NORTH CAROLINA 2015 program. Does not sum up Additions to Income properly!

[SweetieJean]

Are uou using the 2015 desktop software?

[SteamTrain]

....and which types of income items do you suspect are not added properly?

[bill092153]

Both items were interest that is tax-exempt on the Fed return but is taxable to NC.  The first item was "Exempt-interest dividends" in Box 10 of the 1099-DIV.  These are interest on Municiple Bond Mutual Funds, that are tax-exemp on the Fed.  The interest com,ing from NC-based bonds, is also tex-exempt in NC.  However, in mycase, the majority of these dividends were from Municiple Bonds that are based on areas other than NC.  These are Taxable to NC and need to be added to the income on Fed AGI on line 7 of the NC D-400 form to compute "additions to FED AGI" to arrive at NC Taxable Income.  
Your dividends worksheet did a GREATJOB with these, based on my personal dividends, not from NC Bonds.  It alloed yuou to break-down the dividends for those that WERE taxable to the State and those  that were also tax-free to the State (the NC based bond funds.) Thank you!
However, I received a lot of Fed Tax-exempt dividends that were Taxable on NC but not on Fed.  There did not seem to be anyplace to input these, and I ende3d up putting them in as an over-ride that should have shown uip on line 3 of the Supplemental Schedule S for NC.  But instead of showing thatnumber, the Turbo Tax program put THE TOTAL of this adjustment on line 3, and then an incoorect number on line 4, which ended up double counting my personal non-NC based bonds bonds.  (The total Adjustment actually went thru correctly oin the TT program, but the amounts in section A of the D-400S were on the wrong lines and thusly overstated the Adjustment on the schedule S.  HOWEVER, NC auditors apparently use the raw numbers on Sch S and came up with the over-stated amount.  And expected to see it on the D-400 form as the correct total additions to income, then claiming I UNDER-stated my Adjustment to income on the D-400, expecting to see the wrong tyotal.
Anyway, I did not notice all this before I mailed in the return, and now receved a Notice from NC-DOR that I owe additional tax.  Between penalties and interest, they say I owe a large number to them to account for the error.

[SteamTrain]

@bill092153

OK...just taking the problem dividends.

On what 1099-??? tax form, and in what box # were those other Fed tax-exempt, NC-Taxable dividends reported?

They should have been on either a 1099-DIV or on a 1099-INT form...and there is a way to do ether to get them reported properly to NC on either type of tax form...and I can show you how

 (but yeah, now I'm going to have to go re-check 2015 NC to see that I'm seeing it right)

[SteamTrain]

@bill092153
....yep..seems to work correctly on the 2015 tax forms...

let me know what 1099 form type those problem tax-exempts were reported on, and I'll let you know how it is supposed to be done...2016 will be a similar procedure....tried there too and it works OK for me.

[bill092153]

As I said, TT did a great job separating the fed tax-exempt from those that were also Tax-exempt for NC, and those that were fed exempt but TAXABLE to NC.  (These were in Box 10 of a 1099-DIV.)  The problem I had concerned dividends reported on a Trust Form 1041, SCH K-1,most of which were Fed-exempt but taxable in NC as an addition to income on Sch S of D-400, flowing to page 2 of D-400 as "adddiotions to Federal AGI."  I could not find a place under Dividend worksheets to account for the two different types, so I had to ADD thje ones that were taxable in NC as an over-ride value on the Sch S detail, anf THAT was where TT put the TOTAL adjustments on line 3, Part A of sch S and then ended up double counting some of these adjustments.

[SteamTrain]

Ahhhhh...so it was a K-1 form...I'm not particularly familiar with those.....I'll look into it, but I can't promise I can figure it out.  

IF I can't, or another SU can't help, and IF the problem continues into the 2016 NC tax forms, then you'll have to call into Customer Support, so they can get their program people involved and see what's up.

[SteamTrain · Accepted solution]

Ok....it works on the 2015 software as far as I can see...

You should never use an override...if you have to do that, you need to call Customer Support, or ask in here for clarification as to what you should do so that we can look for bugs

I don't understand exactly where you put them in to get an override entry that ends up on line 3 of the NC Sched S, but that's really immaterial since no override is necessary

1) You start on the Wages & Income page and scroll down to the K-1 form entry.  (Picture 1)

2)  You go in there and select the 1041, K-1 form type, enter the K-1 name...address...Estate or Trust ID number..etc....indicate Domestic Beneficiary (assuming you are).

3) A few other questions, and you get to Picture 2.   You check any boxes you need, but box 14 is the one your Tax-Exempt $$ should have been reported on...so make sure that box is checked

4)....then when you get to the box 14 entry...you choose Tax-Exempt interest for the first line Picture 3, and the $$ amount.

5)...then continue to the next page....Where you select "More Than One State" from the bottom of the states list.(Picture 4)  ....and then you step thru a couple more questions and you're done!.

6)  ...those entries for the K-1 will take those $$ and add them into line 1 of the Sched S....which is where they belong. (Picture 5).  In my example, I had $1224 of other non-NC tax-exempts on line 1 (from 1099-DIV and -INT forms) before I entered the K-1, and I ended up with +$666 or $1890 total.   

So it seems that those $$ can be clearly assigned with the entry of the K-1 form....which does allow you to assign the $$ to all other states such that the $$ are added back to NC taxable income on the NC Sched S.  No other entries or overrides anywhere else are required.

[SteamTrain]

Now...if "some" of the tax exempt $$ on that K-1 were from NC-bond interest.(or from US territories), you could have just split the $$ up on Picture #4 similar to what you did for the 1099-DIV or 1099-INT forms.

So, in my example if $100 was from NC bonds (and US Territories), you would put  "More Than One State" and $566 on the first line, and then select NC and $100 on the second line.  then only $566 is added to line 1 of the NC Sched S

[bill092153]

Thanks SO much.  Your explanation and example was right on!  I must have just missed the step on the K-1 input where you can divide the Fed Tx-ex into NC ta-ex non-NC adition to Federal AGI.  And thanks for the tips about no need for the over-ride function .  Been using it to make the K-1 adjustment for years, and now I will not have to.  An over-ride also keeps you from e-filing.

[SteamTrain]

great... AND...now you can respond to the NC Auditors...explaining what you did in putting the Other State Tax-exempt $$ added-back on line 3 of the Schedule S (not sure it's the same line for all years), and they should leave you alone...or they may ask for amended NC tax returns for those years....don't amend unless they ask for one. ____________________________ 2014 was the first year the Sch S was used. In 2013 the initial entries of Tax-exempt add-backs are on P2 of the D-400....line 34 is the line it should be on when the K-1 is entered properly...but you may have placed on line 38