Why does my California return have a Schedule C for my LLC in another state but that state doesn't have Schedule C?

[dolphinzy]

I am a resident of California, but I have an LLC in Colorado. In past years, I have had no problem, but this year, TurboTax kept considering the LLC to be in California and added a Schedule C under California instead of Colorado. I have told TT that I have income from Colorado, and also, the LLC address is in Colorado, but it didn’t change anything. I also tried manually removing Schedule C under California, but TT kept adding it back.

Any idea how to resolve this?

[CatinaT1]

Where are you physically earning your money? In California or Colorado? Regardless of where the LLC is registered, you have source income from the state you are physically in when you are working.

[dolphinzy]

Thank you Catina.

For example, say I have my AirBnB in Colorado as my business, so I earn money in Colorado, although I am physically in California. In this example, should the Schedule C be in Colorado or California?

[DawnC]

Both.  You are a resident of CA that has earned business income in a nonresident state (CO).    In this case, the Schedule C will be in both state returns.   Your resident state taxes all of your income, but CA will give you credit for any tax paid to CO for the non-resident income earned from the Air B&B.   

[dolphinzy]

Thank you for the reply, Dawn.

Two questions. 

1. Is this a new rule this year?

2. Do I need to pay California $800 franchise tax even though this is an LLC registered in CO and doing business in CO? My understanding is it is not required, because "Every corporation that is incorporated, registered, or doing business in California must pay the $800 minimum franchise tax." However, once I have Schedule C in CA, looks like it is enforced. I could be wrong.

Thank you.

[PatriciaV]

Yes. If your LLC is registered in California, regardless of where the income is sourced, you are required to pay the LLC franchise tax in California. This is not a new requirement.

Read more here: California FTB Limited Liability Company

[dolphinzy]

Thank you. What if my LLC is registered and operating in CO, but I live in CA? Do I need to pay LLC franchise tax in California?

[PatriciaV]

It depends on where your LLC is registered not on where you live.

[dolphinzy]

It is my understanding as well.  Just recap the situation here.

1. I have an LLC registered and operated in CO, and I am a CA resident.

2. I understand I should have Schedule C for both CA and CO

3. If I have Schedule C for CA, I am requested to pay $800 LLC franchise tax in California in TurboTax, which I believe should not.

4. TurboTax only added Schedule C in CA, not in CO.

Any comments about where I am now?

[CatinaT1 · Accepted solution]

You should not have to pay the Franchise tax in California since your LLC is registered in Colorado.

The Schedule C is part of your federal return and if you allocated all of the income from that Schedule C to Colorado as Colorado source income the Schedule C will only be in the background of your California Return. That income will be taxed by California because you are a California Resident, but you will get credit on your California return for tax paid to Colorado.

When you entered your state returns in TurboTax, did you start with Colorado and then do California? If not, I would delete your state returns and enter them in that order.

[dolphinzy]

Thank you for the reply. I will remember to report Colorado first and California later. However, since I have already clearly stated the LLC location was in Colorado during the federal report session, I assume TT should be able to allocate it correctly. Otherwise, I recommend TT to fix this issue.

We can close this conversation now.

[DawnC]

You have to allocate the income to CO.   Everything gets transferred to your state returns and is taxable on your resident return (the $800 fee is separate and does not apply to you since your LLC is not registered in CA).    When you go through the nonresident return (CO) - you will go through all of your income, but allocate nothing to CO except for the business Schedule C income.   When asked about the other income amounts, enter $0 for Colorado.