Self employed income (athlete) earned in another state (NY), Allocation Method

[Tennisfam]

As a professional athlete, I have been confused by this. I understand that I have to pay taxes in all states where I compete. I am self-employed. All of my income and expenses are reported on my Schedule C.  The typical scenario is that I have a loss in each state.  This year I competed in NY (not my home state) for 1 day and I earned significant income and profit. When I enter the income into the Turbo Tax NY State return, I am asked to enter my NY wages, and then to select an allocation method. If I select 100% allocated to NY, I am taxed heavily. If I choose Allocate by Days, it was only 1 day and the tax goes to zero.  The more confusing part is the next screen that asks for days not worked by this employee - I am not an employee, I am self-employed. How do I complete this section properly?

[DMarkM1]

In the NY return or any of the state returns for that matter there would be no wages to allocate in the state if there were no forms W2.  Since there were zero wages and zero wages to NY the tax will be zero until you allocate an income source to NY.

Using NY as an example, as you progress through the "Income" section pages,  you will see the chance to allocate to NY any income by the source.  So eventually, you will see your business income from Schedule C, for example.  You will allocate to NY the part of that Schedule C income that was earned in NY.    

The business income presented is net income so business expenses, if any, have been accounted for.  If there were business expenses, I suggest you use a proportion method to determine what part of the net income belongs to each state.  Divide the gross income earned in NY, for example, by the total gross income on your Schedule C.  Multiply that proportion by your total net income shown to arrive at the part of net Schedule C income that belongs in NY.

Additionally, if your resident state has an income tax, resident states tax income no matter where it is earned.  That sets up double taxation.  To mitigate that double taxation you should be able to claim a credit on that resident return for taxes paid to another state (total taxes paid to other states).   Work the non-resident returns before the resident return and the income taxed and tax liability for those states will carry to your resident return as needed to calculate the credit. 

[Tennisfam]

Thank you! That is very helpful. So if I use your allocation method, even states where I have a loss would be allocated some of the net profit based on the % of  gross income earned. This could open me up to filing in every state. I have very clean books that break down state by state. Most states would net zero or negative, some states have a threshold for filing and other states want me to file regardless, which seems silly if I am net negative. I am struggling with the proper method for allocation. I really don't want to filein 12 states when I only really made money in 2. 

[AmyC]

The allocation is as described above, the money you made in that state divided by the total income. You expenses would be the actual expenses to go with that state's income.

As an athlete, you may be hit with the "jock" tax. You may have to file if you had income regardless of the expenses to go against it, depending on the state's threshold. Rates and filing requirements vary from state to state. On top of the state income tax, some cities, such as Pittsburgh, Pennsylvania, can charge a municipal tax (in addition to state income tax) on athletes for games played in certain venues.

If you want to reply with the state's that you don't want to file, we can go in search of when you must file.

@Tennisfam