year working and living in Florida. Texas has no income tax, so it would certainly be frustrating to have Florida taking a cut of the income you earned in the Lone Star State, while also taxing the income you earned here.
However, the pattern of behavior you demonstrate by only spending the summer in Texas makes it clear to tax agencies that Florida is, in fact, your primary residence and legal domicile. Attempting to claim another state as your legal residence can create legal issues and further complicate your tax situation.
If you earn income in multiple states, we strongly encourage you to reach out to Camputaro & Associates today to work with one of our tax professionals in Ormond Beach. We’ll help you navigate the many tax-related complexities that come from earning across state lines.
Camputaro and Associates
Certified Public Accounting Firm
136 N. Orchard Street, Suite 8
Ormond Beach, FL 32174