State Income tax question

[pb4uski]

Here's another odd one.... DW just received a mailing from our health insurer asking for documentation proving that she is still a VT resident (which she is)...I suspect that they are asking since we snowbird and she has incurred some medical bills in FL.

 

[CaliKid]

I have lived in Florida for the past 26 years (no state income tax). I have owned rental property in Virginia (state income tax) since 1989. I have never received anything from Virginia informing me that I owed them state income tax.
Mike

I would guess you do owe them income tax for the past 26 years. I would definitely talk to a tax professional about that as I think it's tax evasion to not pay. I could be wrong as I am not a tax pro. Good luck with that. I would not bury your head in the ground though.

 

[wrigley]

Assuming you include your rental on your Federal 1040, then you should have the information necessary to prepare your Virginia taxes. The state shouldn't be sending you anything.

I'll check in to this. Yes, the home has been claimed as rental property on my Federal tax return since 1989.

When I bought the property my wife and I were both active duty military and our homes of records were NOT Virginia. Our homes of records were states that had a state tax, but because we were active duty military we were exempt from state tax. We left Virginia (still active duty), rented out the house, and moved overseas for about 4/12 years. From there we received order to Florida, and eventually both of us retired from the military. Since Florida has no state tax, I have never in my lifetime had to deal with state income tax. I assumed (and I know what that word means ) that if I owed state tax to Virginia, or at least was required to file state tax, I would have received something stating that from Virginia?

Mike

 

[Z3Dreamer]

VA taxes. Know them well. Pb4uski is correct. VA has non-residents compute tax on all income, not just VA. Then you compute % to total. So if VA income is 1% and your tax on 100% of income is $10,000 then you owe $100.

Each year, I file a VA non-resident for an MD resident. Income from a partnership is $400 so the tax is about $24. Partnership is required to withhold so he has withholding of $40. Result is a refund of $16.

Rules for filing are not the way you think. If you have total income greater than say $10,000 (could be less or more) in all states and you have non-resident income, you must file. So, if you have FL income of $30,000 and VA of $500, then you must file a VA non-resident return. Yes, depreciation could wipe it out.

In the case of MD resident, they file a VA non-resident return and a full year MD return. They attach a copy of the VA return to their MD return and get credit for taxes paid to VA. I mention how this works as the MD tax rates are higher. On the $400 of VA income, he pays $24 to VA, but MD taxes at a higher rate. Maybe the tax in MD is $32 and he only gets a $24 credit so he ends up paying MD $8 for income in another state. Logically, one would think that the VA income would be excluded from MD, but no, they want a cut, too. It doesn't cut both ways. If the non-resident tax were greater, he would only receive credit for the amount MD would have taxed. In other words, if the VA tax was $40, he would only receive a $32 credit.

If you asked a CPA, they would advise you to file a bunch of years as there is no statute on non-filing. If it were my own return, I would have to see the dollars involved. At most, I would file going forward.

In my above example, the Turbotax fees for one more state are more than the tax. How does that make sense? My point is that the taxation of non-resident income has no minimum and that the cost of preparation, in many cases, exceeds the tax.

I doubt VA would notice from a 1099 at time of sale.

 

[euro]

I'll check in to this. Yes, the home has been claimed as rental property on my Federal tax return since 1989.

When I bought the property my wife and I were both active duty military and our homes of records were NOT Virginia. Our homes of records were states that had a state tax, but because we were active duty military we were exempt from state tax. We left Virginia (still active duty), rented out the house, and moved overseas for about 4/12 years. From there we received order to Florida, and eventually both of us retired from the military. Since Florida has no state tax, I have never in my lifetime had to deal with state income tax. I assumed (and I know what that word means ) that if I owed state tax to Virginia, or at least was required to file state tax, I would have received something stating that from Virginia?

