K1 state schedule

[trevorschermer]

What do you do with a K1 state schedule?  If every state shows a net ordinary loss, do I have to file a tax return in those states?  Are gross receipts taxable?

[GeoffreyG]

Can you tell us more about this Schedule K-1?  Is it for a trust / estate, S-corporation, or Partnership?  For example, is it for a Master Limited Partnership (MLP) traded on a stock exchange?  If you let us know the details, we should be able to assist you better.  Thanks.

[trevorschermer]

The K-1 is for a Master Limited Partnership traded on a stock exchange.

[GeoffreyG · Accepted solution]

Hello trevorschermer:

I suspected that could be the case, and thank you for the additional information.  It helps.

As such, you should know that it is common practice in the tax accounting community to simply "ignore" the state schedules for publicly-traded MLPs, unless the individual investor in question has a fairly large position in any one, specific, MLP.  That is to avoid the (unnecessary and quite needless) filing of dozens of state tax returns that would otherwise result in no actual tax liability, or the payment of just a few dollars to any given state.

Thus, unless your particular MLP investment is valued at, say, more than several hundred-thousand dollars or so, then you can safely just ignore the state schedule(s) you received with your K-1 package, and focus your efforts instead on your federal K-1 data entry.

If you have a larger MLP investment than that, however, you probably should be using a professional tax preparation service anyway (CPA, Enrolled Agent, tax attorney), rather than doing it yourself through TurboTax, due to the higher level of technical difficulty involved.

Thank you for asking about this important matter, and I hope you will find this information useful.

[trevorschermer]

This is wonderful advice.  Thank you so much for the information.

[skyfx]

Quick follow-up question on this thread. I have owned units in multiple MLPs for years and adhered to what @GeoffreyG stated ("it is common practice in the tax accounting community to simply "ignore" the state schedules for publicly-traded MLPs"). In other words, I have only filed an income tax return for my state of residence (Colorado)). Having said that, is there anything I should be doing with the state apportionment for my state of residence? For example, below is the 2024 state apportionment for one of the MLPs I own units in. Should I do anything with the information for the CO row on my Colorado income tax return? Does this information increase or decrease my state tax liability in any way?

[PatriciaV]

Because you are reporting the entire Schedule K-1 on your federal return, which is transferred to your Colorado state return, the apportionment information for the MLP isn't needed. All income has been reported from the K-1. 

If you were to file a state return for each of the listed states, you would need the apportionment amounts to properly allocate the income to each state.

@skyfx