Self-employed IT Consultant

[Gretel]

Most of the work is done from home office but some assignments require physical presence in different States. Income earned while being in non-resident State always exceeds filing requirement for non-resident. Client needs to file non-resident tax returns for NJ, CA and Massachusetts. I do not have any experience in out-of-state filing for SE income.

Here is what I plan to do, please correct me if I am wrong:

Only income earned while physically present in that State is subject to taxes of that State (not work done from home)

Travel expenses directly related to that assignment are deducted from this income.

All other Schedule C expenses are prorated by that State's income/all income.

[taxea]

As I recall, you don't have to do other state returns for the business unless the payment was received in that state and the business maintains an office in that state.

[Kram BergGold]

Mostly Agree

First, most people would not bother to report the income to the NR states. Your way of doing it is right on. Just make sure enough was earend to require a filing.

[ttbtaxes]

Boots on the ground.

If you have physically traveled to a state and performed services there, it is taxable. That is why professional athletes file returns in so many states. The difficult part is how to allocate the income from that client/customer. Let's say you spend 10 hrs in your home office (CA) doing prep work, then fly to another state (CO) for a meeting and are there for 5 hrs, then finish the project at the home office (CA) in another 5 hrs. How do you allocate the income? I would allocate it 25% to CO.

Before I prepared a CO return, I would check the tax laws of that state to be sure they tax income in the manner I described.

[DaveO]

I have one of these. The 1099misc forms will report the income earned in each state. You need a pretty strong case to argue a lesser amount and perhaps multiple "C's" allocating income and overhead back to the resident state.

[Gretel]

I have one of these. The 1099misc forms will report the income earned in each state. You need a pretty strong case to argue a lesser amount and perhaps multiple "C's" allocating income and overhead back to the resident state.

Well, the main 1099 actually comes from a State (NC) my client never set foot in. He is a subcontractor and it goes through two different companies and three different States (work actually performed, two companies who pay each other and then my client) before it ends up with him. He probably needs to worry about getting mail from NC.

All work is performed as sub so the State (company) issuing the 1099 is never the State were the work is performed. I would argue strongly for only taxing the income actually performed in that State.

[Roland Slugg]

Not an easy question to answer, because the rules vary from state-to-state. California taxes non-residents on income received from California sources, but even then it usually requires a physical presence in California. If I do a tax return for a client who lives in California, and he mails all his information to me (in Nevada), that income is not taxable by California. But if I travel to California to get his tax information, then return to Nevada where I prepare his returns, that income will be taxed by California ... and not using the 5 hours/20 hours allocation suggested in another reply above.

If this were my client, I would adopt the "practical" approach of ignoring the other states unless the net income that would go on their nonresident returns was material enough to matter. If the income was under $500 (or maybe $1000) and the tax was less than, say, $50, I would ignore that state. That may not be technically correct, but sometimes practicality should be taken into account.

[Gretel]

You know how much money IT people make? We are talking about more money received from any of his customers than most of the people in my area make all year.

I agree that if one travels to one assignment and pretty much all of the actual work is done in a non-resident state that travel time (my client actually gets paid for his travel time) is included in time spend in that state. However, if maybe 50% is done from home and 50% in another state, I would think that only 50% is taxable in non-resident state.

Thanks for all input.