CA STATE RETURN KEEPS ASKING ME ABOUT MY LLC WITH NO ACTIVITY IN CA AND I AM NONRESIDENT

[JGKerr]

THE CA STATE RETURN KEEPS ASKING ME FOR INFORMATION ABOUT MY BUSINESS LLC THAT DOES NOT DO BUSINESS IN CA, AND I WAS A NON-RESIDENT OF CA ALL YEAR (AND FOR MANY PREVIOUS YEARS).  THE ONLY REASON WE FILE IN CA IS BECAUSE MY WIFE OWNS A PASSIVE 10% INTEREST IN A RENTAL PROPERTY ORGANIZED AS AN LLC.

I CAN'T GET OUT OF THE LOOP THEY KEEPING ASKING AS IF MY LLC OPERATED IN CA!

[DawnC]

Answer No to the CA single-member LLC question unless you have your Articles of Organization on file with the California Secretary of State.  All companies that do business in California and have their Articles of Organization on file with the office of the Secretary of State must pay an $800 annual tax.  

When you file a non-resident return in CA, you will need to allocate your income between CA and your resident or other states.   If you were prompted to enter additional information for your Schedule C business from your federal return, go ahead and click through those screens.   After clicking through those screens, you will see the income adjustments page.  These probably do not apply to you, in which case you can click on Done with adjustments at the bottom.   You should see a $0 listed next to Business Adjustments (unless you made adjustments for your wife's rental activity).  The next section will allow you to allocate your income for the businesses (Nonresident Adjustments).   You will be asked to allocate all of your income, including the business and rental income.  For each category, enter the amounts that are CA-sourced.  They should all be $0, except for your wife's LLC income.   As long as you have indicated that your LLC's business has no CA-sourced income, that business's income will not be included in your CA adjusted gross income amounts and no tax will be applied to it.  

Keep in mind, the state of CA is very strict about the classification of non-sourced CA income.  California can tax you on all of your California-source income even if you are not a resident of the state. If California finds that you are a resident, it can tax you on all of your income regardless of source. A nonresident’s income from California sources includes income from a business, trade, or profession carried on in California. If a nonresident’s business, trade, or profession is carried on both within and outside California, the income must be allocated across multiple states. Not surprisingly, California often finds a way to steer more dollars toward the state.  What Non-Californians Need to Know about California Taxes

[DawnC]

See the added note above about answering the single-member LLC question when going through the income adjustments on the nonresident return.