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Archive for the ‘State’ Category

Why tax preparers turn gray

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A long-time client of mine brought me something new this year – a Schedule K-1 from a limited partnership (formed through the company that employed the client) that was liquidated this year. Normally, a Schedule K-1 isn’t a big deal – you key the information from the form, it carries to the appropriate schedules on the 1040 and the state return, and you are done. However, this one was a big deal – the partnership reported income allocations to 28 different states, and not only did they report that income to those states but they also paid state taxes to most of them.

Initially, I was still thinking this wouldn’t be a big deal – most of the income amounts were small, and I thought that most if not all of them wouldn’t even require that the client file a return. Turns out I was wrong – I wound up generating 17 separate nonresident state tax returns. The reason? Many states require nonresidents to file a tax return if the taxpayer has *any* income from sources in those states, no matter how little.

It turns out that the client got small refunds from most of those states – refunds which the client would have been more than happy to forego under the circumstances, because the amount of effort required on both the client’s part (signing all of the forms) and mine (generating them) was considerable. And when you factor in the amount of effort on the part of the receiving states to process the return and the refund – even though most of these are E-file/direct deposit – it’s still a lot more effort than is necessary.

My client’s company did their best to ensure that the investors understood that they are likely to have multiple tax obligations (I saw a copy of their letter to their shareholders), but I have to wonder how many of these shareholders are going to take the time and effort to dig out their actual state tax obligations – and what the odds are that at least some of them will get letters from various states asking about their failure to file returns. And I also have to wonder why state tax agencies can’t apply some sort of reasonable minimum dollar amount on nonresidents before requiring that they file – as they usually do for residents. Especially in this case, where the company actually paid state taxes on the income.

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Written by nctaxpro

April 6, 2011 at 8:05 pm

Posted in State, Taxes

Questions? Fire away!

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I’ve started using Quora over the past couple of weeks. It’s got an option that allows me to answer questions directly – so if you have any questions that you want to ask me directly, shoot them here.

Written by nctaxpro

January 19, 2011 at 2:18 pm

The Ides of March are almost upon us! Get those S corp returns done!

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For those of you who have S corporations, remember that if your 2009 tax year ended December 31 (which is probably true for most of you) your 2009 Form 1120S is due on March 15, 2010. If this is your first year filing as a S corporation, make sure that you take note of this for future reference – the return is due on the 15th day (or first business day after the 15th when the 15th falls on a weekend or a holiday) of the third month after the end of the tax year, and not the fourth month as is the case for your personal return.

If you intend to operate as an S corporation, you should have filed IRS Form 2553, Election by a Small Business Corporation, either within 2 months and 15 days of the beginning of your first tax year, or at any time during the year preceding the tax year in which it was to take effect. If you failed to make an election in a timely manner, you may be able to request relief and make a late election by filing Form 2553 with your initial 1120S. You can request relief if all of the following are true:

  • You fail to qualify to elect to be an S corporation solely because of the failure to timely file Form 2553.
  • You have reasonable cause for your failure to timely file Form 2553.
  • You have not filed a tax return for the tax year for which you want to make the election.
  • You file Form 2553 as an attachment to Form 1120S.
  • No taxpayer affected by the S corporation election (generally, the shareholders in the S corporation) has reported inconsistently with the S corporation election on any tax return for that tax year.
  • As always, if you have questions about your specific tax situation, you should consult a reputable tax professional in your area.

    Written by nctaxpro

    February 28, 2010 at 3:10 pm

    Posted in Federal, State, Taxes

    Deducting moving expenses, part 4 – how to report them (federal and state)

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    Part 1 – can expenses be deducted
    Part 2 – what expenses can be deducted
    Part 3 – handling employer reimbursement

    Now we come to the last step – how do you report moving expenses on your return?

    For your Federal return, that’s the easy part. You record your moving expenses and employer reimbursements on IRS Form 3903. You report the total amount you paid to move your personal effects and household goods on line 1, and your deductable travel expenses on line 2. Line 3 is the sum of lines 1 and 2. On line 4, put the amount of your employer reimbursement (reported in box 12 with Code “P”). Subtract line 4 from line 3, put the result on line 5 and (if positive) transfer the total to line 26 of Form 1040. That’s it! Note that if the result is negative, you must report the excess reimbursement as part of your wages on line 7 of your form 1040.

    What about state returns? Rules vary from state to state. Some states, like New Jersey, don’t allow them to be deducted at all (although in NJ you can exclude taxable reimbursements for moving expenses from your income). Some states, like Pennsylvania, allow them to be deducted only for moves into or within the state, but not for moves outside the state. Some states, like North Carolina which bases its tax structure off the Federal taxable income, allow them to be deducted regardless of the nature of the move. The general rule, if you are not sure, is that moving expenses go on the return of the state that you are moving to – but check with a tax professional first!

    Written by nctaxpro

    February 20, 2010 at 11:12 am