We all know that taxes can be a bit of a headache, but fear not, because today we're here to shed some light on what happens to your taxes when your trusted clinician decides to pack up and move out of state. So grab a cup of coffee and let's dive into the fascinating world of tax obligations across state lines!
A quick note: We are accountants, not therapists. While this article covers the tax implications of a clinician moving out of state, it's always a good idea to check your state licensing board to confirm your clinician can continue to see clients in your state of operation.
Step 1 Register as a Foreign Entity in the state your new employee is moving to:
First things first, when your clinician moves out of state, you may need to register your business as a foreign entity in their new state. You won’t need to create a new business (LLC, PLLC, Corporation) in the state, but you will need to register in order to do business. This process typically involves paying a registration fee and providing some basic information about your business.
Step 2 Obtain Withholding and Unemployment Account:
Next, you'll want to register for a withholding and unemployment account in the new state. Some states may have additional requirements like county or city tax, paid family leave, transit taxes, or even retirement plan requirements, so it's essential to research and comply with their specific regulations. This step ensures that you're properly deducting and remitting all appropriate employer and employee state taxes.
Step 3 Consider Three Key Factors that create Nexus:
To determine your tax obligations, consider three crucial factors: the location of your clients, the location of your employee(s), and where your business assets are located. Different states have different rules based on these factors, so it's important to understand how they apply to your specific situation.
Step 4 Filing Tax Returns:
Now comes the exciting part: filing tax returns. Depending on your business entity and the state's rules, you may be required to file a tax return in the clinician's new state. For instance, if your business is an S Corporation based in Virginia, but you have an employee working remotely in Illinois, you'll likely need to file a business tax return in Illinois. There are three key factors that will affect whether or not you are taxed in a state, and as you may have guessed, each state has its own set of rules. The three factors are:
Sales in the state (where the client is located)
Payroll in the state (where your employee(s) are located)
Physical assets located in the state (where your office is located)
There are lots of exceptions here, so give your accountant a heads up so they can advise on your specific situation.
If your business is required to file a tax return in a state, you’ll may also be required to file a personal non-resident tax return as well (again, it depends on a few factors like your tax entity)
Phew! We've covered the basics of what happens to your taxes when your clinician decides to relocate to a different state. While the thought of navigating tax obligations across state lines may seem daunting, it doesn't have to be. By registering as a foreign entity, obtaining the necessary accounts, and understanding the filing requirements based on your situation, you can stay on top of your tax responsibilities.
Remember, every state has its own unique set of rules, so it's crucial to consult with a qualified tax professional or do thorough research to ensure compliance. While taxes are never the most thrilling topic, having a clear understanding of your tax obligations will help you navigate this aspect of your business with confidence and peace of mind.
So, take a deep breath, put on your tax-savvy hat, and conquer those state-to-state tax challenges like the boss you are. Happy taxing!
Note: Don’t forget to notify your Workers Compensation provider, they may need to update your policy to include the new state.
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This article is designed to provide information only and should not be considered legal or tax advice. Because of the complexity of the law and the variables in your own personal tax situation, you can’t rely on our advice specifically related to your unique circumstances. In order to get the best tax savings and legal advice available to you, you should consult with your own accountant, attorney or advisor regarding your particular facts and circumstances. GreenOak Accounting is an accounting firm that specializes in working with counselors and therapists in private practice. We provide monthly accounting & bookkeeping services, 1-time services and online courses. For more information on our specialized services for therapists please visit www.greenoakaccounting.com