Tax Out of State Income

[David D.]

If I live in CA and earn income from AZ (re sale or rent income, note sale or interest income) do I pay CA or AZ state taxes? Does it make a difference if assets are owned in an entity?

[Jon Holdman]

The simple answer to this question, as it always is with this sort of question, is to discuss it with your CPA. If you don't have one, you need to find one.

Yes, you will need to file state tax returns for both AZ and CA. Yes, you will pay taxes to both. You will not, however, pay tax on the same dollar of income in both states. You'll pay tax on the AZ income to AZ and tax on the CA income to CA.

Usually the way this works is to compute your taxes for both states as if you earned all the income in each state. Then, you compute a percentage from each state and apply that to the tax. Say you have $70K in income from CA and $30K from AZ. You compute the CA tax on $100K. Then you multiple that by 70% to get the tax you owe CA. Then you compute AZ tax on $100K. Then you multiply that by 30% to get the tax you owe AZ.

Or, something like that. Again, you CPA will know exactly how it works.