Preparing for Multi-State Income Tax Returns in 2021
Summary: If you remit sales tax in a state, you might owe income tax in that state as well. Check with your CPA to determine if you owe income tax in a state to avoid substantial penalties later on.
It’s that time of year when it is important to contact your CPA regarding your state income tax obligations for the previous year. You may have income tax obligations in multiple states on account of your business’s presence. If you already have a CPA, you should speak with them about your multi-state income tax obligations.
If you do not have a CPA who is comfortable with multi-state income tax returns, we recommend that you work with one of our recommended income tax partners who can…
- Help you identify which states to file income tax returns in
- File income tax returns on your behalf
- Give you an incredible service, similar to what you’d expect from TaxValet
An Important Note on Texas
Although Texas does not have an income tax they do have a franchise tax which is similar to income tax and based on the cost of goods sold. For this reason, TaxValet does not handle franchise tax in Texas unless you do not have a payment obligation.
Income Tax Returns? What’s That Got to Do with Sales Tax?
Some of the same factors that created sales tax nexus for your business could create income tax nexus as well. This means you could technically be responsible for filing income tax in multiple states. Each state’s income apportionment rules are unique, so we recommend working with someone who has specific experience handling income tax in multiple states for this project. Please note that you might not have an income tax obligation everywhere you have sales tax permits (though there is likely to be a bit of crossover). And the opposite is true, too: You might need to file state income tax returns based on states where you do not have a sales tax permit.
If you do not have a CPA who can submit these returns for you or you have questions, we recommend reaching out to one of our partners by clicking here.
If you have already contracted with a CPA for this project, we are more than happy to provide them with your annual transaction data. Just get in touch with us.
Free State Audit Risk Guide
See which states pose the greatest risk to your business.
State-by-State Audit Risk Percentages