Transcription: Segment 5
Paul Winkler: You’re listening to the Investor Coaching Show, along with Evan Barnard and Arlene Brown. All right, Evan, I think, you know, we gotta talk when you’re one of your areas that you, Mr. Tax man. Yeah. Lay it on us. What’s going on. Diversify, diversify out here.
Taxes and working from home
Evan Barnard: What to address an issue that people may not be used to facing as a result of the coronavirus in some of the, you know, shut down or work from home situations. So here’s the thing: when you file your tax return or when you’re preparing your stuff and we’ll just use local, “Hey, I work in Nashville, I commute from Bowling Green, maybe down to Nashville work everyday or ride right along the border.” And so typically you withhold Tennessee taxes or whatever, and it’s just a fairly clean deal.
Well, now that a lot of people are working from home that aren’t used to working from home, their tax situation has potentially changed quite a bit because generally your income of where you earn your income, right, is where you’re going to have to file a tax return or pay, you know, pay taxes and so forth. Now, the good news is that since a Supreme court case, several years ago, you did not have to pay both States taxes on the same dollar.
Now in Tennessee, it’s a pretty good deal cause we don’t have state income tax. But if you say you were commuting from Alabama up to Southern Tennessee or from Kentucky into Northern Tennessee to work, or all of a sudden you’ve got a state income tax or even in the news right now where California is trying to get their people that work used to be working in their state. Yes. I am going and paying state income taxes. So if you have one state that you have a state income tax and California, California is trying to get you to pay taxes there as well, and as well in the state.
Paul: And if the other state can tax you, but you’re actually doing your work from there, you’re working from home, right, California shouldn’t be able to tax you. That’s the big thing in the news right now.
We live in one because if you work well, so what I’m thinking in this, and this is what I’m thinking about is that you’ll have states like California, that I’ve had companies that are tech companies, that all of a sudden their people are working from home and they’re able to work from home. They figured out they can. So they’re moving to low tax or no tax States. And continuing to work for that company that happens to be domiciled in California. Yeah. But not having to pay California taxes is what the fight is, correct California saying, “no, you’ve got to pay us taxes. And from what you’re saying, no, they don’t have to. So it’s if they live in Tennessee.
Think ahead
Evan: Yeah. It’s not a simple issue. The thing to be aware of is you want, the reason I’m bringing up, you know, it’s August for heaven sakes, but you’re going to want to start digging into some of this to start doing some planning before year end to see if there’s anything you can do. What you won’t end up doing is paying both states taxes on the same dollar of earnings. But for example, let’s take California for example. And I’m not, I’m not familiar with their state tax, but let’s just say they have 10%. Oh, so you make $100,000 in California. That’s right. Save $2,000. Just listen to this show. And you know, so I paid $10,000 in California tax. Well now let’s say I let’s go really far and just move to Tennessee. And so now I’m telecommuting. Well, we don’t have a state income tax. So it’s conceivable that California could win that argument because they’re not paying tax two states on the same earnings.
So let’s just say they went to a state that had a 5% income tax. There you go. They pay 5%. Let’s just say it’s Utah. Cause it’s close to California. Sure. They pay 5% in Utah. They might end up paying another five in California, you know, but really, yeah. It’s pot, you know, it’s, there’s some tax, you know, not tax treaties, reciprocity between some States, California doesn’t play well with anybody in California. Wow.
But the thing is, you know, particularly for listeners here, we’re in a no tax state, but if you’re now working from home in Alabama or you’re working from home in Kentucky where they do have a state income tax, you may now be confronted with paying state income tax and filing a return and so forth where you’re not used to doing that. And you don’t have any taxes being withheld because your employer is used to you working in Tennessee and so forth, you might get caught off guard.
So it’s just, it’s a thing to be aware of to start planning and looking into, do I need to squirrel away some money for state tax? You know, do I even qualify? Well, my employer’s making me, but I don’t have a home office. I mean, there’s some people that don’t think it would apply to them. It’s probably going to apply to them. Well, it’s interesting because also you may have cost savings because you’re not commuting as much as you used to.
Paul: So now you can start to put money in qualified plans, retirement plans that you weren’t putting there before and avoid some of the taxes so that you don’t have it. You know, instead of getting this little surprise, bill you’ll have a deduction on deposits and have a lower tax bill. I, yeah, I had it on my computer. There was an article exactly to that fact out. I think it was a national number, but it’s like, we’re saving $485 million a day on people working from home.
Alrene Brown: It’s $48 billion a state. Yeah.
Paul: Yeah, yeah. We lost and big brains over there has got the number.
Arlene: State and then federal $36 billion. So if I’m California who doesn’t lower, no sales tax. I mean, you know, I am going to fight that.
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Will there be more competition between states?
Evan: And, and so it creates some opportunities for people as well if your company begins to say, “Hey, this is going to be a permanent thing. Even when COVID is done, we really liked the fact we can save money on not having office rent for everyone. And so you can work from home now and maybe come to a meeting every six months or something.” Well now you could start looking for, well, “Hey, maybe I’ll go live in a low tax state and I can keep my job.
But you know, I was stuck in California. I was stuck in New Jersey or something like that. So we may Tennessee may benefit from that influx and particularly smaller towns, you know, like a Fairview is probably going to keep growing or Mount Juliet or Lebanon. I mean, yeah, we drove, it may be interesting to see if there’s more competition between states too, from a tech standpoint. And there was a similar article talking about the rise of work from home towns.
And a lot of them were in California, but Truckee, which is, you know, North of interstate 80, just kind of East of Sacramento. And my folks live there, South Carolina, where the Tuscan, how do you know? Yeah. On the way to Reno and Lake Tahoe, but 20% of the residents of Truckee worked from home. And that’s the highest percentage other than there was like a couple of military towns that they kind of threw out of this study.
Think carefully about real estate
Arlene: Think about that, the effect on the real estate commercial real estate, because now if a lot, 20% is staying, working home, hopefully not the day they are going to, the companies are getting rid of some of their real estate.
Paul: Yeah. And hopefully you’re not the owner of that real estate investment trust that many investment firms like to sell. Yeah. It’s very seriously dangerous, but yeah, several in Colorado. So this is interesting. The villages in Florida, left 11.7% of the residents there work from home, you know? And I think in terms of, if I were running a city, what would I be thinking about getting infrastructure in place? So that faster internet speeds, for example, speed internet.
Evan: Yeah. Golf cart, roads. I like it. And don’t raise the sales tax, have a charter school. Yeah. So that you’re not necessarily worried about property taxes and so far, I mean there’s yeah. That’s a Dell Web, right, does that. He’s the developer that does a lot of the senior community. Yes. Yes. You know, there’s similar folks that are doing kind of multigenerational town concepts because a lot of seniors don’t want to move to a senior community anymore.
Right. That kind of, that wave is passed. And so they are looking at these planned communities kind of like celebration Florida back in the day. Yeah. You want your gratitude? Interesting to see what happens over the next over and that the government uses tax policy to drive behavior. And this is no exception.
You’re listening to the Investor Coaching Show, Paul Winkler, Evan Barnard and Arlene Brown. Have a great week guys. We’ll catch you next time. Right here.
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