Two State Solution Wanted

[erchess]

Taxpayer and MFJ Spouse maintain a home year round in NC so I am thinking they are both FY residents of NC even though he spends about half his time and earns two thirds of his income in KY. Am therefore thinking PY in KY of him only. Also instead of worrying about number of days in KY can I simply report his KY Sourced income to KY and let that fly? And should the KY return be MFJ like Fed and NC or MFS? Any thoughts appreciated.

[FEDUKE404]

First thoughts

If they are domiciled in NC (register car/vote/property owners/driver license/etc) then NC will likely want its piece of the money on all income earned. I assume they have been filing FY NC D-400s in the past?

Sounds as if they would be dealing with FY NC (resident) return and NR KY return with NC taxing all income, but allowing offset of any KY state tax liability.

As for filing a "regular" KY return (claiming whatever KY offers to FY residents of KY), I seriously doubt if that would fly. It would be tough for H to justify BOTH a PY resident of KY and a FY resident of NC.

There may also be some degree of wiggle room if you consider MFS ??

The devil is in the details.


FE

[erchess]

Yes

They have always filed NC FY at least since they lived here at all. Last year there was also a MN return as there was work done in that state for which he was treated as an employee.

[Burke]

I have the same situation. I file FY in VA for a client & spouse, and an MFS return in the other state with just the one spouse's income. In VA there is actual residency and domicilary residency, where your permanent home is. (If you file on the same income in another state, you can get an out-of-state credit to offset double taxation.)

[FEDUKE404]

NC full-year resident

They have always filed NC FY at least since they lived here at all. Last year there was also a MN return as there was work done in that state for which he was treated as an employee.

Not sure I understand the "treated as an employee" distinction.

With the facts given, NC would still tax all income earned in MN (and give credit against NC taxes for any MN income taxes -- as calculated on a MN NR tax return -- specific to that "foreign" income).

MN would treat him as a non-resident, and perhaps there would also be some adjustment for MN taxation (reduced MN standard deduction and/or MN personal exemption) as related to % of MN income versus all federal income.

FE

[erchess]

Em;ployee Status

The reason I mentioned that he was an employee in MN was that the amount of income he had to report to MN was clear from the W2. In contrast I have to go through his records and pull out what he billed and was paid for his work in KY because that firm did not give him a W2 or even a 1099 M. I didn't have him as a client last year but the MN would have been a snap compared to KY.

This guy has three conceptually simple but logisti9cally challenging computations I have to make. I need to figure his meal expenses by actual costs and perdeim since he is entitled to the better of the two. I have to total his lodging expenses since as a sole proprietor he is entitled only to actual expenses for lodging. And I have to total up his Kentucky income. Of course I do not mean to complain because if doing taxes were easy I would have fewer clients who were willing to pay me to do theirs.