Which state to file with a business in another state

[oscar03632]

I partially own a business in Virginia where I am an employee (S-Corp) and earn both employee income (W-2) and a share of the profits (K-1) and will be moving next year outside the state. Let's use NY and FL as potentials. How does this impact your state taxes? (Using NY and FL as an example since NY has higher state taxes and Florida has no income tax).

Given this scenario, let's say there are 3 forms of income:
- W-2 from the company in Virginia
- K-1 from the company in Virginia
- investment income

How are you then taxed? i.e., If I move to NY, I assume I fill out NY state tax forms but will I pay state tax on all 3 forms of income? If I move to FL, what happens?

[DianeW777 · Accepted solution]

You must always report your worldwide income on your resident state return, if they have a state income tax. That being said there is a question on where the source of your income is from.  Some state require that you report income that is from a source located in that state (Virginia).

• Virginia Tax 
  • Virginia law imposes individual income tax filing requirements on virtually all Virginia residents, as well as on nonresidents who receive income from Virginia sources. 

If the state where you move does have a state income tax, there is a credit for taxes paid to another state on the same income.

• The credit for taxes paid to another state on the same income is used on your resident state because they do not want you to pay taxes twice on the same income.  As the resident state all worldwide income must be included.
  • The credit for tax paid to another state on the same income will be the lesser of: 
    • the tax liability actually charged by the nonresident state, OR
    • the tax liability that would have been charged by your resident state

If you don't have tax in one of the states (FL as example), then there is not going to be a credit for that state. 

Review the link below if you have questions about a particular state.  You can also add any question here as you start to prepare your state returns.

• How do I contact my State Department of Revenue?

[oscar03632]

Thank you for responding. 

Just so I fully understand can you confirm the following:

Again, assuming:

- W-2 from the company in Virginia
- K-1 from the company in Virginia
- investment income

First scenario is resident of New York:

- resident of New York (let's just assume 10% tax rate for simplicity)

- Virginia business (let's just assume 5% tax rate for simplicity)

I would be required to file in Virginia for both W-2 and K-1 income (at 5% let's say). In New York I would be required to file for all income (W2, K-1, investment), but since my Virginia W-2 and K-1 income was taxed at 5%, the lesser tax (in this case 5% for Virginia) would be used and 10% for investment income. i.e., I would not be taxed at 10% for W2 and K-1 income.  Correct?

Second scenario is resident of Florida

- resident of Florida (no income tax)

- Virginia business (let's just assume 5% tax rate for simplicity)

Since Florida doesn't have income tax, I would file a non-resident taxes for W-2 and K-1 income in Virginia (at 5%) and 0% (no filing) for my investment income. Is this correct?

[DianeW777]

Question: I would not be taxed at 10% for W2 and K-1 income.  Correct?

• Incorrect. You would be taxed at 10% overall because you would receive the 5% credit for the tax paid to VA which will result in an overall tax of 5% in VA and 5% in NY or a total of 10% due to the rate in your resident state. (Because it's lower than the 10% actual tax in NY in your example, the credit is limited to the amount actually paid).
• You will pay tax on your investment income in your resident state only.

Question: Since Florida doesn't have income tax, I would file a non-resident taxes for W-2 and K-1 income in Virginia (at 5%) and 0% (no filing) for my investment income. Is this correct?

• Yes, you are correct.

[oscar03632]

I see now. That makes sense. Thank you for helping me understand.