More States. More Complications. More Penalties.
The burden of simply keeping up with the reporting requirements of each individual state can cause a lot of headaches for small businesses. In fact, taxes and regulations are among the biggest challenges facing small businesses today. Operating in multiple states? The challenges multiply exponentially.
Many small businesses are organized as passthrough entities, and the taxing and regulatory procedures of states on passthrough entities as well as their owners vary greatly. It is very important for businesses that operate in multiple states to have clear guidance, and when necessary outside help in order to ensure that they are meeting all of the requirements.
A few of the issues that need to be addressed include:
- Nexus – at what point you are required to file in a state
- Entity classifications such as S corporations and LLCs and how they are treated
- At what level the state tax is imposed – at the entity level or the owner level
- Mandatory withholding or estimated tax payments
- Annual Reports – some states require these as well as a tax return
- Composite Returns – these allow the entity to file on behalf of the nonresident owners
And the list goes on and on and on. . . . .
As you can see there are a lot of things to think about, and the more states a business operates in, the more complicated it gets. It is very important to ensure all of the state requirements are met because just as the challenges multiply exponentially with the amount of states you operate in, so do the penalties. For advice about your business, be sure to contact your tax advisor.