Hello,
I am in the process of a new business start-up. My question is in regards to taxation of bonuses. I am working with investors to raise private capital. I plan to set my company up in California, but I live in Ohio. If set-up my company in California, receive funds from my investors, and transfer a small bonus to myself in Ohio, where will it be taxed? I plan to move to California if I get the bonus. If I get the bonus in Ohio and then transfer it to my new account in California, I'm assuming I will owe taxes in Ohio. However, when my address changes and the company sends out the necessary tax forms, it will have a California address. Do I need an Ohio address to pay the taxes, even though I change my address after getting the bonus? I'm somewhat confused...Any help will be very much appreceiated.

Thank you

AtlantaTaxExpert

Federally, the bonus will be taxed as ordinary income. A standard withholding of 30% is required for federal taxes on lump sum bonuses.

Your address, be it California or Ohio, is irrelevent. Your physical location at the time you constructively receive the bonus dictates which state receives the tax. If you are ,ocated in Ohio when you get the bonus, then Ohio taxes are due. Same logic applies to California. The fact that the tax forms will have a California address will not be an issue with Ohio tax authorities.

When it comes time to file your annual tax returns, both Ohio and California returns will be required. Make sure the bonus is included in the taxable income in Ohio, and that California gets a copy of the Ohio tax return to show that you have properly accounted for all income to either one state or the other.