LLC with Partnership Income where California K1 Amounts are Different

[lmsmes]

Where do you enter the California differences on the CA K-1 565.   I have been overriding the federal numbers on form 8825 (Pg 1) which will report the difference on the LLC's form 568.  Is there a better way?  

[DaveF1006]

It depends. To handle California differences on the CA K-1 (565), you generally don't need to override federal numbers directly on Form 8825. Instead, California provides specific instructions for reporting these differences. Here's a better approach:

1. Use Column (d) on Schedule K-1 (565): California differences are typically reported in Column (d) of the CA K-1 (565). This column reflects the California total amount, which may differ from the federal amount in Column (a).
2. Adjustments on Form 568: For LLCs, these differences flow through to Form 568, the California LLC Return of Income. Ensure that the adjustments are properly reflected in the relevant sections of Form 568.
3. Supplemental Guidelines: Refer to the FTB Publication 1001 for detailed guidance on California adjustments. This publication explains how to handle differences between federal and California tax laws. Please view the link below.
4. "Turbo Tax" has specific input fields within the software to make these adjustments especially in the state interview section. You may make your adjustments there or on the forms themselves if you are using "Turbo Tax" software. This could streamline the process completely.

FTB Publication 1001

[lmsmes]

I'm sorry.  In the Turbotax Business LLC program, I'm not finding:   Use Column (d) on Schedule K-1 (565).  Can you please confirm that this form exists.   I have K1s that the LLC will be generating, but not a K1 input form like you have under federal.  

[PatriciaV]

These adjustments may be easier to enter on CA Form 568, p5-6 Schedule M-2. Line 4 is used for increases and Line 7 for decreases.

[lmsmes]

Does not M1 and M2 reconcile between book and equity differences in taxable income vs differences between federal and state income.   I need this adjustment to flow to the California taxable income. 

[PatriciaV]

Both Schedule M1 and M2 on CA 565 state that these schedules should use California law or California amounts. Due to the way California handles income and expenses differently from the IRS, book to tax differences and partners' capital accounts may have different adjustments than the federal return.