Designer fees and state taxes

[xander]

We don't really have a category for this kind of thing, so I thought "Career Development" might be the best bet. Any of you pros that have been doing this for decades have any advice?

So it's that time of year, again. Like most people, taxes annoy the heck out of me and it is no doubt even more confusing for people in our industry that are frequently freelancers and other non-normal employee statuses. So, I am trying to fill out my taxes by myself, like I do every year, and am coming up on one little snag. I don't really want to dish out the dough to go to a CPA just because of one line I don't understand. I'll start with the basics and maybe later if someone is willing to help me I will get into the specific line that is messing with me.

I live in New York City, however, like everyone else, I travel all over the country doing jobs. My basic question is, which state gets my taxes? I have a 1099-MISC form from an out of state gig I did where I got the usual "Nonemployee Compensation" design fee. So, do I owe the income taxes to the state where I was working or New York or both? I hope it's not both. I'm already paying out the a** in New York City taxes...

That's the gist of it. Anyone want to give me a hand?

Thanks,
-Tim

 

[shiben]

We don't really have a category for this kind of thing, so I thought "Career Development" might be the best bet. Any of you pros that have been doing this for decades have any advice?

So it's that time of year, again. Like most people, taxes annoy the heck out of me and it is no doubt even more confusing for people in our industry that are frequently freelancers and other non-normal employee statuses. So, I am trying to fill out my taxes by myself, like I do every year, and am coming up on one little snag. I don't really want to dish out the dough to go to a CPA just because of one line I don't understand. I'll start with the basics and maybe later if someone is willing to help me I will get into the specific line that is messing with me.

I live in New York City, however, like everyone else, I travel all over the country doing jobs. My basic question is, which state gets my taxes? I have a 1099-MISC form from an out of state gig I did where I got the usual "Nonemployee Compensation" design fee. So, do I owe the income taxes to the state where I was working or New York or both? I hope it's not both. I'm already paying out the a** in New York City taxes...

That's the gist of it. Anyone want to give me a hand?

Thanks,
-Tim

Try using turbo tax. I have worked in both IL and MI, and it helps do federal and state taxes no problem. I know your at least on the hook for the out of state state, i doubt both because it was wholy earned out of state.

 

[Footer]

NYS taxes are a bit weird... and then there is the city taxes you (not me!) also have to pay. Yes, you have to file taxes in every state you worked. However, NYS will credit you for the taxes you paid in another state. There is a line there on the NYS taxes for that. I have been using tax slayer for the last few years and it deals with this OK. Its not great, but it works. That being said, if you are REALLY getting slammed this year because of all the 1099 stuff, it might be time to go to a CPA and do an itemized return. Many of your every day expenses as a freelancer could go away.

Also, when you are working under a 1099, you really should file quarterly. That should help spread out the pain.

 

[xander]

NYS taxes are a bit weird... and then there is the city taxes you (not me!) also have to pay. Yes, you have to file taxes in every state you worked. However, NYS will credit you for the taxes you paid in another state. There is a line there on the NYS taxes for that. I have been using tax slayer for the last few years and it deals with this OK. Its not great, but it works. That being said, if you are REALLY getting slammed this year because of all the 1099 stuff, it might be time to go to a CPA and do an itemized return. Many of your every day expenses as a freelancer could go away.

Also, when you are working under a 1099, you really should file quarterly. That should help spread out the pain.

I did see the "Resident Credit" for out of state income in the NYS section, but there isn't one for the NYC section...Why should I have to pay NYC taxes on income I made in Missouri? But also, a credit on taxes paid to another state is completely different than a deduction on my AGI. Why is it that my NY taxable income includes these fees made while working out of state? If I need to pay NY taxes on this income because I made it while i was a resident of NY, that's fine with me, but then I shouldn't have to file in MO...At least, that's what makes sense to me.

 

[xander]

NYS taxes are a bit weird... and then there is the city taxes you (not me!) also have to pay. Yes, you have to file taxes in every state you worked. However, NYS will credit you for the taxes you paid in another state. There is a line there on the NYS taxes for that. I have been using tax slayer for the last few years and it deals with this OK. Its not great, but it works. That being said, if you are REALLY getting slammed this year because of all the 1099 stuff, it might be time to go to a CPA and do an itemized return. Many of your every day expenses as a freelancer could go away.

Also, when you are working under a 1099, you really should file quarterly. That should help spread out the pain.

I looked at itemizing. I don't think I have enough to make it more than my standard deduction.

 

[porkchop]

I work for a single company, but all over, and we pay all applicable income taxes both from home and in the area where the work was done. A lot of that comes back in deductions though.

 

[xander]

I work for a single company, but all over, and we pay all applicable income taxes both from home and in the area where the work was done. A lot of that comes back in deductions though.

So are you saying that your income is taxed twice, the state where you live and the state where you were working? But, then, when next year comes along, the taxes you paid this year are deductions?

 

[Dillon]

The short of is "it depends."