Mike

That “assumption” is really the main reason why I flagged your original post. The tax laws, both federal and state are such that it is never THEIR responsibility to “let you know or ask for” anything. It is always the taxpayer’s responsibility to determine what/where/how to file. Now, sometimes, they may approach you because they have records that don’t match, but the simple fact that you never got anything from VA dept of revenue, will definitely not wash in their minds as an excuse for not filing. Even though it is an understandable position, “lack of knowledge of the law” never carries the day in court.
I doubt this will be a hugely expensive thing to fix - maybe some work involved in filing amended returns, etc. Plus, since you have been fine for decades, you may well be ok by just continuing to keep a low profile and do nothing.

 

[marko]

Sounds like VA is a good place to own out of state rental property. [emoji23]

 

[Bir48die]

VA taxes. Know them well. Pb4uski is correct. VA has non-residents compute tax on all income, not just VA. Then you compute % to total. So if VA income is 1% and your tax on 100% of income is $10,000 then you owe $100.

Each year, I file a VA non-resident for an MD resident. Income from a partnership is $400 so the tax is about $24. Partnership is required to withhold so he has withholding of $40. Result is a refund of $16.

Rules for filing are not the way you think. If you have total income greater than say $10,000 (could be less or more) in all states and you have non-resident income, you must file. So, if you have FL income of $30,000 and VA of $500, then you must file a VA non-resident return. Yes, depreciation could wipe it out.

In the case of MD resident, they file a VA non-resident return and a full year MD return. They attach a copy of the VA return to their MD return and get credit for taxes paid to VA. I mention how this works as the MD tax rates are higher. On the $400 of VA income, he pays $24 to VA, but MD taxes at a higher rate. Maybe the tax in MD is $32 and he only gets a $24 credit so he ends up paying MD $8 for income in another state. Logically, one would think that the VA income would be excluded from MD, but no, they want a cut, too. It doesn't cut both ways. If the non-resident tax were greater, he would only receive credit for the amount MD would have taxed. In other words, if the VA tax was $40, he would only receive a $32 credit.

If you asked a CPA, they would advise you to file a bunch of years as there is no statute on non-filing. If it were my own return, I would have to see the dollars involved. At most, I would file going forward.

In my above example, the Turbotax fees for one more state are more than the tax. How does that make sense? My point is that the taxation of non-resident income has no minimum and that the cost of preparation, in many cases, exceeds the tax.

I doubt VA would notice from a 1099 at time of sale.

I second this response. Agree with each explanation and the subsequent steps.

 

[wrigley]

That “assumption” is really the main reason why I flagged your original post. The tax laws, both federal and state are such that it is never THEIR responsibility to “let you know or ask for” anything. It is always the taxpayer’s responsibility to determine what/where/how to file. Now, sometimes, they may approach you because they have records that don’t match, but the simple fact that you never got anything from VA dept of revenue, will definitely not wash in their minds as an excuse for not filing. Even though it is an understandable position, “lack of knowledge of the law” never carries the day in court.
I doubt this will be a hugely expensive thing to fix - maybe some work involved in filing amended returns, etc. Plus, since you have been fine for decades, you may well be ok by just continuing to keep a low profile and do nothing.

I realize "I didn't know" is not a viable excuse...…...but the truth is, I didn't know. I happen to know a neighbor that is a CPA and is licensed here in Florida as well as Virginia. I'll talk with her and see what my options are.

Mike

 

[ach88]

IIRC, some states sought to tax income that was deferred by residents and then later withdrawn while they were no long a state resident and they lost in court and I think there was federal legislation prohibiting them from doing it... just going from memory.

Some Deferred Compensation plans can be taxed by original state if election is made to take out over a period of less than 10 years. I was in such a plan and did not know this rule. I elected to take deferred comp over 5 years to bridge to SS FRA. So I now have to file in MASS and CA. I do get a credit in CA for tax paid to MASS. but it is a royal pain to have to file in another state.

I would check with your tax advisor if you have a deferred comp plan.