LLC in Idaho; resident of Montana--how and where to report income?

[ks38]

My husband's income all comes through his Idaho-based LLC, via 1099-MISC and 1099-NECs. We lived in ID until March 2020, when we moved to Montana. I'm clear on how to file as part-year residents, but getting conflicting info on how to report this income.

Do I count all of these earnings on the ID state return, and then when reporting on the MT return, indicate that it has already been accounted for on the ID return? Or, since we are now MT residents, is the income (April-Dec, after we moved) counted as MT income, even thought it comes from the ID-based LLC? In the latter case, I would only report Jan-Mar income on the ID state return.

Any help is appreciated!

[Irene2805]

For 2020 you will file part-year returns for both Idaho and Montana. 

Idaho taxes income from (1) All sources while a resident; and (2) Idaho sources while a nonresident.

Prepare your Idaho return first. 

• Include all of your husband's earnings for the year from his Idaho-based business.
• Include any of your earnings, while living in Idaho (or from Idaho sources).

Then prepare your Montana return.

• As you go through your MT return you will see several screens, Montana Portion of Income.  This is where you can exclude the income from your husband's Idaho business.
• Since only Idaho is taxing your husband's business income, there is no need for a credit paid to other states on your MT return.

For 2021 forward you will be filing a non-resident ID return and a resident MT return.

[ks38]

I appreciate the reply. I have one other clarification regarding Montana source income, and this is where I've been stuck. It reads to me that MT taxes all income earned by residents, regardless of whether it is earned in MT. Here is where I'm reading this:

"Resident inviduals, estates, and trusts are taxed on their world-wide income. Therefore, they include a pass-through entities entire income as Montana source income."

https://mtrevenue.gov/taxes/pass-through-entities/montana-source-income/

I was under the impression that an LLC is considered a pass-through entity. Am I misunderstanding that?

IF this is the case, and MT taxes all income earned by residents, then I would exclude the months of earnings before we became MT residents. In this case, I would also apply the credit for taxes paid to ID.

Please let me know if I'm way off-base. I'm hopeful that I'm reading this all wrong, because that would certainly work in our favor! Thanks again for your help.

[JeffreyR77]

As Irene2805 said, for 2020 you  are a part-year resident of both states and as such are going to only be taxed on the income earned in each.  You will not apply the credit for taxes paid to ID in MT as there is not income that is being taxed in both states in 2020.  You can only apply the credit for taxes paid to another state if the income is taxed by both jurisdictions.

Which is exactly what occurs going forward.  Montana taxes on your total Federal income which includes all the Idaho income.  You will prepare Idaho non-resident returns and Montana resident returns.  You will claim a credit on your Montana return for taxes paid to Idaho for the income that both Idaho and Montana tax.

Montana Form 2 Credit for Tax Paid to Another State or Country Schedule

[ks38]

If I'm understanding correctly, because we were only part-year Montana residents in 2020, we don't have to count any of the income as "Montana source income". Next year, when we are full-year Montana residents, we will file the non-resident Idaho and take the credit for Idaho taxes paid when we file our resident Montana taxes. Is that correct?

[MaryK4]

Not necessarily.  For income tax purposes, the1099-NEC and 1099-MISC income is state source income where the income is generated or the services performed.  Regardless, on your Part-Year returns, you would have to report all income received while a resident of each state.  What is the tax structure of the LLC?

@ks38

[ks38]

It’s a single-member LLC. We file the taxes on a schedule C attached to our personal taxes. The income is generated in Idaho. Does that answer your questions? 

I had assumed I would need to count the income earned while we were Montana residents on our Montana state return, and then take the credit paid to Idaho, based upon the quote I posted above from the Montana State Revenue page. But the info from the last two commenters makes me think that’s incorrect. I’m more confused than ever now!

[JeffreyR77]

Your description is there is no Montana source income only Idaho source income from when you were residents and Idaho source income from when you were non-residents. 

You will claim a credit for the Idaho tax paid on income taxed by Montana after you became a part-year resident. 

Going forward you will claim a credit for the Idaho tax paid on the business income generated in Idaho that is taxed by Montana (100%).  

Montana Form 2 Instructions Page 39 Col 1 - Credit for Taxes Paid to Another State