First some conceptual background: Maryland allows S-Corp's (and other Pass Through Entities, or PTEs) to pay state taxes on behalf of their shareholders, and because the IRS allows the PTE to deduct these payments, the shareholders get the benefit of this reduced income (K-1's issued to each shareholder reflect the S-Corp income minus the PTE tax). Effectively, MD introduced this as a SALT work around after the 2017 Tax Cuts and Jobs Act capped SALT deductions.
The first issue I had was that TT Business's step-by-step for Maryland didn't ask whether our S-Corp was an "electing PTE" that filing Maryland form 511 but instead appeared to assume it was a non-electing PTE that files MD form 510. To get the above PTE SALT work around benefit, a PTE must file form 511. I could only change this by going into "Forms" mode, and editing the "Information Wrks" to check the "Form 511" check box (which automatically unchecked the Form 510 box). Perhaps this resulted from my always importing the prior year's taxes (which I've done since 2013)?
Either way, I figured I had to stay in "Forms" mode and when completing MD Form 511, the MD instructions (and TT's own "Help Center" notes) warn that the PTE's income must reflect (I'm oversimplifying this for our S-Corp's circumstances) the Federal income PLUS any state taxes added back. Specifically, TT's Help Center warns:
"Important Note: The federal Form K-1 must be modified for any Maryland differences. You must manually prepare a modified federal Form K-1. The modified federal Form K-1 should include any Maryland additions and subtractions (including decoupling modifications from Form 500DM), the share of credits from Form 500CR, and in the case of nonresidents, the amount of income attributable to Maryland sources and the amount of tax paid on behalf of the member receiving the Form K-1."
This makes conceptual sense, but I could see no way to modify Form K-1 (and an Intuit phone representative couldn't offer any way) other than to enter these PTE taxes on line D of the Form 511's "Pass Through Entity Taxable Income Smart Worksheet" section. Line D was entitled "Add: State and Local Income Tax", and resulted in a correct total for S-Corp's MD income (again, Fed income + PTE taxes). With this entered, TT calculates the correct MD tax for the shareholders, however, TT incorrectly allocates the this income across our three shareholders (two are MD residents and one is a non-resident)--incorrectly, as the two MD residents correctly receive 1/3 each of the MD total income; however, the third, non-resident shareholder only received 1/3 of the Federal income, not 1/3 of the MD income.
To give some fictitious numbers for clarity. The S-Corp had $90k income before paying $30k of PTE tax. So the federal income gets reduced from $90k to $60k (and TT's created Federal K-1's correctly reflect $20k of federal income for each of the three shareholders).
For MD Form 511, TT insists on using the Federal K-1 income ($60k) as the starting income, and I heeded the MD instructions and manually entered $30k (the PTE tax) into line D of the Form 511's "Pass Through Entity Taxable Income Smart Worksheet" section. Again, I could find no other spot to enter this information, so that TT would include it when calculating the MD tax. Doing so increased the MD income up to $90k (which I believe is correct) and all other resulting TT calculations appear correct--with the exception of the 511 Schedule B. In that schedule, TT lists the "Distributive or pro rata share of income" of our two MD residents with the correct amount ($30k each), but incorrectly lists the pro rata share of income for our non-MD resident as $20k.
The state of Maryland automatically rejected our e-Filed return because the these three incomes (create TT for MD Form 511 Schedule B) don't sum to $90k.
I could start overriding values and then resort to a paper filing (TT refuses to allow a submission with overrides), but that negates the whole purpose of my paying for the state to begin with.
I spent ~4 hours on the phone with Intuit's support, but they believe that because the "error check" shows no errors, that all is good. Despite me explaining many times that Maryland automatically rejected the return.
I think that TurboTax's Business MD state cannot yet to correctly handle electing PTEs like my S-Corp, and that this could very well affect others in my situation. I acknowledge that my use of TT Business is "corner case"--most MD PTEs in our situation use a CPA--but this should be fixed.
I welcome if someone could point out a better (or the correct) place to enter the state tax adjustment for form 511, so that TT correctly calculates everything else and allows me to e-File. I couldn't figure it out and the support calls didn't help.
