Tax day is quickly approaching. Are you ready?
If you're like most, you've spent at least part, if not all, of 2021 working outside the office. You may have even worked in a different state or country than where your office is located. If that's the case, filing your 2021 tax returns could get more complicated than usual.
Today's article discusses key considerations to keep in mind as you prepare to file your 2021 tax returns.
The rise of audits
According to the latest estimates, the IRS expects to process 160 million 2021 tax returns this year, and they're getting prepared. The IRS announced the hiring of 10,000 employees to resolve its backlog of tax returns and tackle 2021 returns. This comes after the agency received a funding boost of more than $1 billion to go toward improving taxpayer services. What does this mean for you?
Audits by mail
Until recently, the IRS or state taxing authority conducted field audits in-person at the taxpayer's home, place of business, or accountant's office. This type of audit required significant manpower. But the IRS is now relying heavily on computer-generated queries that are sent automatically to individual filers when the system picks up an anomaly in a tax return from prior years. As a result of today's influx of tax returns, more and more taxpayers are being audited. Moving away from in-person audits makes it feasible to conduct a much larger number of audits.
The pandemic has created significant challenges for major cities like NYC that rely heavily on taxes collected from residents and nonresidents working within city limits. In the past, it was easy to identify where someone was working based on where their office building was located. With the rise of remote work brought on by the global pandemic, identifying where someone is working has become more complicated. In response, states are conducting and ramping up, Residency desk audits. Last year, New York started their Residency desk audits for 2020, signaling an aggressive audit upcycle. NYC isn't alone. California is also aggressively going after state income tax they believe they're owed. One thing is clear, if you relocated to a new state in 2021, expect a residency audit.
Are you considering a move out of state? Take steps to understand tax implications before heading to a state that levies little or no state income tax. Here are three articles to read before you call the movers.
- 9 States With No Income Tax
- What You Need to Know About Relocating to Florida
- Why Moving to a State with Low Income Taxes Could Cost You
Nonresident tax liability
If, while working remotely, you moved states, you may have a nonresident tax liability. An employee's physical presence dictates where tax is due in most states. This means your wages are taxable in your resident state, even if you pay tax in a nonresident state. Of course, there are exceptions to the rule. For example, states with reciprocal tax agreements allow taxpayers to avoid filing in the nonresident state if proper forms are submitted.
Technology to the rescue
If you’ve spent time working out of your home state - whether traveling for business or enjoying the freedom of remote work - this could trigger non-resident tax filing complexities. Leveraging the right technology will become critical as filing tax returns becomes more cumbersome and audits rise. Monaeo accurately monitors where you spend your days working to provide you with audit-ready location data that can be used to avoid tax overpayments and defend you in the case of an audit.
Protect yourself with audit-ready location data. Sign up for a 15-day free trial to experience Monaeo for yourself.