Contractors, Out of State Returns

[geekgirldany]

I got a message today from a potential customer. I guess I am just wondering what I need to be aware of concerning other state taxes. I have done several out of state returns. Most are people who have moved here though. He is wanting someone who knows about other state taxes, how to do taxes for someone that travels and works out of state like he does.
If he is working in other states does he have to do non resident returns for these states? I guess this is what he is talking about. I would like the customer but want to make sure I know what I am talking about when I call him back

THank you

[BOB W]

When you talk about contractors, that means employees working in various states that are probably from his home state. Could mean registering and setting up each state's withholding & UI insurance for work done in each state. Issueing multiple state w-2s for each employee. Registering the corporation in each state as a foriegn corp and filing corporate tax returns for each state according to the activity per state.

In order to accomplish this task you need to set up books to capture each states activity and the ability to consolidate each state for the Federal tax return. Planning you general ledger (chart of accounts) will be most important. Use sub accounts that are coded to a primary account for financial statements and federal tax return. The Sub accounts should be set up so each state can print financial statements. Of course, this is the ideal chart of accounts and setting up sub accounts can be a chore.

This account could bring you alot of work and alot of money, if you have the time.

UNLESS> you are talking about this client being an employee getting a W-2 and just filing non-resident tax returns....... If that is the case it should be a simple task with a big bill.

[Snaggletooth]

De Minimis

Some of this is a matter of extent. A contractor can be a one-person operation, or a full-blown employer.

A contractor who installs computer networks could be based in Georgia, and do one job in North Carolina, a couple in Alabama, and another in South Carolina. Although he probably qualifies as meeting nexus in these states, it is most likely to no one's benefit that he file.

A contractor who builds Hardee's restaurants has substantial nexus in those states, and most likely even hires people in those states to man the construction project. This is dead duck out-of-state activity such as was discussed by the previous post.

The situations are de minimis versus substantial. The key is to know where to draw the line, as the out-of-state activity for many contractors will range between the two extreme examples above.

One suggestion to absolutely assure that no reporting is required: test each state to see if the client meets the threshhold for filing requirements.

[geekgirldany]

Thank you guys for posting. Nexus is very new to me and I have never had to deal with it. I am willing to learn though. I found a Multi State Guide on AICPA's store. It sounds like it would be very helpful if this customer comes to me. Would TTB State Guide have helpful information on it also regarding filing? I've never purchased it before.

Although this sounds complicated as Bob says I think I could make a good bit of money on it. He is interested in using QuickBooks. I think I could set him up to track by each state using a Class. I recently did this for a fellow who has several rentals and wanted to track their profiability in P&L statements.

I really appreciate you guys answering. I now have the information necessary to talk to the customer and see if I can get a new account.

[joanmcq]

The TTB state tax guide is very useful for finding quick answers to things like, what are the filing requirements for nonresidents, how the state's income taxes are set up, ie does it start from federal AGI or taxable income or does it compute tax all on its ownsome. Also what is added or subtracted if its a fed AGI state, or what the rules are if its not. Then you can delve in deeper by using the state's instructions etc. If you are doing multi state, you should have one; its a great place to start your research.

[Black Bart]

1099s or W-2s?

I got a message today from a potential customer. I guess I am just wondering what I need to be aware of concerning other state taxes. I have done several out of state returns. Most are people who have moved here though. He is wanting someone who knows about other state taxes, how to do taxes for someone that travels and works out of state like he does.
If he is working in other states does he have to do non resident returns for these states? I guess this is what he is talking about. I would like the customer but want to make sure I know what I am talking about when I call him back

THank you

Usually the tax aspect they're most interested in is their personal income tax -- he will have to file non-resident returns and pay taxes to other states for money earned in those states and take credit for payments to them on his Georgia return.

As far as the people working for him, I find that most general contractors prefer to (and do) pay workers as sub-contractors, giving them 1099s, and avoiding payroll taxes, workmen's comp, etc. Much cheaper (and simpler) of course.

Guess I'd ask if he intends to go with 1099s, W-2s, or both (sometimes they give their foreman a W-2 and everybody else a 1099). You can explain the ins and outs of 1099s versus W-2s to him (it's his call). If he goes with 1099s, I'd get him to sign something stating it's his position that they're contract labor and he's been advised and understands the possible risks and liability of IRS/state reclassification (not likely unless somebody tries to draw unemployment or is hit with a big 1040 SE bill they can't pay).