NOL Worksheet 1 Line 6 State Withholding from a w2

[Bjorn]

I'm looking for written proof that the Net Operating Loss Worksheet one, line 6 {Non Business Deductions} should be adjusted by state withholding from a w2.

The key issue is in the allocation of what is business and what is non-business. As I read the IRS pub they don't address it specifically. My research service says it is considered business so I lowered line six of the worksheet.

In order to have the most accurate software I thought I would submit proof, if any exists, that they may want to consider reviewing the default handling of this issue. Does anybody know how drake or Lacerte handles this line?

It is also possible that I'm totally wrong and the state withholding is not adjusted on this line.

Mahalo

Bjorn

[Bees Knees]

IRS Pub 536, page 2 says do not enter business deductions on line 6. Then it identifies “state income tax on business profits” in the list of deductions that are connected to a trade or business.

Obviously if the only state income tax paid is through W-2 withholding, and it is enough to cover the state tax on Schedule C profits and thus no state estimates are required, then a portion of that W-2 withholding needs to be allocated to the business.