How Do I Handle Multistate Tax Obligations?

If your business operates in more than one state—or if you live in one state and work remotely for a company in another—you may be required to file taxes in more than one place. Multistate tax obligations can get confusing fast, especially for freelancers, small business owners, and remote workers.

Here’s a simple breakdown of how multistate taxes work and how to stay compliant.

1. Understand “Nexus” — Where You Owe Taxes

“Nexus” is a tax term that means a connection or presence in a state. You may have a tax nexus in a state if you:

• Have an office, store, or warehouse there
• Employ people there
• Provide services to clients regularly in that state
• Sell physical products shipped from that state

Example:
If you’re a Los Angeles-based graphic designer (LLC) and you regularly provide services to clients in New York and Texas, you may have nexus in those states and be required to file state taxes there.

2. Income Tax vs. Sales Tax

You may owe different types of taxes depending on what kind of business you run and where.

• Income Tax: Many states require you to file and pay income taxes if you earn money from clients or business activities in their state.
• Sales Tax: If you sell physical products, you may need to collect and remit sales tax in states where you have nexus.

Example:
You sell handmade jewelry online and ship products from California to customers in Arizona and Nevada. If you store inventory in a warehouse in Nevada, you may owe sales tax in Nevada even if your business is based in California.

3. You Might Need to File Multiple State Returns

If you earn income in more than one state, you may need to file:

• A resident return for the state you live in (e.g., California)
• Nonresident returns for any other state where you earned income

Example:
You live in Los Angeles and run an online marketing business. One of your biggest clients is based in Illinois. If that client paid you $30,000 last year, you may need to file a nonresident Illinois return and report that income there—while also filing a resident California return for your total income.

4. Avoid Double Taxation with Credits

Good news: Most states offer tax credits to help you avoid being taxed twice on the same income.

Example:
Let’s say you paid $800 in income tax to New York for work you did there. When filing your California return, you can usually claim a credit for that $800, reducing your California state tax bill.

5. Keep Good Records

Multistate taxes require clear documentation. You should track:

• Where each client is located
• Where your services were performed
• Where your products are shipped from and to
• Any taxes collected or paid to other states

This will make it easier for your Tax Accountant Los Angeles to properly file your returns and help you avoid overpaying.

Why Work with a Tax Professional?

Multistate tax rules vary by state and can change often. That’s why many business owners, freelancers, and remote workers choose to work with a reliable CPA Los Angeles or Tax Advisor Los Angeles to ensure they’re in full compliance—and not paying more than they should.

Let Velin & Associates, Inc. Help You Simplify Multistate Taxes

At Velin & Associates, Inc., our experienced Accountants Los Angeles can help you:

✔️ Determine which states you need to file in
✔️ Minimize your overall tax burden
✔️ Avoid double taxation
✔️ Stay compliant and penalty-free

📞 Call us today: 323-902-1000
📧 Email: dmitriy@losangelescpa.org
🌐 Visit: www.losangelescpa.org

Velin & Associates, Inc. — Trusted Accounting Services in Los Angeles