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"Which State(s) to declare S-Corp W-2 and K-1 income?"
I relocated to Colorado 18 months ago. My Hawaii Real Estate S-Corp (wife and I sole shareholders) received its only 2016 commission in December (paying 4% Hawaii General Excise Tax for "services") and issued me a 2016 salary W-2 with only Federal related withholding.
I've just dissolved the S-Corp via Hawaii DC-13 and notified the IRS via form 966. I am filing a final 1120S return using TT Business and will also issue a final K-1 distribution to shareholders for remaining cash and assets.
Which state(s) do I file the 2016 W-2 salary income with?
Which state(s) do I file the K-1 distribution to shareholders income with? And may I "assign" that final distribution to either a 2016 or 2017 tax return?
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Business & farm
Yes, you would report all your income on your resident State tax return. Income from investments is typically taxed only by your resident state.
As a cash-basis taxpayer, you must report all income in the year it is received. If any portion of the final distribution is for income (rather than a return of capital), you would include it as investment income on the tax return for that year.
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If you were a resident of Colorado for the entire year and received income earned in Hawaii, you would file both State tax returns (Hawaii non-resident). TurboTax will transfer income to the state return(s) automatically.
The IRS frowns on back-dating distributions, so you should process any remaining assets as of the date they are distributed. In general, Form 966 should not be dated or sent to the IRS until all assets have been distributed and the bank account is closed.
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Unfortunately the advice in your last sentence is a problem for me. The unchangeable facts are that on 2/15/2017 I filed dissolution notice DC-13 with Hawaii and form 966 with the IRS advising shareholders voted to dissolve the Hawaii S-Corp as all business was ceased as of 12/31/2016. The last outstanding business check was just paid yesterday (to my accountant) and I'm about to distribute the remaining cash to shareholders and close the bank account.
My plan was to "check" my 2016 1120S return as "Final" so that the IRS would not expect any further S-Corp filings. As the TurboTax Business software only asks if there were any cash distributions in 2016, how do I document the final distribution in February 2017? Or will I need to file a 2017 1120S? Help .........
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You advised: "Distributions affect only cash and owner's equity, neither of which is reported to the IRS." Noting the following Shareholder's Instructions for Schedule K-1 (Form 1120S):
"Schedule K-l doesn't show actual
dividend distributions the corporation
made to you. The corporation must
report such amounts totaling $10 or
more for the calendar year on Form
1099-DIV, Dividends and
Distributions."
With the above instructions in mind and your recommendation the S-Corporation be officially closed end of 2016, it doesn't appear that a 1099-DIV can be generated for 2017. Specifically then, how should I document that final distribution in 2017?
Also, assuming that final distribution is paid out to shareholders as the final S-Corporation business check in March 2017, presumably, it would be prudent to file an estimated first quarter tax payment to the IRS for shareholders 2017 personal returns?
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