Your home state may have the equivalent of tax-reciprocity with other states, but maybe not. And if so, it probably won't be with all of them. You may, or may not, have to pay taxes on the income in question to your home state even if you've already paid in the state-you-earned-it-in.

 

[xander]

The short of is "it depends."

Your home state may have the equivalent of tax-reciprocity with other states, but maybe not. And if so, it probably won't be with all of them. You may, or may not, have to pay taxes on the income in question to your home state even if you've already paid in the state-you-earned-it-in.

Wow. Well, isn't that just a giant ____ ___ from the government to all our touring brethren? Paying taxes twice on the same income.

 

[museav]

Yes, you have to file taxes in every state you worked.

Isn't that dependent upon what is meant by "worked"? I don't know all the details but I believe that what defines doing business in a state, the entity actually paying you and their location and where the income was received or earned are all potential factors and the related guidelines and interpretations can vary by state.

As far as the NYC taxes, those would be applicable because even if you paid State taxes in another state you did not pay the NYC taxes for that income but are receiving the related services.

 

[xander]

As far as the NYC taxes, those would be applicable because even if you paid State taxes in another state you did not pay the NYC taxes for that income but are receiving the related services.

I get what you are saying, but I don't know what services you are talking about.

 

[fredthe]

Hmmm... I always though that you owed tax in your state of residence, even if earned somewhere else. I know around here (Washington DC area) that no matter where I work (DC, MD, VA) I only pay income tax in MD.

-Fred

 

[fredthe]

I did see the "Resident Credit" for out of state income in the NYS section, but there isn't one for the NYC section...Why should I have to pay NYC taxes on income I made in Missouri? But also, a credit on taxes paid to another state is completely different than a deduction on my AGI. Why is it that my NY taxable income includes these fees made while working out of state? If I need to pay NY taxes on this income because I made it while i was a resident of NY, that's fine with me, but then I shouldn't have to file in MO...At least, that's what makes sense to me.

Actually, having a credit on taxes paid makes sense...

Think of it this way: let's say that you worked only in NYC, and as a result owe the state $5,000 in taxes, and the city another $5,000 based on whatever income and deductions you had.

Now, let's say some of that income was earned in MO, and you had to pay $100 in taxes to MO. You will now owe NY State $4,900 and NYC $5,000. You are still paying a total of $10,000 in taxes, as if you had earned it all in NYC... it's just that NY State looses a bit.

-Fred

 

[museav]

Hmmm... I always though that you owed tax in your state of residence, even if earned somewhere else. I know around here (Washington DC area) that no matter where I work (DC, MD, VA) I only pay income tax in MD.

This is one reason why it is not simple as that all depends on the states involved and their laws. The idea of paying tax based on your state of residence was once very common. However, modern technology combined with the economy and states searching for revenue is apparently leading some states to change their laws regarding what defines performing work in that state and when they are owed taxes, and usually in ways that benefit the state. Increasing differences in state laws are also making reciprocity agreements more difficult to maintain. For example, I believe that Wisconsin passed some changes that essentially say that if you perform work that provides benefits within the state, then you performed work there. That is going to be very difficult to assess and document and will likely be legally challenged but apparently the Federal courts have been hesitant to address individual state's taxation laws.

I believe that there are also significant differences for a freelancer or self-employed individual working in and paid in other states versus someone working for or paid by a company that works in multiple states. In the latter situation it may be the company that works in multiple states and must address that while the employee earns their income in just one state.

An related issue that was identified to me a few years ago when California apparently decided that if the result hinged upon an actual file being transferred then any programming was creating a product subject to sales tax rather than a service. Apparently their interpretation was that if you modified existing programming or settings within a program then that was a service, but if what was provided was the creation of an actual program or file, especially one required for a device to operate, then it was the program that was the end result and that was a product. According to several people I spoke with, based on this the State hit a number of Contractors and third-party programmers with rather bills for large back taxes and penalties. So not directly relevant but an example of one state looking for additional revenue making an interpretation differently than many other states.

 

[ruinexplorer]

Wow. Well, isn't that just a giant *** You from the government to all our touring brethren? Paying taxes twice on the same income.

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[bishopthomas]

When I was touring I didn't pay taxes in 50 states every year. The "company" was out of California, I lived in New Jersey. I paid NJ state taxes. Last year my wife and I lived in TN, but neither of us were paid by TN companies. I still worked in NJ and the company my wife works for is based out of NJ. We're paying taxes in TN as well as NJ since we lived in both states last year. This has been the case several times, but only because we have lived in multiple states; it has nothing to do with who is paying us.

 

[mstaylor]

It depends on the states iinvolved. I work for a MD company, live in MD but half of my work is in DE. I have to file in both states. It gets complicated because they have insisted the owner carry WC in both states and seperate what is dione in both states. We have DE residents working on both sides and MD residents doing the same. Traditionally we have only been dinged in our state of residence, but it has changed in the last couple of years.