Don't worry––just because you're living in one state and working in another doesn't mean you have to pay double the taxes! Instead you'll need to perfect the art of resident returns and non-resident returns.
If you're living in one state but practicing therapy and working with clients in another, here are some tips on how to file your tax return this year:
- Research "reciprocal agreements" in your state. Reciprocal agreements allow you to work in a neighboring state without having to pay taxes there, and are in place for certain states. For example, California residents do not need to pay income tax on wages they earn in Arizona. (Note: reciprocal agreements only apply to wages from employment. If you're receiving income from a different state outside of employment, you'll need to file a non-resident return.)
If reciprocal agreements don't apply to you, you will file a resident tax return and a nonresident tax return. For the state you live in, you'll file a resident tax return, which includes all of your income sources earned in the state, including the income earned from the other state. Depending on the state you practice but don't live in, you may need file a nonresident tax return, listing only the income you made from that state. In most cases, filing in your home state will allow you to claim a tax credit for the taxes you paid to the state you work in. Each state is different which requires research by the tax preparer.
Please note, that S corporations have different income sourcing rules which require separate guidance. If you are an S corp that's practicing in multiple states, the Heard Tax team will assess your income tax filing needs!