S-Corp in two states

[Sam Hopi]

Hi everyone,

I have a question for my S-corporation which was formed on 01/04/2022 in California 

and operated there until 01/28/2025(terminated)

and with same name, same EIN started in VA on 01/29/2025.

From 01/01/2025 to 01/28/2025, the company had $1,500 of income and $3,500 of expenses for CA part since termination date is 01/28/2025.

As in prior years, the company also has depreciation on three assets. The in-service date for all three assets is 2023. Two assets (furniture and equipment) were moved to Virginia, while the office improvements remained in California as part of a rented office. 

The S-corporation has only one shareholder has been resident as of 01/01/2025 in VA. On 01/28/2025, I formed the S-corporation in Virginia, and on the same day terminated/withdrew the S-corporation from California.

I understand that I should file one federal return and two state returns (California, short-term  and Virginia, short-term as well).

I need help understanding how to correctly file the federal, California, and Virginia returns, making sure that California income is limited to the 28-day period. The numbers in CA return and VA return are different the Federal return!! Also, what should I do for depreciation assets, and how about the two K-1s? can enter two k-1 under one company in his 1040?

[MANI1346]

any help?

[RobertB4444]

You are correct that after filing your federal return you will do a part year resident return for California in order to close out the corporation in that state.  

But you will do a full year resident return for Virginia since your corporation was located in the state for more than 183 days.  You should do the part year return for California first.  You will be able to adjust the amount of income earned and the depreciation taken when you go through the part year return.

Then, when doing the full year Virginia return, you will enter all of the income earned in California as well as all of the California expenses.  The Virginia return will mirror the federal.  But you will take a credit against Virginia taxes for the taxes paid to California which will reduce your tax bill for this year.

Make sure to do the California part-year return first before the Virginia full year return in order to get the amount of this credit.

[MANI1346]

Thank you, but as you know, I currently have two federal returns—one prepared for California and another for Virginia—with different numbers. However, in the end, only one federal return should be filed with the IRS. How should I handle this?

When California reviews its return, it will notice that the federal numbers are different from the California numbers. Also, I believe the 183-day rule applies to individuals, not corporations.

How do I notify California that this is a short-period (part-year) return, however in CA return time of activity is clear, while the federal return covers the full tax year?

[RobertB4444]

I don't understand why you have two federal returns.  You only need one.  That one should have accurate numbers.

Once you have prepared a correct federal return with all of the correct numbers you should then prepare a part-year California return.  You will do this by telling TurboTax that your corporation was only in California for a month.  You will manually adjust the income and expenses in California so that they match what was actually earned there.

After the California return is prepared you will prepare the Virginia return.  Both state returns will use the numbers from the same federal return.  You are going to be required to pay taxes on everything that you earned for the whole year in Virginia.  But you will receive credit for the taxes that you paid to California on the Virginia return.

You will do this using one federal return in TurboTax.

[MANI1346]

I did not find an area can make two states along with pro rating of income and expenses. Also how about depreciation which is left in CA.

[RobertB4444]

When you get to the state returns you will be able to create as many tax returns as are necessary.  The first one that you create should be the California return.  If the system has already created a California return for you then you may have to delete it because it will create a full year resident return as a duplicate of last year.

You can adjust all of the numbers in the California return so that they only reflect the income and expenses for January.  Including the depreciation.

Then you create the Virginia return.

[MANI1346]

Thanks, I do not you ever file like my issue a state return, it is impossible to file an state return based on your numbers all numbers come from FEDERAL.

[RobertB4444]

Once you have completed the federal return you will create a California state tax return.  You will need to create the return as a part-year resident and state that the company was only in California for one month.  After that you can adjust the income in California to reflect the numbers that you had in California.

[MANI1346]

I think there’s a mix-up with an individual tax return. I’m asking about Form 1120-S. It is not as easy as you said!

I found Schedule R and A for those states. 

Once you have completed the federal return you will create a California state tax return.  You will need to create the return as a part-year resident and state that the company was only in California for one month.  After that you can adjust the income in California to reflect the numbers that you had in California:   Practically it is impossible on the software all numbers automatically goes to CA and VA from Federal

[PatriciaV]

You may consider signing up for TurboTax Expert Assist Business, which provides unlimited expert help as you work on your return. A TurboTax Business Expert will be able to walk you through this process and answer any questions you may have.