Anyone who files a state tax form must fill out federal forms first, because states usually require your adjusted gross income from the 1040 form before you can calculate whether you owe any state tax money. The big question is whether you need to pay state taxes beyond your resident state, especially if you operate a small business online. The following examples may help you decipher the answer to this question?

For instance, say that you sell merchandise for another vendor online (an example that was discussed in the previous article), and you generate income from this venture. You reported your income on your federal forms and state forms, but you live in Tennesse and your income arrived from Florida. Does the origin of the paycheck matter when it comes to Florida taxes? One way to discover the answer to this question is to visit the IRS page that connects the viewer to every state Website you might need for this quest.

If you click on the link for the Florida site, a page pops up within the IRS site that contains links to various interests in that state. Look under the subheading, "Taxation," and click on the link for Florida's Department of Revenue. That action will take you to a page where the IRS states that, "you will leave the IRS web site..." Click on the "leave IRS site" button, and you'll arrive at Florida's Department of Revenue site. Once you arrive at the Florida site, click on the "Do you owe tax?" link in the left menu. Now you'll be presented with a list that will detail whether you owe tax in Florida if you're a nonresident.

Fortunately, it appears that a person who lives outside Florida and who receives a paycheck from Florida may not need to pay Florida state taxes unless that person collects sales tax or pays Florida income tax. If that person is you, then you need to register with the state and fill out the forms. Florida offers the opportunity to conduct this business online.

Every state in the U.S. offers information about nonresident tax requirements for that state. You'll need to access any given state's Website to answer your questions about that state's nonresident stipulations. The way to access these sites is exactly the same way that you accessed the Florida site from the IRS site. However, each state site looks and operates differently, and answers aren't always immediately apparent. I'll take you to New York next so that you can compare this state's site and nonresident tax payment requirements to your experience with Florida.

Repeat the steps on how to access the Florida site for New York. When you arrive at New York's site, you may see that any immediate information about whether you need to pay nonresident taxes is less evident than it was on the Florida site. I already fumbled around this site to find that information, so I'll take you directly to the Individual Taxpayer Answer Center page where you can find answers.

Wow - New York's answer to the question about nonresident taxpayer status seems intimidating, doesn't it? You first "must compute a base tax as if you were a resident of New York for the entire year," and you "must then divide your New York source amount of New York adjusted gross income by your federal amount of New York adjusted gross income," and yada, yada, yada. But, before you commit yourself to state tax insanity land, I'll show you another link that may help to eliminate your confusion.

Further down on that taxpayer page, click on a link to a popup window entitled, "I am a nonresident of New York State. Do I have to file a New York return? That link holds a table that shows the amount of income a nonresident must earn before that person should pay taxes in New York. Here's an example of a person who may need to file taxes in her resident state as well as in New York:

A writer who lives in New Mexico is single, and she cannot be claimed as a dependent on another taxpayer's federal return. She writes articles for various magazines in New York and in other states as well. The income that she derived over the past year from all her writing sources totaled $25,000, but she earned only $8,000 of that income from New York sources. According to the table in that popup window, she earned more than $7,500 from New York, so she needs to file New York state income tax forms.

She reads down further on that page and she discovers that, "New York adjusted gross income is simply federal adjusted gross income increased or reduced by any required New York additions and subtractions." She filled out her federal forms with figures derived from all her income sources. However, she doesn't want to pay tax on income she earned from her home state to New York. Therefore, she now needs to extract her New York income and any deductions that applied only to the New York income, and then refigure her federal adjusted gross income based only on those sums. The New York site provides the information for these additions and subtractions in their IT-203 Instructions, and a link is provided for her convenience.

When this writer files her federal income tax, she must include all sources of income. When she files state taxes, however, she only needs to pay taxes to that state based on income she earned from that state, and only if the state requires this money from her. This example demonstrates that "being in business for yourself" always requires careful planning. If that writer had turned down an article or two from New York, her requirements to file and pay taxes in New York might have been eliminated.

But, who wants to turn down money? I hope that this knowledge will help you to write your business plan and that it will also help you to price your goods and services according to any given particular state tax laws.

Until Next Week,
Linda Goin