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July 2017

Multi-State Tax Law Complexity

Taxes are already complicated as it is, but when you factor in the possibility that you may have to do business in different states, well then you are going to have to step your game up. The realm of multi-state tax is complex because each state is sovereign when it creates tax laws. This is particularly relevant when a foreign company wants to do business with the U.S.

Nexus

The first factor that may cause some confusion among tax-filers is the concept of nexus. Nexus basically means connection, but in the world of taxes, it is the minimum amount of presence that a company must have in a state in order for that company to have to abide to the tax laws in that particular state. The challenging part of this is that the amount of presence it takes for a company to reach nexus varies in each state.

Federal and State

The blurred line between federal and state rules on taxes is another issue that companies have to deal with. Federal tax rules apply to all citizens living in the U.S. The laws are created by legislators and enforced by the IRS, a Federal agency, on all citizens regardless of which state they live in. Apart from federal tax returns, citizens must also file state tax returns to the individual State’s government. Each state has separate rules regarding taxes, there is no system that adjoins all the state tax laws.

From Product to Service

A significant change that has recently found its way into the U.S is the transformation from products to services. Technology, the culprit behind this transformation, changes so fast that state tax laws cannot keep up. As new services are introduced into our economy, companies and legislators become more and more complex.

 

It is important for companies to be aware of these anomalies so that they can maximize their revenues and avoid penalties.

deducting commuting expense

Deducting Commuting Expenses

Commuting is the time you spend driving to and from your home to your business. Unfortunately, expenses related to commuting and are not deductible because the IRS defines them as personal expenses. Even if you are working while commuting, these expenses remain un-deductible. Using your car to transport materials for work is an example of a commuting expense. Talking on a cellphone about business while commuting is another example. Two exceptions that leave room for deducting commuting expenses are the temporary distant worksite and the home office.

 Deducting Commuting Expenses with a Temporary Distant Worksite

A “Temporary Distant Worksite” exception is the cost of going between home and a temporary work location. A work location is considered temporary when it is expected to last for no more than a year.

Deducting Commuting Expenses with a Home Office

The “Home Office” is the second and most common exception when it comes to deducting commuting expenses. The costs of travel between home and a location that is in the same business can be deducted from a taxpayer. In order for these costs to be deducted one of the following tests must be passed.

  1. The principal place of business test requires you to use your home office “exclusively and on a regular basis” as your principal place of business. This entails two smaller tests called the “management or administrative activities” test and the “relative importance” test. The former means that you should use your home office for administrative or management activities of your business. The latter means that your home office should be the most important place where you conduct your business.
  2. It is used on a regular basis to meet with clients, patients, or customers.
  3. You are entitled to home office deductions if your office is in a structure that is separate from your house, like an off-site garage.