Wisconsin Schedule 5K-1 question

[mblatour]

I apologize ahead of time if the answer to this question seems incredibly obvious, but this is new to me, so please bear with me.

I prepare taxes for a client and her husband who have 50% partnership in a construction business. They were issued a K-1 (Form 1120S) for 2008. I get how to report that.

What I am confused about is what to do with another form they received. It's Schedule 5K-1 for the Wisconsin Dept. of Revenue. Taxpayers live in MN and business is based in MN. I've never been faced with one of these forms before and am not sure what to do with it. I see that it allocates amounts of the partnership income that were from WI sources. It looks as if I will need to file a WI return for them and report this on that return.

I would appreciate any info. that you can give me on how to proceed.

Becky

[KJ Judd]

Wisconsin does allocate income based on services performed in state. Although WI & MN have a reciprocity agreement, it doesn't apply to partnership income. I agree you will need to file a WI return.

The amounts in the far right column are what you need to report on Wisconsin Form NPR.

If you have any other questions, please ask.

[mblatour]

Kj,

I'm sure I'll have a question or two. Thanks for your reply. Would I then have to adjust the MN return for the portion that is now taxable to WI only? Thought I'd better double check.

Becky

[Lion]

Until someone answers

Until someone answers who prepares WI returns, I'll venture a guess that you report ALL income on the resident WI return and take a credit for any taxes paid to another jurisdiction on some of that same income. Now, if there's a reciprocity agreement or if WI or if MN is one of those states that takes the credit on the state earned or...

[mblatour]

MN & WI do have reciprocity agreement.

Ugh! I hate dealing with these types of returns. We live on the Duluth, MN and Superior, WI border. They call us the "Twin Ports" because of the shipping from Lake Superior. I've done a number of WI returns, but still have to rack my brain every time. I've just never had income from anything other than W-2's or rentals to deal with when it comes to filing two states.

Becky

[KJ Judd]

If your taxpayer is MN resident, you report ALL income on the resident tax return. Then MN will give you a credit for taxes paid to other states for taxes paid to WI. This helps eliminate the double taxation effect.

As I said, partnership income isn't eligible for the reciprocity agreement. You'll need to file a WI tax return. Say partnership income is $1000 and 40% is allocated to WI. You'll report $400 of income on your nonresident WI tax return and $1000 of income on your MN tax return. Then MN will give you a credit for taxes paid to WI to offset your MN tax. (The formula for taxes paid to other states seems to vary by state.)

Wisconsin doesn't follow a number of IRS deductions (i.e. HSAs, bonus depreciation, limited to $25k Sec. 179, etc.). However you'll probably just be pulling the income number off the Schedule K-1 which should be adjusted for these items.