Live in Hyde Park, trying to decide where to locate my business (taxes) (Cleveland: real estate, get credit)

[computerpro3]

As an out-of-stater who's lived here for a while but is just recently getting an appreciable income after graduating, I'm a bit confused about how income taxes work here in Cincinnati. I understand that there is both a municipal and city income tax?

I started my own business and currently work from home, but may need to move to a physical office location within six months or so.

I heard some people say that I would pay less income tax if I located my business in an unincorporated area such as Anderson, but from what I can see I would still get hit with the 2.1% tax because I live in Hyde Park, so would it even matter where I work? I have the freedom to choose pretty much anywhere to locate it, so the only limiting factors are the commute and gas prices.

[Chemistry_Guy]

You need to read up on some tax policy and the specific type of business that you are doing. A LLC will have very different tax rules than a partnership, sole proprietorship, or a corporation. The type and volume of business that you do should help determine the significance of the physical location and the nature of business entity that you create.

[wolden]

Originally Posted by computerpro3

I understand that there is both a municipal and city income tax?...

I heard some people say that I would pay less income tax if I located my business in an unincorporated area such as Anderson, but from what I can see I would still get hit with the 2.1% tax because I live in Hyde Park, so would it even matter where I work? I have the freedom to choose pretty much anywhere to locate it, so the only limiting factors are the commute and gas prices.

Here's my unprofessional and quite possibly wrong interpretation:
If you work in the city, you pay your city 2.1% income tax to the city. But if you only live in the city, you should only pay your real estate taxes to Hyde Park (via paying to Hamilton County) assuming you own your home.

I don't see how the city could take your income tax if you worked for example, in Dayton.

[Wilson513]

If you live or work in cincinnati you pay 2.1% on all income except interest and dividends. You get credit for taxes paid to other cities.

[wolden]

Originally Posted by Wilson513

If you live or work in cincinnati you pay 2.1% on all income except interest and dividends. You get credit for taxes paid to other cities.

Ouch! Ok my post was wrong. So if you worked lets say in Mason wher eit was a 1% income tax you would still have to pay Hamilton County 1.1% more just for the privilege of living here. That seems strange to me -- is that common across the US?

[kjbrill]

Originally Posted by wolden

Ouch! Ok my post was wrong. So if you worked lets say in Mason wher eit was a 1% income tax you would still have to pay Hamilton County 1.1% more just for the privilege of living here. That seems strange to me -- is that common across the US?

I think that is very common. In fact, in the example you cited, but in reverse, living in Mason and working in Cincinnati, until a couple of years ago you would have not only owed Cincinnati their 2.1% because you worked there but also Mason 0.5% because they only granted a 0.5 reciprocity towards where you worked. So your total city income tax would have been 2.6%. Mason recently voted to grant a full 1% reciprocity towards where you work. So people who live in Mason and work in Cincinnati now owe Mason nothing. Some people in Mason feel those who pushed this are high enough wages earners in Cincinnati the 0.5% was significant.

Far as I can tell, if you live in Cincinnati and work in Mason, you will owe Mason their 1% tax. Where you work is the first taxing authority. Cincinnati will then grant you a 1% reciprocity for what you pay Mason. But you still owe Cincinnati the 1.1% differential between the two tax rates, so you will pay a total of 2.1%.

But note there is no requirement by law to grant a reciprocity. I don't know how common it is, but you can owe both where you work and where you live their full local income tax rate.

For instance if you lived in Cincinnati and worked in Dayton, which has a 2.25% local income tax rate, if Cincinnati did not grant you reciprocity for where you worked, you total tax bite could be 4.35% - Ouch!

[Wilson513]

Originally Posted by wolden

Ouch! Ok my post was wrong. So if you worked lets say in Mason wher eit was a 1% income tax you would still have to pay Hamilton County 1.1% more just for the privilege of living here. That seems strange to me -- is that common across the US?

Cincinnati not Hamilton County. County get the real estate tax. City gets the income tax.

[kjbrill]

Originally Posted by Wilson513

Cincinnati not Hamilton County. County get the real estate tax. City gets the income tax.

Definitely, local income taxes are voted in by incorporated areas such as cities and villages, not counties. In fact, you can live in unincorporated (township) areas of Hamilton Co. and work in same and you owe NO local income tax.

The argument over local income tax goes on and on. For cities like Cincinnati who have a high percentage of workers who not live in the city, to me it makes a lot of sense. Soak those who work here and get their income here but do not live here. We provide the environment for their high paying job so let them pay to support it. However, it also penalizes those who both work in and live in the city. Cincinnati's 2.1% local income tax rate has to be a big deal for the lower bracket wage earners in the city. For one thing, it is not graduated. Second, it has no deductions, etc. it is just a flat tax.

But, far as I know, there is no provision in the statues to discriminate between those who work in a city versus those who live in a city. In other words I do not think it is legal to pass one local income tax rate for those who work in a jurisdiction and a different rate for people who just live there.

[jlawrence01]

Originally Posted by kjbrill

Definitely, local income taxes are voted in by incorporated areas such as cities and villages, not counties. In fact, you can live in unincorporated (township) areas of Hamilton Co. and work in same and you owe NO local income tax.

But, far as I know, there is no provision in the statues to discriminate between those who work in a city versus those who live in a city. In other words I do not think it is legal to pass one local income tax rate for those who work in a jurisdiction and a different rate for people who just live there.

I have several friends who live and work in Anderson (unincorporated) as they own their own businesses and want to avoid the local income taxes you pay in many cities

Kjbrill is correct. If a community has an income tax, it has to be applied uniformly.

By the way, here is a listing of communities who use RITA (Regional Income Tax Authority) to collect local taxes. It will give you an idea of the tax rates as well as the credits given.

http://www.ritaohio.com/individual/p...2/taxtable.pdf

Here is a listing of communities who use CCA (Central Collection Agencies) to collect local taxes:

CCA - Division Of Taxation


These two lists are NOT at all exhaustive. Many communities collect their own earnings tax. When we lived in the Cleveland area, we would file as many as 10 returns a year as I did work in a number of communities in Cuyahoga, Lorain, and Geauaga counties.



I forgot all the fun that I am missing. (g)

[kjbrill]

jlawrence01...

Boy, that brings back memories. Years ago, my father ran a small painting contractor business. My mother was his one and only office employee, doing all of the books. I remember her lamenting constantly about having to track all of the local municipalties their employees worked in, having to calculate the required local income tax deductibles, etc. And she did all of this without the aid of a computer or even a good electronic calculator, strickly her ledgers and pen/pencil.