I am unclear if I should file a MO-1NR or a composite MO1040 return for my LLC where 2 of the members are non-residents. Pros/Cons of each approach?

[psvanvic]

We had a tax preparer file the LLC in the following way:

• Fed 1065
• MO 1065
• MO Composite 1040 (using 2 NRPs for the non residents and a 1065 for the MO resident member) - 3 members total.

I understand you can EITHER do a MO-1NR/2NR   - OR - Composite MO 1040.  I am not sure I understand why you would want to do one or the other?

I checked that I would do a composite return in turbotax business, but it still prints the MO-1NR saying we must file that doc.

Can someone explain the following:

1. Confirm it is an EITHER situation, MO-1NR or the Composite 1040, not both.
2. Why would you do one or the other?  Pros?  Cons?
3. Why is Turbotax still printing the MO-1NR and 2NR if I checked I would do a composite return?

[Rick19744]

You can file either and a link to each is attached:

http://dor.mo.gov/forms/MO-1NR_2015.pdf

http://dor.mo.gov/forms/Composite_Return_2014.pdf

Generally speaking, pass-through entities file a composite return on behalf of nonresident partners/members as a courtesy.  This then relieves those nonresident members of having to file a tax return; and the expense of doing so.  Some states require a composite tax return.  Additionally, you could have estimated tax payment requirements for the composite tax.  You need to look at this as well.

The downside of a composite return is that the tax paid is generally at the highest rate and  there is no benefit of any graduated tax rate.  You would also lose other benefits allowed in some states; partial dependency exemption, etc.  However, this then puts the burden of filing a tax return on those nonresident members.  The time, cost and energy in preparing the nonresident return could certainly out way paying a higher rate and being included in a composite.

For you last question, see the instructions above: The Form MO-1NR must be completed and a copy of the Form MO-2NR must be attached for each nonresident partner.  This is only the case if you are not completing the composite return.  See the FAQ below:

http://dor.mo.gov/faq/business/partner.php